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Does anyone else experience mild anxiety reading stories about Bay Area real estate? Long ago I decided it can't be wise to buy instead of rent. Logic and math

by gmarx 10y ago

Does anyone else experience mild anxiety reading stories about Bay Area real estate? Long ago I decided it can't be wise to buy instead of rent. Logic and math argue this must end and yet it seems there is always another "sucker". We seem to have entered a new phase in which Chinese are moving money offshore and into the local market. Lots of Chinese, lots of money, could go on and on but for how long? Ultimately a home is only worth what someone can rent it for, right? right? please????

deleted 10y ago
[deleted]
orasis 10y ago
Real estate is a local competition among capital. As long as you have a lot of reasonably wealthy people in the area, prices will stay very high. I don't see the Silicon Valley startup machine quitting anytime soon.
- twblalock 10y ago
  Even if it does quit, there are so many large, established tech companies here that prices will remain high anyway. Actually, most of the people I know who have bought houses in the past few years work for such companies: Cisco, Apple, Google, etc. Their employee stock plans are so generous that startup stock options are not very attractive.
aphextron 10y ago
It's reaching the point of absolute absurdity. Check out the forecast price on this listing: http://www.zillow.com/homedetails/811-Arlington-Ave-Oakland-CA-94608/24754125_zpid/ http://www.zillow.com/homedetails/811-Arlington-Ave-Oakland-... I hadn't looked at zillow in a couple years, I can't believe how insane it's gotten. $800k for a century old 2 bedroom home on a rough stretch of MLK boulevard in Oakland.
- deleted 10y ago
  [deleted]
BashiBazouk 10y ago
Logic and math? We bought two years ago, my mortgage + taxes are about the same as what it would cost to rent a similar home today in the same neighborhood. I grew up in the bay area and remember my parents buying a home for $16,000 and selling for $28,000 thinking they made a killing in the real estate market. This area started back in the gold rush and continues today on the boom bust cycle. But having been through a few, the low of the current cycle is still usually higher than the high of a cycle or two before. I also think we may be entering a period world wide where there is more people with money than nice places to live. I have noticed as well that there are not enough "starter" homes, so they don't fall in the busts as much as the higher end homes tend to.
mmanfrin 10y ago
I think the market is over-exuberant right now for sure, but I also feel that people like the Bay Area because the Bay Area is an exceedingly pleasant place to live. This market has hit a little perfect storm of pricing and may correct, but I think the longview is that Bay Area housing prices will just keep marching up. A lot of the price of homes is the land, which means that (barring local regulation) homes will begin to be built up a lot more. Already on my residential street there is a 7 story live/work building going in where a pottery store used to be. Density will lower renting costs but the land itself will remain valuable.
- superuser2 10y ago
  It won't be an exceedingly pleasant place to live when there's no salary left over for food after taxes and rent.
  - mmanfrin 10y ago
    after taxes and rent If you have no money left over for food after rent, do not live here -- full stop. If you have no money left over after taxes, then you are doing your witholding wrong. And the Bay Area isn't some zone-of-enormous-taxation. We've got like 2% more sales tax and maybe 4% for restaurants who are passing on the medical buck.
    - superuser2 10y ago
      I am not referring to the present, but the hypothetical "prices continue to rise" the parent comment mentioned.
- sliverstorm 10y ago
  A lot of the price of homes is the land, which means that (barring local regulation) homes will begin to be built up a lot more. It might seem that way, but I've come to believe it's the other way around. When land is cheap, people build lavish houses (see the midwest). When land is unholy expensive, people are devoting every dime just to get the plot, they can't afford to build a nice house. Similar to how (this is hearsay) new development is more lavish in times when mortgage interest rates are low, and more spartan when rates are high. Buyers who must devote more of their payment to interest, have proportionally less to spend on the property.
white-flame 10y ago
Regarding Chinese capital coming in, there's a sense that they're not doing it to invest for a profit. They're doing it protect funds from the Chinese government access and potential future instability. So it might not matter to many of these "investors" if they houses are profitable or not; they're just funds being held in something perceived as more real/secure than what they can get in China.
- niels_olson 10y ago
  And the Chinese government is not happy about it. They are actively pushing banks to not allow their citizens to get mortgages. I have a colleague whose family pushed her pretty hard to accept and hold hundreds of thousands of dollars so her cousin could buy a house with it. She found the situations quite distressing. Apparently her father, in China, was not happy.
encoderer 10y ago
Everybody thinks it's Chinese money, and sure there is some. But there are just a lot of very highly paid ppl in the bay area. Facebook, Google, &c are moving a lot more money into this region than any Chinese outflows. In all my experience here, SF is not a city of the empty pied-à-terre.
- refurb 10y ago
  They just released some data on foreign purchases in another crazy market, Vancouver. In the last month (June?) 10% of purchasers were foreign (all countries) and the average house price was the same as domestic purchasers. Foreign investment has an impact in Vancouver, but by and large, it's Canadians who are over-extending themselves to get into a market they think they will be priced out of forever.
  - charlesdm 10y ago
    And after a few years, prices will crash. Oh how we've seen this story again and again.

