To buy or not to buy in the Bay Area? (San Francisco: real estate, apartment)

[Azmordean]

Afternoon all!

Obviously no one knows for sure but I wanted to get the general feelings on this forum. Having recently moved to the Bay Area (Mountain View, specifically) the housing prices are rather breathtaking. Even coming from the DC suburbs - a very pricey area - things here are much more expensive. This goes for both buying and renting.

As I sit here flushing 2500/mo in rent on a 2br apartment, I can't help thinking that I should at least consider buying. At the same time, part of me can't help thinking that we may be in a bit of a real estate bubble right now brought on by hedge fund all cash deals. So anyway - here are my pros and cons - what do you think?

Pros:

- I actually like to own - specifically I like to do upgrades / improvements, which just isn't possible with a rented place.

- Building equity (assuming we aren't in a bubble)

- Tax deduction (for now).

- I will probably be here at least 2-3 years, possibly longer.

- I absolutely HATE moving, and the way landlords jack up rent on renewals, it seems like you have to move every year or two as a renter.

Negatives:

- Possible bubble.

- Given the current economy, there's always a chance I *won't* be here 2-3 years.

- Cash flow -- with the sky high condo fees in this area, buying ends up more expensive from a monthly payment perspective than renting.

- Given prices here right now I could probably only manage 10% down. That said, if prices keep rising, I'll never be able to manage more than 10% down!

My feeling is that we are probably in the early to mid stages of an inflating bubble. Based on that, I figure one should buy now, or commit to not buying until the next downturn. I'm strongly leaning toward sticking with renting for now given newness to the area, but wanted to get some thoughts!

[Heidi60]

This area is in high demand and many from all over the world are moving here.

If you want to make a few dollars while you are here, then buy.

If you want to be able to leave quickly and have flexibility, then rent.

I expect to put my condo on the market later this year and have no doubt that I will make money, especially by selling it myself to avoid commissions. My neighbor just got a job at Microsoft and is planning on renting his unit for another year or two just make a higher profit. We also hate moving but to take our profit from here to another part of the country makes sense for us in retirement.

If I could do it over again, I would rent in the City and reverse commute to Mountain View while I still had the energy to enjoy all this area has to offer.

Best of luck to you!

[Azmordean]

Thanks for the info!

I could never do the reverse commute thing though. I know the city is better for young singles, but I hate commuting - fancy shuttle or not. I get incensed when it takes me even 20min to get to work. As it is I can be there in 10-15min by car or 15min by bike. It works well for me - I can always go up to SF on the weekend!

[thechoson]

BUY.

I've been here 5 years now, and after witnessing what real estate does here, I'm convinced it's just a whole different world here in the Bay Area.

I'm kicking myself for not pulling the trigger back in 2009 when there was decent inventory and prices were low. I would go to open houses and agents were basically begging me to take their business card.

I fear I may have missed a once in a lifetime opportunity to own in the Bay Area in a decent neighborhood at a price I would be okay with.

The Bay Area shook off the worst housing crisis in American history with basically a hiccup.

The Bay Area is basically like New York City or Detroit. It is THE Global capital of an entire industry.

But unlike manufacturing (which failed Detroit) or finance (which still thrives in NYC but can and has been replicated in other global centers like London or Hong Kong), the tech industry and the incubator that is Silicon Valley has so far been almost immune to replication, much less destruction.

Other cities are trying, but if anything Silicon Valley continues to widen the gap.

And if you consider that about 60 years ago Silicon Valley was nothing but farmland, and then consider the possibilities that still exist for what tech can do, Silicon Valley will be a global capital for probably our entire lifetimes.

So you got that economic factor, and then you have the geographic. Small slivers of land, tight environmental regulations, and strong NIMBY factors (just read what happens whenever any kind of high-density development is even PROPOSED in places like Menlo Park or Palo Alto) will maintain prices and continue to blow them up.

Basically, in sum, the SF Bay Area is a region with the importance/ impact that matches or exceeds global cities like London, NYC, Tokyo, or Hong Kong, but with an aversion towards high-density development that you don't see in those cities. Combine those factors, and guess what happens with home prices going forward.

