SAN FRANCISCO -- The price for the two-bedroom condominium on Russian Hill was $699,000, and Jon Dommes thought he had both the strategy and the bid to buy it.
He would offer $126,000 above the asking price, a bid of $825,000. He couldn't possibly lose.
But he did.
Someone else bid $900,000.
For a 1,500-square-foot condominium -- with little in the way of a view.
In a good neighborhood, not a great one.
"I think," says Dommes, "that they laughed at my bid."
That's how the San Francisco real estate market is these days, though only the sellers are laughing. While the city by the bay has long been among the nation's more expensive places to live, prices in the past two years have made finding a home -- affordable or not -- a wrenching experience.
Consider: The $900,000 condominium that Dommes lost was much like one that recently sold on Churchill Street in Federal Hill, prime real estate in Baltimore, with glimpses of the Inner Harbor. Only the Baltimore property sold for about $275,000.
San Francisco real estate is not alone in this sellers' gold rush. It is only one of the more vivid illustrations of what is happening to downtown residential property across the country, from New York and Boston to Denver and Dallas.
The spiraling escalation in housing prices is the result of a scarcity of land combined with an explosion of money from the technology boom, and the result has fundamentally altered who's capable of realizing the American dream of home ownership.
In Denver, the high-technology boom is literally raising the roofs off downtown houses. There is no room for people who own homes on small lots to expand outward, and moving elsewhere in the city is a financial hurdle too high to jump, if another house can be found at all.
So they build upward, removing their roofs, adding second and third floors.
And even the tiny houses before the renovations, once selling for less than $20,000, are in the $300,000 range.
Increasingly, government-subsidized housing is helping a small number of very poor people live in these cities while prices are squeezing out almost everybody else, including professionals who were once considered at least somewhat upper-middle class. And affordable housing for the blue-collar class, once the backbone of these big cities, is becoming a distant dream.
"Affordable properties in San Francisco for ordinary working people are unheard of," says David Parry, a real estate agent with McGuire Real Estate. "The reason for it is simple -- there's just too much money chasing too few houses."
This year, he's sold seven San Francisco properties, which listed for a total of $5.7 million, Parry says. But together they brought in $7.7 million, meaning that on average he's getting about one-third over listing price.
One listing, on California Street in Pacific Heights, asked for $1.5 million. It settled for $2.3 million. The owner of a condominium in the Marina District listed the place at $649,000. It fetched $951,000.
"In this market it's probably about 80 percent failure for the buyers, maybe higher," he says. "But if you're listing, obviously you can do very well."
Thus, people such as Dommes are placing bids of hundreds of thousands of dollars, as if playing for a lottery jackpot that in saner times was worth less than the cost of the ticket.
Now 32, Dommes has lived in the Bay area most of his life and has become one of the high-technology workers who have made finding a place to live so difficult. In the past year, the median cost of a house in the city has increased by 25 percent to $418,000 caused, city officials and real estate experts agree, by new, young, almost-instantly wealthy buyers.
San Francisco officials estimate the city has gained about 45,000 jobs over the past year, most of them connected to the high-paying, high-tech sector.
"I've been extremely fortunate that way, as far as salary goes," says Dommes, who deflects questions about his income by pointing out that people in his position, selling software, typically make $250,000 a year or more. "At the same time, it's added headaches with traffic, this housing crunch, that kind of thing."
Further pressure on the housing stock comes from south of the city, from Silicon Valley, where people in their 20s and 30s are flocking for jobs, starting up companies and making megabucks in the process. Prices there are similar to San Francisco's, but the younger set wants the urban feel of the city, and their march inside its boundaries is causing tension in a place that has prided itself on its laid-back style.
"I think this is a really interesting moment for us and for some other cities as well," says Lynne Martin, 44, whose bid of about $1 million for a three-bedroom house without a garage was blown away by a $2 million offer. "The current incomes are changing the faces of the city. If you're part of this wealth, it's a grand opportunity to live here, because you can buy it. If you're not part of that wealth, well, living in San Francisco is probably out of reach."
Martin lives in a three-bedroom condominium in the city, but her family is growing, and building a new house in San Francisco is out of the question.
