At a recent real estate conference in Dallas, Trulia Chief Economist Jed Kolko discussed how his hometown, San Francisco, was experiencing unreasonably high prices as a result of extremely limited potential land development and tight inventory.

It looks like Kolko was being modest, as recent reports reveal that the city’s home prices are so appreciated, it’s nearly impossible for residents to afford living there. 

In the first quarter of 2013, San Francisco’s existing, single-family detached home median price reached above the $1 million mark for the second consecutive quarter, according to an analysis of MLS data by the research division of Better Homes and Gardens Mason-McDuffie Real Estate.

The first-quarter median sales price was 25% higher than the first quarter of 2012, when the median sales price was only $842,335. 

Even in the most affordable neighborhoods in the city, inventory is limited and competition is strong, with homebuyers facing all-cash offers as well as bidding wars.

While testifying in front of the House Committee on Ways and Means Mark Calabria, director of financial regulation studies with the Cato Institute, noted that about 25% of San Francisco homeowners spend 40% or more of their income on housing, according to data from the U.S. Census Bureau.

Calabria also added that the median existing home price in San Francisco is almost eight times the median income. According to the latest data from the U.S. Census Bureau, the median household income from 2007 to 2011 was $72,947. 

"Looking ahead to the peak home buying season, favorable mortgage interest rates and a desire to purchase before home prices get any higher likely will draw more buyers into what continues to be a seller’s market,” said Jim Caldwell, manager of Better Homes and Gardens Mason-McDuffie Real Estate’s San Francisco office.

The lack of "wiggle room" with offers and home prices off the charts is putting many desperate buyers in an uncomfortable financial situation.

"Housing affordability is always a challenge in San Francisco. Demand is strong and growing stronger as the local economy continues to grow. At the same time, both the geography of the Bay Area and building regulations limit the amount of new construction, which keeps supply low and prices high," said Kolko. 

However, he adds, that mortgage rates are near all-time lows, making it possible for buyers who have the downpayment and can qualify for a mortgage to afford a higher-priced home compared to when mortgages rates are higher. 

Still, Kolko noted, "High home prices cause many lower- and middle-income people to leave California and move to other parts of the country where homes are more affordable."