A brief except from a research piece by Michelle Meyer at Merrill Lynch: The ding of the trolley
[R]ecent data smells of a slowdown in San Francisco. … [D]ata suggest inventory remains limited [in San Francisco] so it is not a story of excess supply, but perhaps one of weakening demand given stretched affordability.
Despites weak signals, it is much too early to call the peak in the San Francisco housing market. We have seen these types of wiggles before in the data and this could just be a bump along the way. That said, we think it is prudent to keep a close eye on the upcoming data in the region. … the trajectory in the housing market in San Francisco could give early indications of trends in other high-end metro areas, which have also shown some signs of weakening at the very high end.
CR note: Prices have increased sharply in many coastal communities along the West Coast. As Meyer notes, inventory is still limited, so this is probably softening demand (perhaps “stretched affordability”). If it is stretched affordability, prices will probably just flatten out. However if inventory starts to increase significantly, we could see some mild price declines (I don’t expect this).