EDIT: Also keep in mind that on a SQ footage basis, prices in San Francisco are fairly inexpensive for a global city. In 2011 average price was about 1/2 of Manhattan, and even less than that when compared to cities like Paris, London, Hong Kong, Singapore, etc. So prices still can go way up.

[bigdumbgod]

Originally Posted by thechoson

Basically, in sum, the SF Bay Area is a region with the importance/ impact that matches or exceeds global cities like London, NYC, Tokyo, or Hong Kong, but with an aversion towards high-density development that you don't see in those cities.

There's a lot of high-density development along rail lines old, new, and under construction. North 1st St. along the Light Rail, and the future places around the BART extension to Berryessa are two examples. There have been similar developments along CalTrain on the peninsula.

[easybay]

We had the same discussions when we moved here 3 years ago. I didn't want to buy since we weren't going to be here permanently and didn't want to risk selling at a loss. DH said that we would be missing out on a great opportunity if the market turned around.

So we took the plunge 2 years ago (bottom of the market) and purchased, although we did have 20% and we didn't have the problem of bidding wars going on back then. I'm happy to say that he was right - our house has appreciated about $100,000 in the last 2 years (hopefully more), and our mortgage payment - after refinancing twice is about the same as what we were going to be paying in rent.

What pushed me over to buying was the INSANE rental market here. I figured that if the housing market hadn't recovered - we could always rent our place out, for more that our mortgage payment. I tell him all the time that "he was right". Ouch.....

[justinbro2002]

Yeah this is a pretty bad time to buy in the silicon valley prices are near 2006 levels in alot of areas. does that mean we are at the top of the bubble again? it is harder to get a mortgage now than 7 years ago so we don't have the subprime loans waiting to implode. Who knows when it will cool down. We bought in march 2011 in the east bay town of livermore and refinanced last summer at 4% our mortgage payment is less than comparable rents and our house is worth 75k more than what we paid. I know things went up alot faster and higher in the south bay.

[thechoson]

Originally Posted by justinbro2002

Yeah this is a pretty bad time to buy in the silicon valley prices are near 2006 levels in alot of areas. does that mean we are at the top of the bubble again? it is harder to get a mortgage now than 7 years ago so we don't have the subprime loans waiting to implode. Who knows when it will cool down. We bought in march 2011 in the east bay town of livermore and refinanced last summer at 4% our mortgage payment is less than comparable rents and our house is worth 75k more than what we paid. I know things went up alot faster and higher in the south bay.

Well the only thing that would concern me is that every time a house is sold now, it seems to be going to cash buyers. We are talking homes in the 500k-1 million dollar range, and people are throwing around cash.

Now I know the Bay Area has its share of wealthy and highly paid individuals. But it's one thing to be drawing a 6-figure income as a software engineer. It's another level of wealth to just have 1 million bucks cash lying around you can spend on a home.

Inventory still seems to be tight. Ultimately as more inventory opens up and these cash buyers filter out of the market, I'm guessing prices will stabilize a bit.

But long run, I'm extremely bullish on the Bay Area housing market as indicated by my above post.

[roadwarrior101]

If you can afford it, yes. Case in point, we struggled to do a FHA loan 3 years ago to buy a new townhouse in Mountain View. Since then, our incomes have risen significantly and so has the value of our place (we estimate about $200k). We've been able to refinance out of our FHA and lower our payment significantly, while building a ton of equity. At the same time, rents for a 2 bedroom apartment in Mtn View have skyrocketed to nearly the amount we're paying in mortgage, AND you don't get the tax write-off. If we had sat by the sidelines, we would've lost out.

Clearly there is a feeding frenzy here in the Silicon Valley and the rate of increase cannot go like this forever. However, it just did not drop the same percentage as the rest of the US during the downturn and if we had waited, we probably would've been priced out entirely. If you can afford it, I'd say go for it. You won't regret it.

[ccm123]

We closed escrow in March 2012 (nearly a year ago) and thought the market "may" be high back then. We put down a pretty large down payment, and we bought before the bidding wars began. We still needed to offer a little over asking on our home, but the seller accepted our offer immediately (we made an offer after the home was on the market for less than a week). We were able to keep our housing costs constant, on a month to month basis, by buying.

Just wanted to share my experiences.