The city of San Francisco has had an inflated housing market that could come to an end with its prices beginning to decline for the first time in almost four years. In a year over year report there has been a decrease in housing prices with an estimated 2% drop. Most notably from the report was that demand of housing in San Francisco was declining. The March YOY report suggested that there was a decrease of houses sold of 22%. Using the reports suggested percentages; we can conclude that that there is a price elasticity of demand of eleven. Due to the cost of living in the city, there have been arguments from others that the San Francisco market price was inelastic, which is proven to be invalid. The actual effect of decrease in demand-increase in supply is making a change in the market’s equilibrium. The housing market in San Francisco will continue to decrease until the demand becomes balanced with the supply.
While it is simple to see that the decrease in demand of houses has also decreased the sale prices of them, there is another variable that could come to be a factor over the next couple years. As the start of the San Francisco housing prices decreasing, the state of California has approved an increase to minimum wage. Since the house market price of San Francisco was high with a possible cause of the lack of willingness for consumers to purchase housing; that may all change with the possibility of the ability to purchase.
The price elasticity of demand value suggests that the housing prices will continue to fall until that value becomes one or less. That would require either an increase in demand, the price continues to fall, or the supply decreases. However, increasing minimum wage could cause an effect to the market equilibrium and slow down the price decrease. It will be interesting with the current and future speculation from either consumers or housing suppliers and if that speculation could impact the market.