San Francisco’s luxury housing market is booming, fueled by the stunning wealth created by the nascent artificial intelligence industry and a record stock market. Sure, the California city has always been an outlier relative to the rest of the real estate market, but the recent developments nevertheless suggest the modest gains in affordability we’ve seen in the U.S. may be nipped in the bud.

San Francisco’s luxury market is characterized these days by bidding wars and scarce inventory. If history is any guide, we’ll likely see this wealth-driven momentum broaden out. It will ripple through Manhattan and Miami’s luxury segments; the truly rich will start to price out the merely affluent, who will take their budgets to less pricey neighborhoods, or perhaps to other metros that often appeal to coastal residents seeking a little more bang for their buck, places including Austin, Denver and Nashville.

Ultimately, this is not what the housing market needs to return to health. The AI boom threatens to “crowd out” other parts of the economy and casts doubt on whether the grind toward affordability will continue should tech stocks keep powering ahead. It doesn’t offer much hope or opportunity for younger or more middle-class Americans looking to buy homes without large nest eggs to rely on.

Over the past two years, affordability has gradually improved thanks to a mix of wage growth and lower mortgage rates. A number of metros in the South and West have also seen price declines, some fairly substantial, though property values have been more resilient elsewhere. But the University of Michigan consumer sentiment surveys continue to show weak homebuying conditions, signaling households need to gain more ground to catch up to the COVID-era price surge.

For those in AI or with large financial portfolios, it’s a different story. Jobs in AI command a premium, not to mention stock options that some now have the opportunity to cash out. And anyone invested in the equity market has benefited hugely from the S&P 500 Index’s 90% gain since the end of 2022. The total value of the U.S. stock market has increased by around $33 trillion over that time — wealth held predominantly by the top 10% of Americans.

Nowhere is this wealth more apparent than in San Francisco. Luxury home sales jumped 22% from a year earlier in the three months through March, with active listings down 15%, according to Redfin. Since the launch of OpenAI’s ChatGPT, luxury home prices in the San Francisco Bay Area have increased over 13% whereas prices have fallen in the most affordable Bay Area zip codes.

The most obvious explanation is the AI effect, though Redfin also points to a return to office and lack of inventory driving the overall market. Condo prices, for example, climbed 24.4% in March from a year earlier, the sharpest increase since 2013. There’s also a creeping fear of missing out as would-be buyers look ahead to the initial public offerings of OpenAI and Anthropic PBC, which are expected to unlock billions of dollars of wealth for employees and investors. More than 600 current and former OpenAI employees sold their shares last October, collectively making $6.6 billion, according to the Wall Street Journal.

This is very much a top-heavy boom. Overall employment is recovering in the region after a post-COVID slump, but job creation has been modest — employment in the San Francisco-Oakland-Fremont metropolitan area is up by just 11,000 since the bottom last June, and remains nearly 100,000 jobs below the level in February 2020. More broadly, the U.S. economy has added just 20,000 jobs per month over the past year, and wage growth has slowed to 3.6%. Relative to wages, homes don’t look very affordable, but compared to a stock market that has nearly doubled since 2022, homes look like a bargain for some.

San Francisco is the most extreme example of this, but it’s not the only place where stock-market wealth has been much greater than overall economic or job growth over the past few years. The South Florida and Palm Beach luxury markets continue to see wealth migration. In New York, the big Wall Street banks are benefiting from booming financial markets and an expected strong year for dealmaking. Compared with last year, Manhattan has seen a 40% increase in ultra-luxury home sales in the first 16 weeks of the year, the Real Deal reported last month. Geopolitical instability may also be making New York more attractive, according to a HousingWire report.

Contrast this K-shaped housing market with the real-estate recovery that played out in the 2010s. At the time, job growth (particularly knowledge jobs in the big coastal metros) and falling home prices combined with low mortgage rates to create a durable recovery. The U.S. added employment at a solid clip throughout the decade, and while there were a few dips in housing market activity, the pace of existing home sales increased from an annual rate of 4 million in the early 2010s to around 5.5 million for most of the second half of the decade.

Today, would-be buyers are still trying to get ahead of prices that rocketed during the COVID-era housing boom, pricing out many households. Unfortunately for them, the affordability may stall at current levels. Interest rate cuts no longer look likely in the near future and entry-level homebuilders aren’t going to build more homes in response to a surge in demand for luxury houses. What’s needed for housing affordability to improve further is a more balanced economic expansion, driven by job and wage growth, rather than the stock market. That seems unlikely as long as the euphoria for AI carries on.

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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist. He is founder of Peachtree Creek Investments.

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