Market Conditions, Trends and Home Prices in San Francisco(paragon-re.com)
paragon-re.com
Market Conditions, Trends and Home Prices in San Francisco
https://www.paragon-re.com/trend/san-francisco-home-prices-market-trends-news
69 comments
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A few things to keep in mind when looking at these stats:
- the turnover in bay area real estate is relatively low, I've seen 0.38% as the per year turnover rate (not sure how accurate)
- as such, prices get bid up really high with such low inventory
- real investment companies are driving a lot of this - it's an anecdote, but a house down the street in SF has been under construction for over 4 years; it's a completely redone duplex. You're either a multimillionaire who can float a 2nd mortgage for 4 years or you're a company with deep pockets who knows they can flip it for 200% of the purchase price when it's said and done.
- the same RE company that produced this report, also has a good article on bubbles - they are realistic about it[1]
It's not a normal market at all.
[1] https://www.paragon-re.com/trend/3-recessions-2-bubbles-and-...
- the turnover in bay area real estate is relatively low, I've seen 0.38% as the per year turnover rate (not sure how accurate)
- as such, prices get bid up really high with such low inventory
- real investment companies are driving a lot of this - it's an anecdote, but a house down the street in SF has been under construction for over 4 years; it's a completely redone duplex. You're either a multimillionaire who can float a 2nd mortgage for 4 years or you're a company with deep pockets who knows they can flip it for 200% of the purchase price when it's said and done.
- the same RE company that produced this report, also has a good article on bubbles - they are realistic about it[1]
It's not a normal market at all.
[1] https://www.paragon-re.com/trend/3-recessions-2-bubbles-and-...
Keep in mind Paragon Real Estate Group is motivated by turning over inventory and encouraging people to buy.
> "longer term trends have always been positive"
This suggests that you should always buy if you're planning to stay in the Bay Area for the long term. The problem is that if you need to move within the Bay Area, then you could be setting yourself up for a very long commute, when one could have rented and invested the difference in the bull market over the past 10 years. And if you do ever leave the region (like many do, despite what the article suggests that lumps overseas in-migration with domestic out-migration), then you're looking at a 8-10% in fees to buy and then sell. Many parts of the region still haven't recovered from the bubble of 2007, and a more apt study would be to examine historical prices in urban areas like Boston or New York and the opportunity costs. A study of 100 years of commercial real estate in NYC show how property values were 30% lower in 1999 than they were in 1899, adjusting for inflation, and within, any decade values often rise and fall by 20–50% in real terms. https://economics.mit.edu/files/5887
> "longer term trends have always been positive"
This suggests that you should always buy if you're planning to stay in the Bay Area for the long term. The problem is that if you need to move within the Bay Area, then you could be setting yourself up for a very long commute, when one could have rented and invested the difference in the bull market over the past 10 years. And if you do ever leave the region (like many do, despite what the article suggests that lumps overseas in-migration with domestic out-migration), then you're looking at a 8-10% in fees to buy and then sell. Many parts of the region still haven't recovered from the bubble of 2007, and a more apt study would be to examine historical prices in urban areas like Boston or New York and the opportunity costs. A study of 100 years of commercial real estate in NYC show how property values were 30% lower in 1999 than they were in 1899, adjusting for inflation, and within, any decade values often rise and fall by 20–50% in real terms. https://economics.mit.edu/files/5887
Given how small SF is, and given how many multi-millionaires are minted with every big and even not-so-big tech company exit -- not to mention a steady population of bankers, traders, lawyers, doctors, etc. -- it seems like there is absolutely no end in sight to what is happening in the housing market there. There are probably more people flush with 7+ figures of cash to buy there than there will ever be available inventory in the foreseeable future. I would be extremely curious to see the demographics of all home buyers over the last few years, and/or what percentage of sales in the city are all-cash offers or at least could be done as such if the buyers desired.
Recently went to an open house in Hayes Valley. Asking price 2.595 million. Checked back with a real estate agent later, and got these stats: There were 6 offers, 5 of which were all cash. The winning offer was for 3.3 million.
My Uncle in-law sold his house a couple months ago in Santa Clara (right next to Levi's stadium) and was asking for $1.2MM hoping to actually get 1.3 for it (a problem unto itself..). They took a $1.5MM offer (from about 5 other similar offers) from a young couple who both worked at Uber and also got significant help from parents. Wasn't all cash but I believe they put down like $500k. So it's not just tech but sometimes tech with the help from family.