The city is 49 square miles, making it the second-most densely populated major city in the nation, behind New York. There are only 335,000 housing units for nearly 800,000 people, and about 70 percent of those units are for renters. And the occupancy rates of rental properties, for a year running, has been higher than 99 percent.
"It's a good thing for a lot of people," says B. J. Droupi, who runs a real estate firm in San Francisco. "The shame of it is the city's not going to be nearly as eclectic. You can see that already. It's being populated by kids with no real concept of money as we know it, and there's a lot of resentment about that."
There are other social costs, too, says Julie Bornstein, director of the city's Department of Housing and Community Development.
Police officers, firefighters and other public employees can't afford to live in the city they serve. Further, with hour-and-longer commutes, how do mothers and fathers make time to coach Little League baseball or soccer? How do they find the time -- and energy -- to help their kids with homework?
"In many cases, they don't," Bornstein says. "This is a problem for buyers that spreads into the business, educational and governmental sectors. In a way it's like, 'Oh, those people are crazy' -- and it's kind of a joke. But it's not a joke. It's a real problem with real consequences."
The problem is so severe that San Francisco is building houses and apartments for teachers on land owned by its school board. Tax incentives are being offered to builders to put up apartments and houses on what land remains. Loans of up to $100,000 are being offered by the city for down payments to residents buying for the first time.
"A lot of cities would love our problems -- just too many people wanting to live there," Bornstein says. "But we have a commitment to cultural, economic and ethnic diversity. We still have about 100,000 low-income residents who get help. We're trying to shore up that middle-income segment."
In Denver, "bargains" are still to be had, with a median price of a single-family home at $244,000 -- about $100,000 more than the average Baltimore house.
Downtown neighborhoods such as Washington Park were once a collection of exceptionally modest houses for the blue-collar work force toiling at the city's Gate's Rubber Co.
But increases in property values are transforming not only the faces in such neighborhoods, but are also altering the physical landscape of the streets.
The most recent jump in real estate prices was 18 percent in a year.
"Here's how it works," says Julie Hummel, a real estate agent with Denver's Kentwood Co. "You get the buyer in the car downtown, then you start driving until they can qualify. It can be a very long drive."
The housing stock in the city, though, is smallish in square feet, much of it built from the 1930s to 1950s, making it tough for young professionals who can afford the homes to raise a family in them.
The answer in Denver has created a whole new vocabulary.
"We popped and bumped," says Joe Staib, 34, who in 1994 bought a 1,200-square-foot single-level home with his wife, Katie, 31. They paid $185,000.
It was clear to them they couldn't raise a family in the house, clear that they wouldn't have enough room Katie's parents when they visited from Baltimore.
No problem. They took the roof off the place ("popped the top") and knocked down a side of the house ("bumped out") to expand a tad outward and a full floor upward. The completed job cost about $135,000.
Their rebuilt house is about 2,800 square feet. With the extra room combined with the boom in downtown housing, their house was recently assessed at about $600,000 -- nearly double their investment in fewer than six years.
Now with 10-month-old son Jack, the couple plans to stay in Washington Park. But they, too, worry that their cozy downtown neighborhood -- which they chose because it had character and wasn't "some beige place," Joe Staib says -- might becoming too pricey for other young couples.
"Of course, it's good for us in a way," he says, pointing out that he jumped on two properties and plans to enlarge them as well. "In another way, when we get priced out and you get all the same kinds of people here, the whole character of the neighborhood changes."
Still, he feels fortunate to have a place, and the neighborhood, at least for now, retains its charm.
Back in San Francisco, Tom Battlin wasn't sure he would ever find a place -- but perseverance and good fortune have always been a part of the city's history, and he used that formula to find a 1,400-square-foot house with two small bedrooms.
He paid $470,000, about $80,000 over asking price.
"I was fortunate," says Battlin, 42, a technology specialist for a nonprofit firm, a position that typically pays about $60,000 a year. "I only had to bid in on four places.
"For somebody like me, buying even a house like this is impossible. The only way this was possible for me was because of an inheritance and some other family help."
As for Dommes, who was willing to bid $825,000 for a 1,500-square- foot, two-bedroom condominium, . in a good neighborhood, not great, not much of a view?
Last week he was still looking -- sort of.
His real estate agent didn't even have a property available to show him.