SAN FRANCISCO—Wouldn't it be convenient if someone had clear, intelligent answers to most of your CRE-related questions? Problem solved. Nina J. Gruen, a.k.a. Ms. Real Estate, a.k.a. the principal sociologist overseeing market research and analysis at Gruen Gruen + Associates, is here to answer readers' questions.

Dear Ms. Real Estate, 

The printed news and social media are full of stories about middle income workers being priced out of coastal cities like New York and San Francisco by escalating rents and condo prices. Almost all of this discussion centers on the social ills of gentrification. But as a real estate investor, my interest is more prosaic. Do you believe we may be in a real estate bubble?

—When is a Bubble not a Bubble?

Dear Bubble,

Ms. Real Estate appreciates receiving your time-sensitive question. While she can't predict when de-escalation of prices will occur, she does commend the wisdom of your wariness.

Two sources fueling the demand for the higher priced new multi-family rentals and condos in New York and San Francisco: The influx of highly skilled workers attracted to the startups and fast growth companies, and overseas investors who want to park their wealth in what they perceive to be safe U.S. real estate investments.

Many of these skilled Millennials, whose earnings enable them to pay the escalating housing costs, strongly prefer to live in high amenity/high energy locations like New York and San Francisco. The steep escalations in rent and condo prices have also been driving some of the prior residents and new members of the regional workforce into nearby cities like Brooklyn and Oakland. Even with starting salaries of $100,000+, when 650- to 800-square-foot rentals average $40,000 per year, it becomes a stretch. Clearly, prices are ballooning, with the prices for new condos in desirable locations like the Mission and Mid-Market in San Francisco and the Highline, Hudson Yards and World Trade Center districts in New York averaging $2,000 per square foot in San Francisco and $4,000 per square foot in New York.

If demand was solely from the workforce, it would be easy to predict we are already in a bubble as the current rate of employment growth is unlikely to be sustainable. But there is an increasing percentage of foreigners parking their money in gateway cities like Vancouver, London, New York and San Francisco. Some use these units as pied-a-terres or to house their children as they go to school or work in these gateway cities.  Present value is infrequently part of their purchase decision. This trend is likely to escalate with China's recent change in policy which permits their citizens to make unlimited out of country real estate investments. Foreigners currently purchase approximately 30 percent of new units in New York and 9 percent in San Francisco.

The likelihood of a bubble is directly dependent upon whether this trend in foreign buyers, particularly from China, stabilizes, escalates or declines. It may be well to remember at one time, not so very long ago, Japan was the biggest foreign investor in U.S. real estate.