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I do not agree with the analysis/predicution of MajorDMP above. But nobody should assume that the "real estate as safe haven for cash among the wealthy" thing is permanent. *Nothing* is permanent.
Historically, real estate has not been much more than a 1 or 2 percent per year investment. Anyone who thinks "this time it's different, because XYZ have changed" are engaging in bubble-think, even in the Bay Area. Of course some factors may limit downside, but they are overwhelmed by larger economic factors like interest rates.
Plenty of people bought in 2006 and are actually still not at the breakeven point - but you often can't tell them that. They say, "my property is worth 500k more than I paid!". However, they forget inflation - inflation of even less than 2 percent adds up very significantly after 10 or 20 years. And also they forget renovation costs, maintenance costs, closing costs, insurance costs, property taxes paid, mortgage amounts paid (i.e. loan payments over time will total more than purchase price, etc. People often ignore the comparison of investing a similar amount of money in the SandP 500.
I cannot tell you how many times when I lived in SF (2003 thru 2011) that smart people told me that literally, real estate in SF never ever goes down, and you can't lose money on SF real estate. Declines happened in the early 1990s and after 2008; they will happen again. It could last a short period, say, 5 years. It could be longer. Who knows.
That is not to say that SF real estate will not remain expensive, I believe it always will be. And purchasing a home is a great idea to give your family stability. But to get rich? That is a rare thing; some people got lucky and think they did it due to their own intelligence. We see this with stock picking all the time.
I do believe that there is some pent-up demand, as 2sleepy says above. I also am pretty sure that it's only enough to buoy the market for a year or two or three if the market is facing headwinds.
I don't expect to ever be able to buy in SF, nor would I want to, with its sub-par schools. But I think 2nd tier areas will become somewhat cheaper, 10 to 25 % less. That is still very expensive.
I think the bolded is the key in this discussion. Sure, things will go down - but we're not going to see prices that are affordable to average people anytime soon. I just don't see it happening. There's nothing to indicate that that is going to happen imminently.
10 - 25 % below current prices are still absurdly high the majority of people.
I agree a correction is not going to make homes affordable for average folks in the urban core and the expensive highly desirable places will be minimally affected.
San Francisco is becoming like London or New York a place where the wealthy want to live.
People will pay $3-4million for Noe valley. $1.8 million for glen park or rockridge.no problem.
Some of these homes are selling all cash.the people buying these homes have great high paying jobs,family money or signifigent income producing assets maybe all three.A depreciation of 10- 15% in homes won't affect them much maybe the don't get the $400 dollar opera tickets or go to Europe on vacation if they are feeling frugal. during the Great Recession of 2008(the worst economic downturn since the Great Depression) some areas of Silicon Valley and SF continued to appreciate while places like Vallejo and concord lost 50% of value.there are so many micro markets I don't think you can generalize.
We are moving from southern cal, to San fran area this year, and even though our present home has skyrocketed, it appears that in the summer months SF real estate almost doubled! Even in undesirable places.
As I kept looking, even further out to the outer edges of the towns it didn't help the prices. Places I wouldn't even consider last year are now unaffordable. I remember this happening in early 2000, and yes it did come crashing down, but mainly crashing on first homes buyers purchasing while the market was at the top. This is now the third time I've witness this in my long life. NOT a buyers market now. First time buyers, or anyone not planning on staying in their homes for 15 years should not buy now, unless they can find an area that is underpriced.
No, I am not going to live in 104 degree summers, valley smog, in a drought, and horrendous traffic for double the money. The truth is, when a recession comes, those undesirable towns, you can not give the houses away!
At this point we are going to give thought to further north, and hope that second guessing the next upward community might pay off. I just can't see paying $700,000 for a depressing fixer-upper. The line will be drawn eventually, of what people will pay for that.
The question is, will this overpricing cause the economy to dip down? It's already so difficult to find housing, and try getting a young thriving couple from the north or south west to give up their 3000 sq ft home for a fixer 1000 sq ft dump in S F area. It's been a problem in the past. The high costs makes it difficult to recruit top talent.
The question is, will this overpricing cause the economy to dip down? It's already so difficult to find housing, and try getting a young thriving couple from the north or south west to give up their 3000 sq ft home for a fixer 1000 sq ft dump in S F area. It's been a problem in the past. The high costs makes it difficult to recruit top talent.
Exactly re: recruiting. However, the regional economy will dip because mostly so many startups that don't have enough revenue will fail. But the big employers like Apple, Salesforce, Google, LinkedIn, etc, plus many other non-famous names, will still expand.
So it gets down to "how many jobs do you think the region will lose?" I know that SV lost 200k jobs in the last downturn. Don't know if that was a regional number. How many jobs will be lost this time? I would bet not even half of that, though any amount in the tens of thousands is very significant.
