Is there a property bubble in Walnut Creek & Pleasant Hill? (San Francisco: for sale, real estate)

[irishman_irl]

Hi All,

This question sort of relates to another I have posted, but I think is separate enough to justify its own thread.

We are on the verge of buying a condo in Pleasant Hill for $330k, exactly 24 months ago the same condo sold for $187k, that's a $143k increase in 2 years. During the height of the last property bubble this sold for $370k in 2006.

Another 2 bed / 2 bath condo we looked at in Walnut Creek, last sold for $195k in 2010 & is now for sale at $350k, at the height of the market it once sold for $450k

It looks like there has been an absolutely enormous jump in prices over the last 24 months - we are worried about buying at this price because there may not be much room left in the market for the price to increase over the next 2-3 years.

What do you guys think? Bubble or market correction?

[countofmc]

What are rentals looking like? That 330k condo you are about to buy. What is a reasonable estimate of how much that unit could rent for today?

I think a somewhat accurate way of measuring the valuation of a home is to look at price/rent ratio.

[irishman_irl]

@countofmc - We cannot find any rental listings in that community, our guess based on similar units in the area is that we could rent it for $2k a month, total monthly repayments inc HOA's, tax etc... would be $2.4k

[countofmc]

Well I think then the Price/rent ratio is under 12. I think generally anything under 15 is a good buy, and anything under 10 is a if you don't buy you are stupid category. So judging by that metric I would say it's fairly valued, considering what you can rent it out for.

http://www.nytimes.com/interactive/b...ator.html?_r=0

Play around with that calculator. But I'm going to assume it will tell you buying is better if you expect to live in the unit for at least 4 years or so.

[Ruth4Truth]

Originally Posted by irishman_irl

Hi All,

This question sort of relates to another I have posted, but I think is separate enough to justify its own thread.

We are on the verge of buying a condo in Pleasant Hill for $330k, exactly 24 months ago the same condo sold for $187k, that's a $143k increase in 2 years. During the height of the last property bubble this sold for $370k in 2006.

Another 2 bed / 2 bath condo we looked at in Walnut Creek, last sold for $195k in 2010 & is now for sale at $350k, at the height of the market it once sold for $450k

It looks like there has been an absolutely enormous jump in prices over the last 24 months - we are worried about buying at this price because there may not be much room left in the market for the price to increase over the next 2-3 years.

What do you guys think? Bubble or market correction?

I think whether or not there's a bubble is largely irrelevant to your situation. You're on a tight budget. You shouldn't be over-investing in real estate at this time.

Have you considered that the annual property tax burden would be on the apt. you're considering? Have you taken all the monthly and annual expenses into account? I don't think it would be wise to go ahead with this.

[irishman_irl]

Here is the rub, the last comparable unit in that development sold in May for $80k less than the one we are thinking of buying, granted it was a bottom floor unit & the one we are looking at is top floor. But still - 80k?!

The cost of continuing to rent for us is $1,800 per month.

The cost of buying, inc all costs (HOA, tax etc...) is $2450 per month + in about 9 months we will need some sort of a second car.

Very hard to know.

[jrb724]

To answer your post - no I don't think it is a property bubble. The gains will have to slowdown or flat line though at some point.

You can use appraisers, etc to value the property but it really comes down to you the buyer determining the price. Most homes are selling quickly so if it has been sitting on the market maybe it is priced too high? Since there aren't any recent sales there, I would look to see if you can find something similar nearby to get a ballpark figure.

I am leaning towards saying you shouldn't buy due to 1) Your doubts in general about buying and 2) Lack of emergency funds for costs to move in & any repairs that come up and 3) Your time period is too short. You should plan to own the unit for at least 7 years. That being said, having second thoughts and stretching yourself (a little bit) is normal.

If you put an offer on the home and keep your contingencies in the contract, you will have opportunities to back out of the deal and get your deposit back, including an appraisal contingency.

[sonarrat]

Low inventory + high investor activity is making the market very overheated right now. Most sales are all cash and there's the same kind of feeding frenzy going on that I saw back in 2005. I certainly wish now that I had taken a chance and bought something. The only silver lining is that mortgage interest rates are still very low, so overall buying power is still decent. When mortgage interest rates go up, the prices will probably stay pretty close to where they are, but the cost of borrowing will be astronomical.

[jade408]

Originally Posted by irishman_irl

@countofmc - We cannot find any rental listings in that community, our guess based on similar units in the area is that we could rent it for $2k a month, total monthly repayments inc HOA's, tax etc... would be $2.4k

It sounds to me that this condo is too expensive and would necessitate too many lifestyle changes for you. A second car..... limited savings ..... it may not be the right place.

[countofmc]

How is that area btw in terms of development? The thing about San Francisco and most of the peninsula that I think puts a floor on prices is the limitation on development. Some of it physical, due to the limited amount of land and being surrounded by water. And of course the NIMBY factor and all the restrictions on development.

Does that area have similar constraints?

During the housing boom I was shocked at what new homes in places like Las Vegas were going for, when they were literally being built out in the desert surrounded by more empty desert land as far as the eye could see. I just couldn't understand why homes were commanding those type of prices when thousands just like it could be built instantaneously.