The San Francisco real estate market is changing orbit.

May is part of San Francisco’s high season and home prices typically increase strongly. This year the home price index was flat in May and actually fell on an inflation-adjusted basis.

San Francisco Home Price Index

April to May
2012: +3.9%
2013: +4.3%
2014: +1.2%
2015: +1.3%
2016: +0.1%

For prices to move against a very strong seasonal upward trend must reflect a very strong underlying downward trend. It’s only one month but that’s a huge red flag for me.

I’ve felt San Francisco home prices were too high for a long time. Here’s my take on the San Francisco real estate market in 2015.

This latest report just strengthens my belief that San Francisco home sales will fall in the fall (year-over-year) and, unless tech hiring or Chinese purchases increase, San Francisco home prices will start to fall before the end of next year. First home sales fall, then home prices fall.

Bonus Prediction: Once San Francisco home prices start to fall, the media will run scare stories about U.S. home prices falling. Click-through rates will be high on those stories. We could get a bit of a contagion effect.

Case-Shiller – May 2015 to May 2016

Case-Shiller covers 20 U.S. cities.

Most Appreciation

  1. Portland = +12.5%
  2. Seattle = +10.7%
  3. Denver = +9.5%
  • Portland is even HOTTER this month. Scary hot.
  • San Francisco which for long-time was the hottest real estate market in the country ran into a brick wall and had the least appreciation of any of the 20 Case-Shiller cities between April and May.
  • If you own a home in San Francisco and were thinking of selling it sometime in the next few years, I’d say SELL NOW!

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Least Appreciation

  1. New York = +2.0%
  2. Washington DC = +2.4%
  3. Cleveland = +2.5%
  • New York is #1 for least appreciation (YoY). Despite all the reports in recent years about massive price increases in the Manhattan luxury market, New York overall is dead.
  • I still can figure out why New York and Washington are doing worse than rust-belt Cleveland. For New York, is it because it’s a judicial foreclosure state and they still have a ton of homes in the foreclosure process?

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Data Table – All 20 Case-Shiller Cities

Full S&P Case-Shiller press release.