And what an awful area. Oh it's clean and safe enough. But basically landfilled industrial parks (and Levi Stadium). I despise going to the Santa Clara Convention Center for events.
I agree, I lived next door to him for 5 years. The stadium, Great America, Ace/Amtrak train, and being in the direct flight path of San Jose airport made for quite a bit of noise. Every house in the neighborhood had double-pane windows for that reason.. Not to mention the occasional waft from the nearby wastewater facility makes me more than happy that I no longer live there.
Not really sure what the buying couple saw in the area. The house was really well-kept and updated but I feel there were other homes in much better surrounding neighborhoods for a similar price-point..
Not really sure what the buying couple saw in the area. The house was really well-kept and updated but I feel there were other homes in much better surrounding neighborhoods for a similar price-point..
Probably close to 101 & 237 and within their budget. Most of Sunnyvale & Mountain View are in the $1.7-$2.3M range, and to get back below $1.5M, you either need to go south of Central Expressway or into a very old, non-renovated home in the middle of a subdivision. If you work along the 101 corridor that can easily add 20-30min to your commute.
Amazing. Would kill to see the respective employer(s) of each bidder. That would be fascinating. I still wonder how much developers and/or foreign buyers are in the mix, but I have a feeling that's not the dominating factor here.
I would bet that most aren't employed but own their own business(es).
I don't know, I mean, are there really that many employees who have ~$3m in cash?
I'm thinking of all the people who did/will make that much or more with each large-scale exit. How many 3+ millionaires will the combined exits of Airbnb, Uber, and Pinterest create? (Any of which could be in the next few years.) Easily more than a thousand, I would guess.
What's even more staggering is how between Facebook, Google and Apple the number of jobs that are going to be created in the next 5~10 years:
https://www.sfchronicle.com/business/article/Google-s-Bay-Ar...
I'd venture to guess it's somewhere around 60k net new families to the bay area just from those 3 companies.
The end is definitely not in sight.
https://www.sfchronicle.com/business/article/Google-s-Bay-Ar...
I'd venture to guess it's somewhere around 60k net new families to the bay area just from those 3 companies.
The end is definitely not in sight.
I'm hoping there's a point where people are going to say, no... an old 1 bedroom apartment isn't worth $4k/mo. And where we collectively realize that maybe it's not great to be sending so much of our money to landlords.
[deleted]
I don't know if it will be collective, maybe more of a trickling off. I've already moved out to east bay; my company's generous work from home policy helped a lot in this regard.
Every time one of these Bay Area real estate articles gets posted, I yearn for a corresponding link about large numbers of new housing getting built somewhere in the Bay, or breakthrough approvals of transport infrastructure, or greater corporate acceptance of remote work, or further development of other tech hubs. The alternative is to despair in this bizzaro land of misery in unequal prosperity.
The Bay is choking on golden chains.
The Bay is choking on golden chains.
The article mentions 68,000 units in the new development pipeline (essentially all condos/apartments) but, yeah. In the current environment, you could probably double or triple the planned building rate and not have much of an impact--beyond making it that much harder for people to get around.
Especially since the cost of living is providing a "cap" to how many people stay, relative to how many newly minted millionaires and lucky startup exit employees there are.
That is, those companies "overflow" into other cities/countries because it's too expensive and there's not enough supply, but the moment you build more and the price would go down, some people who would have left don't, and so the price won't move downward. You'd have to flood the market faster than the big companies hire and startups grow to make a significant change, and that's a LOT of extra capacity to create.
Realistically, making other cities more desirable, encouraging the big tech companies to open more satellite offices than they already do, and more focus on working from home for people who can is likely to make a bigger difference than anything SF itself can do on its own (bonus, it would help other cities like NYC and Boston too!)
That is, those companies "overflow" into other cities/countries because it's too expensive and there's not enough supply, but the moment you build more and the price would go down, some people who would have left don't, and so the price won't move downward. You'd have to flood the market faster than the big companies hire and startups grow to make a significant change, and that's a LOT of extra capacity to create.
Realistically, making other cities more desirable, encouraging the big tech companies to open more satellite offices than they already do, and more focus on working from home for people who can is likely to make a bigger difference than anything SF itself can do on its own (bonus, it would help other cities like NYC and Boston too!)
I get the VC dynamics with startups. Well, sort of.
But, with the big employers, they're sufficiently big that everyone's no longer co-located in any meaningful sense anyway. Amazon seems to have already gotten this message with respect to Seattle (not just HQ2 but also, e.g., their Alexa building/hiring in the Boston Seaport).