Re: recruiting, I think this realization is dawning only very slowly on companies right now. I think this is part of the reason they pay high salaries to such young people. When you're 25, you think 120k+ is huge money. Buying real estate is a long way off for such a person, and you figure, why not, I'll pay 2 or 3k per month for my own place, or do a share. Only years later do they realize they will need a partner earning six figures, or they themselves will have to get to 200k, 250k+ income with years of big savings just for a small home in a decent distant outer suburb, and then they look at commuting options for two job holders, and say, "how the hell do we do this?" Commuting 75 or 90 minutes each way twice a day? When do you see the kids?
You could go north, but forget SF jobs, then. Most people don't realize that restricting oneself to the SF-proper job market is not a great idea, except maybe for those who can pull it off: top-tier engineers, professionals, or managers at the highest end of the income scale, like those who earn 400k, 500k+ etc. There are many, many jobs in Silicon Valley and even the East Bay that one would want access to.
Nevertheless, there is no reason to think that prices will drop as much this time as they did the last. A 20% drop helps a bunch of people. It does not make a big difference to most people; a household will still need a very high income to buy in the region.
In other words, after a bust you will probably still be spending 700k on a fixer-upper - right now, you can't even find a 3/2 1600 sq foot with a decent small lot in a good location n a town with good schools and a commute within 75 minutes of SF right now. It's more like 850k.
Agree mostly with HockeyMac. Looking at Case Schiller numbers, real estate here is *still* not at its height in 2006 in real terms (i.e. inflation adjusted). But 2013 to 2015 looks frothy to me. I absolutely do see either a) a flattening of price rises and an end to significant appreciation for many years to come or b) moderate declines in the near future and a much flatter appreciation curve going forward after that. I think the gold rush is over, but real estate is always sticky on the way down. It takes a long time for a gold rush mentality to dissipate.
I think that the current jobs/tech bubble really will equate to a correction, not a real bust, but it should IMO seriously hinder job growth, which has been off the charts recently. And there will be some job losses, though I don't expect something like the last burst, where 200k jobs were lost in SV.
But for anyone who stretches to buy in right now or has in the last 2 years, and will need to sell inside of 10 years, they will be looking at a not-good investment situation, IMO.
Emphasis in bold. With all the "quantitative easing" and turning the dollar into funny money, like the 1970's, I say prepare for stagflation and for the property values to go even higher.
Greeting Everyone. I find that most people think that current conditions are just a normal flow of life in the bay area. The bay area is desireable and lots of really talented people moved here because of high paying tech jobs. Coupled with low housing supply and tight regulations preventing home creation and one would could easily think it's just normal business of capitalism (supply/demand). Unfortunately, we are witnessing the greatest credit bubble in the history of the modern world. The last three bubbles have all been fueled by the Federal Reserve and lowering of interest rates in the attempt to make money cheaper and cheaper. This desire to centrally manage the economy via excessive credit expansion has led to all sorts of distortions in the real economy.While Wall Street is reaching records, the rest of the economy is stuck and declining. All this free money the banks, hedge fund managers, and other wealthy individuals have been desperating looking to park all this excess money into something in order to get a greater rate of return. Traditional mechanism for earning money such as savings accounts, bonds, and treasury bills pay very little in interest thanks to the FED. Why am I bring all this up? Trillions upon Trillions of dollars are floating around the world looking for anything that might make money and hard assets like real estate, and commodities have been on a tear since the FED introduced 0% interest rate seven years ago. Well guess what, that party is coming to an end. You cant have capitalism if money is free. Free money means that institutions will take huge risk because its cost them nothing and they are banking on the FED to bail them out again (aka 2008). An economy dependant on ever increasing amount of debt to pay for more debt will lead to a mother of all crashes. Commodities are already crashing (oil, copper, etc). Once free money dries up, all those angel investors that fuel tech start ups will be forced to close their doors. Large scale company defaults and bankruptcies will occur. The problem is world wide and prices on everything are so overly inflated that deflation will occur on a massive scale. It will rock our way of life. Think 2008 but 100 times worse. Be prepared my friends.
Really? You see the end result as another crash, as opposed to stagflation?
There is zero evidence that we are seeing anything approaching serious inflation. Inflation fears are going on around the fringes of society, abetted by fringe media, particularly of the very-conservative stripe. Predictions of major inflation have been going on for years, it's always just around the corner, some big event is going to cause it, etc etc etc. We just had a gigantic financial crisis, and we've recovered amazingly well. There will always be some troubles and downturns, that's capitalism, and we have serious issues globally with respect to wealth concentration (and all its attendant effects), and it will be challenging to address that, but doomsaying is totally uncalled for, we're in a reasonably stable situation. This is not 2008.
The numbers seem to overestimate San Jose rents for years.
Though I'm not sure what you can rent for $2800/mo in SF, I think there are still some studios at that price.
My guess is they are using "San Jose" and "San Francisco" as shorthand for the MSAs.
So "San Jose" means "Santa Clara County" and "San Francisco" means SF, Alameda, Contra Costa, San Mateo and Marin counties.
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or 
depending upon renting or owning.
