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San Francisco's Hot Housing Market

It is a paradox to many that despite economic recession and the collapse of the dot-com stock market mania two years ago, home prices in the San Francisco Bay Area, which includes the high-tech Silicon Valley, have not come down from their inflated levels of 2000.

In the city of San Francisco the median home price is $529,000. Those prices make purchasing a home unaffordable to about 75 percent of the city's population.

In the western part of the city not from Golden Gate Park, Bill Abbott, a long time worker in the city, surveys a modest four-room row house that recently sold for nearly $500,000. Mr. Abbott says purchasing this home requires a family income of over $90,000.

"If they paid 25 percent down [$112,500], they would probably have a payment of about $2,400 a month," he explained. "And that would not include taxes, which would be 1.2 percent of the selling price. So, they would probably have to have an income - two people - of about $90,000 a year."

Mr. Abbott says this modest dwelling is as cheap as exists anywhere in San Francisco.

It is said by some that San Francisco's sizzling housing market is like the high tech mania two years ago - a bubble waiting to burst. Most real estate experts dismiss this notion, saying demand outstrips supply and that the situation will worsen in the years ahead. The population of the Bay area is projected to grow by one million over the next 20 years.

David Callaway, executive editor of Market Watch dot-com in San Francisco, believes the crash of high tech stocks ironically helped home prices to hold steady and avoid the effects of recession.

"I do not think the real estate market is a bubble," he said. "There are people who do think so. And as you say, prices have held high. They have not been rising, but they have been holding high even as all other investments have collapsed. I think a lot of that money that came out of other investments has been propping up real estate. When that money starts to sift back into other investments, it is going to go in slower, and so real estate is not going to suffer or pop like a bubble would."

Assisted by low mortgage interest rates, home sales in the San Francisco Bay area rose sharply in April. Prices in the entire seven county Bay area were up ten percent in April. The area is the most expensive real estate market in the continental United States.