by gmarx 10y ago

deleted 10y ago

[deleted]

orasis 10y ago

Real estate is a local competition among capital. As long as you have a lot of reasonably wealthy people in the area, prices will stay very high. I don't see the Silicon Valley startup machine quitting anytime soon.

twblalock 10y ago
Even if it does quit, there are so many large, established tech companies here that prices will remain high anyway. Actually, most of the people I know who have bought houses in the past few years work for such companies: Cisco, Apple, Google, etc. Their employee stock plans are so generous that startup stock options are not very attractive.

aphextron 10y ago

It's reaching the point of absolute absurdity. Check out the forecast price on this listing: http://www.zillow.com/homedetails/811-Arlington-Ave-Oakland-CA-94608/24754125_zpid/ http://www.zillow.com/homedetails/811-Arlington-Ave-Oakland-... I hadn't looked at zillow in a couple years, I can't believe how insane it's gotten. $800k for a century old 2 bedroom home on a rough stretch of MLK boulevard in Oakland.

deleted 10y ago
[deleted]

BashiBazouk 10y ago

Logic and math? We bought two years ago, my mortgage + taxes are about the same as what it would cost to rent a similar home today in the same neighborhood. I grew up in the bay area and remember my parents buying a home for $16,000 and selling for $28,000 thinking they made a killing in the real estate market. This area started back in the gold rush and continues today on the boom bust cycle. But having been through a few, the low of the current cycle is still usually higher than the high of a cycle or two before. I also think we may be entering a period world wide where there is more people with money than nice places to live. I have noticed as well that there are not enough "starter" homes, so they don't fall in the busts as much as the higher end homes tend to.

mmanfrin 10y ago

I think the market is over-exuberant right now for sure, but I also feel that people like the Bay Area because the Bay Area is an exceedingly pleasant place to live. This market has hit a little perfect storm of pricing and may correct, but I think the longview is that Bay Area housing prices will just keep marching up. A lot of the price of homes is the land, which means that (barring local regulation) homes will begin to be built up a lot more. Already on my residential street there is a 7 story live/work building going in where a pottery store used to be. Density will lower renting costs but the land itself will remain valuable.

superuser2 10y ago
It won't be an exceedingly pleasant place to live when there's no salary left over for food after taxes and rent.
- mmanfrin 10y ago
  after taxes and rent If you have no money left over for food after rent, do not live here -- full stop. If you have no money left over after taxes, then you are doing your witholding wrong. And the Bay Area isn't some zone-of-enormous-taxation. We've got like 2% more sales tax and maybe 4% for restaurants who are passing on the medical buck.
  - superuser2 10y ago
    I am not referring to the present, but the hypothetical "prices continue to rise" the parent comment mentioned.
sliverstorm 10y ago
A lot of the price of homes is the land, which means that (barring local regulation) homes will begin to be built up a lot more. It might seem that way, but I've come to believe it's the other way around. When land is cheap, people build lavish houses (see the midwest). When land is unholy expensive, people are devoting every dime just to get the plot, they can't afford to build a nice house. Similar to how (this is hearsay) new development is more lavish in times when mortgage interest rates are low, and more spartan when rates are high. Buyers who must devote more of their payment to interest, have proportionally less to spend on the property.

white-flame 10y ago

Regarding Chinese capital coming in, there's a sense that they're not doing it to invest for a profit. They're doing it protect funds from the Chinese government access and potential future instability. So it might not matter to many of these "investors" if they houses are profitable or not; they're just funds being held in something perceived as more real/secure than what they can get in China.

niels_olson 10y ago
And the Chinese government is not happy about it. They are actively pushing banks to not allow their citizens to get mortgages. I have a colleague whose family pushed her pretty hard to accept and hold hundreds of thousands of dollars so her cousin could buy a house with it. She found the situations quite distressing. Apparently her father, in China, was not happy.

encoderer 10y ago

Everybody thinks it's Chinese money, and sure there is some. But there are just a lot of very highly paid ppl in the bay area. Facebook, Google, &c are moving a lot more money into this region than any Chinese outflows. In all my experience here, SF is not a city of the empty pied-à-terre.

refurb 10y ago
They just released some data on foreign purchases in another crazy market, Vancouver. In the last month (June?) 10% of purchasers were foreign (all countries) and the average house price was the same as domestic purchasers. Foreign investment has an impact in Vancouver, but by and large, it's Canadians who are over-extending themselves to get into a market they think they will be priced out of forever.
- charlesdm 10y ago
  And after a few years, prices will crash. Oh how we've seen this story again and again.