Case-Shiller came out this morning with their numbers for May 2015. You’ll see that no U.S. real estate market is hotter than San Francisco right now. Check out my Case-Shiller charts to see for yourself.

I’m not an expert on the San Francisco real estate market but as an expert on another real estate market, Phoenix, I can bring a pair of fresh eyes to what’s going on in the Bay Area.

My take is that San Francisco home prices are skyrocketing because of the huge amount of money chasing homes in the Bay Area and that money is coming from 1) a tech bubble and, 2) a strong Chinese economy.

Asian Money Chasing San Francisco Houses

A lot of Asian money is coming into West Coast metropolitan real estate. Real estate supply is pretty damn inelastic so small increases in demand from outside can really jack up prices.

The new headwind is the recent Chinese stock market volatility. Some are saying that China has entered the bust phase. If that turns out to be true, the flow of money from China into San Francisco homes could be throttled.

I don’t know the dollar amount of Chinese money chasing West Coast metro residential real estate but articles like this from a USC economist make me think it’s a lot and it’s contributed to the huge home price increases we’ve seen in Los Angeles, San Francisco and Seattle.

This chart shows you where all that foreign money is coming from and, indirectly, how those purchases are tied to the Chinese economy.

Origin California Foreign Buyers

Source: “Profile of International Home Buying Activity“, National Association of Realtors, 2015.

Tech Money Chasing San Francisco Houses

Tech companies have been doing very well for years and are pumping a ton of money into residential San Francisco real estate via increased hiring and salaries.

The headwind with San Francisco tech is the very real possibility of a Tech Bubble, more precisely a Tech Start-Up Bubble. An unbelievable amount of institutional money has gone into tech start-ups with investors hoping to catch a “unicorn,” that is, a tech company that’s valued at $1 billion or more.

Back when we were coming out of the Great Recession, a lot of tech surprises were on the up side. It seems most tech surprises this year have been on the down side – the venerable tech blog Gigaom suddenly shut down in March, Secret raised $25 million in funding in the summer of 2014 and shut down in the spring of 2015, Homejoy raised around $38 million in funding and is closing down this week. These examples suggest a broader problem.

The question, “Is there a tech bubble?” fills the tech media. Chris Sacca, a famous tech start-up investor, predicted the tech market seizes up by the end of this year. (Read the whole thing.)

2 Headwinds

San Francisco has 2 major headwinds, either of which, if worse came to worst, would stop the rapid home price appreciation.

Even if both headwinds came together into a perfect storm, I don’t expect San Francisco home prices to fall, at least not immediately.

Home prices are very “sticky” on the downside. After the typical real estate boom, homes sales have to tank for about 2 years before sellers start to capitulate and home prices start to fall.

1 Tailwind

San Francisco real estate has 1 major tailwind, the U.S. national economy is improving. To use a different trope, a slowly rising national economic tide will partially offset, a tech bust or a Chinese stock market bust. But only partially.

Well, that’s my horseback guess from out here in Arizona where men are men and women are governors (4 out of the last 6 governors have been women).

BTW, if you’re trying to pick the top of the market, you might want to seriously consider selling your San Francisco area home if home prices level off for a few months… maybe even before that.

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Added Later

Here’s the best analysis of the San Francisco real estate market I found. It’s really good.