We have previously explained [4]why the San Francisco market is such an important bellwether of overall liquidity and prevailing economic euphoria, directly supported by not only the Fed's "wealth effect" printing and the second tech bubble, but also Chinese capital flows out of the mainland and into US real-estate. Which is why the latest update on San Fran housing dynamics should make those looking for the housing inflection point somewhat nervous as said inflection point now appears to be almost a year old.
Specifically, after posting a 25.7% Y/Y increase in home prices last September, as of June the pace of home price increases is precisely half that, or 12.9%, and also a signfiicant drop from the 15.6% reported in May.
Why is this notable? Because the only three previous times when there was such a sharp contraction in the pace of San Fran home price appreciation, either the dot com bubble, the housing bubble, or the European sovereign debt bubble had just burst. For now, we leave what is going on in San Francisco as merely a question mark, because clearly the Fed's grand "reflation at all costs" experiment is nowhere near over...
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