I'm not sure how this plays out. Hopefully not with some massive tech crash. But I have to believe we're hitting (or have hit) peak salary for new hires in the Bay area and, at some point, most people are not going to live in a dorm to work for Facebook. And, if they are, that's sad.
But, with the big employers, they're sufficiently big that everyone's no longer co-located in any meaningful sense anyway. Amazon seems to have already gotten this message with respect to Seattle (not just HQ2 but also, e.g., their Alexa building/hiring in the Boston Seaport).
I'm not sure how this plays out. Hopefully not with some massive tech crash. But I have to believe we're hitting (or have hit) peak salary for new hires in the Bay area and, at some point, most people are not going to live in a dorm to work for Facebook. And, if they are, that's sad.
The big employers, for better or worse, in may cases still favor their mothership. Give the choice they seem to favor the HQ if they can. The satellite offices are required for scalability, but as long as they have capacity in the main office, they'll try and fill those slots up first.
At least its how it feels like.
At least its how it feels like.
Oh. I don't disagree. I think it's hard to give up the mothership vs. satellite mentality. I work for a company that had two major locations fairly early on (not including SV) for historical reasons and that's doubtless one of the factors that's made it easier to be pretty distributed as time's gone on.
It's no surprise why so many people are still trying to get in even though the market is insane. They just look at those graphs, with 5-20% YOY growth almost every year, see a horrible recession once every few years that has at most a 30% effect on house value (which recovers all "lost" value very quickly)... makes a lot of financial sense. You buy a $2m home and it'll be $3m in no time. Plenty of folks said it would stop a long time ago but it clearly isn't stopping.
I'm genuinely curious as to where the price cap is going to land with the homes. We're already at prices that almost no one can pay (you have to be a 1%'er) - but at what point is it too much even for most of them?
I'm genuinely curious as to where the price cap is going to land with the homes. We're already at prices that almost no one can pay (you have to be a 1%'er) - but at what point is it too much even for most of them?
It has to stop, obviously. That $2 million house isn’t going to be $20 million in 10 years without serious inflation.
No one today remembers the early 90s, when plenty of people did or almost lost their shirts in the Bay Area housing markets.
No one today remembers the early 90s, when plenty of people did or almost lost their shirts in the Bay Area housing markets.
A friend bought his house in Sunnyvale at the peak and I think the trough was about 30% lower. The decline had no effect whatever on his life, before long it was multiple times his original price.
My land lady in San Carlos told me she had a heck of a time keeping her house in the late 80s early 90s housing crash. Ya, you can win if you are liquid enough to weather the storm, not everyone is though, especially if you are heavily leveraged and go underwater on your loan.
Unless you get fired and you can’t afford your mortgage.
If you get fired or laid off, then you get another job.
Said a lot of people in 1999. And say a lot of people who are commanding high-level wages for relatively specialized skills and experience.
This was not always possible in 1991 or 2002 or even 2009.
This is true. The biggest risk with buying is that there could be a recession in the near future and you will be unemployed.
It's very unlikely that it will be 20 million. However, it's likely that it will be worth around 4 million. That would be a 7 percent year over year growth.
Yes, but nowhere near 20%. 7% a year itself isn’t very sustainable.
It has been 8.2% over the last 23 years (inclusive of both major housing crashes). "The market can stay irrational a lot longer than you can stay solvent," as the saying goes.
Yes, but it will always end, we just don’t know when.
Yeah but, that $2M wasn't $200k 10 years ago so why assume same trajectory? I bet more than anything the growth is linear.
Price cap goes hand-in-hand with what people will be able to afford. Dual tech income ~5-600k means the ceiling is still ahead, and if incomes continue to rise on the top end then the ceiling is open-ended.
What's driving up tech salaries, is it primarily because companies are aware of the cost of living in the Bay Area and are paying their employees accordingly? And if so doesn't that just cause a feedback loop? Or is it just because tech is making a lot of money and so compensation naturally increases?
The potential value of an engineer is unlike anything else. At the time of Whatsapp's acquisition by Facebook they had 10m users per employee and a roughly $500m valuation per employee.
That's pretty insane if you think about it, even if it's an outlier. Workers in other industries couldn't cut hair fast enough, fill grocery bags, cook meals, wait tables or chauffeur people fast enough etc to generate that much value in SV. There's just no competing with the type of worker that can de facto service millions of customers every minute of the day like a Whatsapp engineer does.
