Demand changes too though, don't forget. There are people living in the S.F bay area who would be living in S.F. proper if the prices went down, there is surplus demand waiting in the wings.

S.F. and Manhattan are both geographically limited ultra-high-price islands within larger metro areas (and of course people can move in and out of entire metro areas in response to price too), which, among other things, seems like it should make the market more complex than a simple supply-demand curve from a micro-economics 101 textbook.