News & Research Archive

Pulse Of The Market (Pulse 90 - Feel Good and Feel Bad)

Apr 11, 2011

I am ambivalent. On the one hand, I feel good: on the other hand, I feel bad. Here’s my conundrum. In the last few weeks, I have read a number of articles on the 2010 census. In addition, I just completed reading Richard Florida’s Who’s Your City?, which I highly recommend. I feel good about the future of San Francisco real estate, but I feel bad for many of the folks in other parts of the country.

From the 2010 Census

Detroit is now the poorest city in the United States with 50% unemployment. In 1947, it had 3,272 manufacturing firms that employed 338,400 workers. In 1972, it had 1,518 manufacturing firms that employed 180,400 workers. In 2008 the number of firms had dwindled (I can’t find the number) and only 30,000 workers are currently employed in manufacturing!

Other industrial cities – Cleveland, Chicago, Cincinnati, Toledo, Pittsburgh, St. Louis, Buffalo, etc. have all experienced significant manufacturing and population declines.

While the Census is all about population composition and trends, real estate appreciation is based on factors other than population growth, according to Florida’s book.

The following table speaks volumes.

           Real annualized house appreciation, 1950 – 2000
     Top and bottom 10 metro areas with 1950 population > 500,000

   Top 10 MSAs by Price Growth           Bottom 10 MSAs by Price Growth
Annualized growth rate, 1950-2000      Annualized growth rate, 1950-2000

San Francisco*            3.53                San Antonio                  1.13
Oakland                      2.82                Milwaukee                     1.06
Seattle                       2.74                Pittsburgh                     1.02
San Diego                   2.61                Dayton                         0.99
Los Angeles                 2.46                Albany, NY                    0.97
Portland                      2.36                Cleveland                      0.91
Boston                        2.30                Rochester, NY                0.89
Bergen-Passaic, NJ        2.19                Youngstown-Warren       0.81
Charlotte                     2.18                Syracuse                      0.67
New Haven                  2.12                 Buffalo                         0.54

Note: Average = 1.70

*The rates above are for the San Francisco metro area, which comprises nine Bay Area counties and not for the city of San Francisco itself.
Source: Joseph Gyourko, Christopher Mayer, Todd Sinai

The six cities with the highest appreciation are all on the west coast. With the exception of San Antonio, all of the lowest growth cities are former centers of the industrial age. I feel good that our home team tops the list, and I feel bad about all the others.

Superstar Cities

The “superstar” cities listed above did not reach this level because of greater population growth. According to University of Pennsylvania professor Joseph Gyourko, in the short term, real estate prices in superstar cities experience significant ups and downs, but over time they will consistently appreciate in value. They are, according to Gyourko, “by their nature exclusionary – and due to the prices they command, residents have to pay a significant financial premium to live there.”

The following map by Ryan Morris is interesting. If you want to be in the entertainment industry, you will most likely move to Los Angeles, and if the aerospace industry, to the Seattle area, wine making to Napa, etc.

Superstar cities act as a natural filter for residents who expect to see high returns to their education and skill set. Not only are premium prices related to areas of limited supply and strict zoning rules, but also because talented/educated people want to interact with other talented/educated people like them. In addition, artists and bohemians not only produce amenities, but also are attracted to places that have them. From Who’s Your City…..

      “Regions in which artists and gays have migrated and settled are more likely than others to place   high premiums on innovation, entrepreneurship, and new firm formation. It’s not that gays and bohemians drive up housing simply by paying more; their effect on housing prices is far less direct. Bohemian and gay residents drive up housing value because they make areas that were ripe for growth even more desirable, and to a greater number of people.”

In effect, there is a snowball effect of talent attraction. The talented/educated work force is clustering around a few major urban areas. I personally hope that the U.S. car manufacturers get back on their feet and Detroit is able to pull out of its nosedive. A small number of major metropolitan areas are attracting the lion’s share of the highly skilled and highly educated. A larger question is whether we want everyone in our major metro area to be roughly as well off and skilled as us.

Just in case you want to feel good about San Francisco, then feel good by looking at the link that depicts San Francisco among the elite in four out of six best cities categories. Best cities


Meanwhile many buyers and sellers are stuck, and the pace of transactions has slowed. Many, who want to sell and buy another property, can’t get the price they want or need for their current home, so they are not selling. Some buyers can’t get the financing they want because lenders are more stringent than the last time they were in the market. A down payment of 20% or more is another obstacle. We may be stuck for a while.

Written by: Malcolm E.A. Kaufman


Starboard TCN is posting this article on its website and blog with Malcolm E.A. Kaufman's approval.

Malcolm E.A. Kaufman is Founder of PulseFactors™ LLC. He refers you to his website,, where you can see recent issues of Pulse of the Market© and learn more about him. He invites your comments, suggestions, and questions.

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