Given that, and network effects and the gigantic pile of liquidity the US/world is sitting on right now (at bizarro low-inflation interest & rates the past decade), and it all just pools around one spot.
They'll put support staff in satellite offices, but they can easily afford to put the core devs in central locations. Facebook had about 15k employees up until 2016 or so, Walmart has 1.5 million (100x) on somewhat similar net income (same order of magnitude). These ridiculous salaries aren't the biggest deal to tech companies as insane as that sounds.
That's pretty insane if you think about it, even if it's an outlier. Workers in other industries couldn't cut hair fast enough, fill grocery bags, cook meals, wait tables or chauffeur people fast enough etc to generate that much value in SV. There's just no competing with the type of worker that can de facto service millions of customers every minute of the day like a Whatsapp engineer does.
Given that, and network effects and the gigantic pile of liquidity the US/world is sitting on right now (at bizarro low-inflation interest & rates the past decade), and it all just pools around one spot.
They'll put support staff in satellite offices, but they can easily afford to put the core devs in central locations. Facebook had about 15k employees up until 2016 or so, Walmart has 1.5 million (100x) on somewhat similar net income (same order of magnitude). These ridiculous salaries aren't the biggest deal to tech companies as insane as that sounds.
A bit of both I would think. It's hard to hire skilled developers etc. in the Bay area if they would have a better standard of living elsewhere. Arguably they would anyway--as has been the case forever--but there are various compensations to SV and Northern California. AND, while they'd prefer to pay less, many companies can in fact afford it if the alternative is to be unable to hire or to be forced to hire lesser talent.
500-600k salaries? What jobs are you looking at?!
For a single person - it's not unheard of for total comp. You'll really only find that at the big tech players (Google, Facebook, etc.) but for dual income - which is what I think they were specifying... $250-300k per person is "easily" obtainable assuming you also enter that big N company again.
I think he/she meant a total of 500k/600k, in cases where both people in the couple earn a 250k/300k annual salary.
If prices continue to rise, they will put even more pressure on couples to leave SFBA once they retire and don't need to be within commuting distance of the major tech companies. It could become extremely rare to see any retirees at all in the area, which could have downstream affects on where their kids and other relatives move or stay.
You mean like retirees like baby boomers or way in the future retirees? As long as Prop 13 stays around, you have quite a few retirees who've been in their current home for 40+ years and only pay like $700 in property taxes a year. They won't go anywhere and in fact are incentivized to stay.
Today, when a house in SFBA is $2 million and a comparable house in Arizona is $400k, yes. But if prices continue to diverge, then the math could change. What happens if trends continue and SFBA is $4 million and Arizona is $600k? The foregone return on "dead" home equity (once prices do hit a ceiling and appreciation slows) can rapidly outpace any differential in property taxes.
IIRC there's also some portability of proposition 13 tax basis within California, which would allow retirees to relocate intrastate, which would presumably create inflationary pressure in those secondary housing markets.
IIRC there's also some portability of proposition 13 tax basis within California, which would allow retirees to relocate intrastate, which would presumably create inflationary pressure in those secondary housing markets.
Prop 13 means you're heavily incentivized to stay in your home as a retiree and not move (even if it is "too much" home for you). If you're going to move, its almost certainly out of California entirely – but that is often not a practical option given friends & family nearby.
What do you do when you need to pull the equity out of your home to retire? Reverse mortgage?
Yes, reverse mortgage. My SO's grandmother did this.
Sucks for the kids - as they won't get to inherit a really expensive home with extremely low tax burden (prop 13 continues the low tax burden to those who inherit the property). Banks are so happy to do these right now.
Sucks for the kids - as they won't get to inherit a really expensive home with extremely low tax burden (prop 13 continues the low tax burden to those who inherit the property). Banks are so happy to do these right now.
Well your kids can't afford to buy their own home so they probably live with you and help with expenses...
It's just not worth it. I went to an open house this weekend to see a 800 sq ft 2b/1ba in Castro area for "only" 1 million and the ceilings were (no joke) ~6' high!
This is what gets me about housing in SF. OK, it's a hot market and a typical home is $1.5M. I get that.
But that same $1.5M home is probably a 1920's floor plan (one bathroom, no storage, tiny bathroom) and hasn't been updated in decades.
If you want what most of the rest of the country deems a middle class house, you're looking at $2.0M+ unless you're living in a neighborhood with shootings.
But that same $1.5M home is probably a 1920's floor plan (one bathroom, no storage, tiny bathroom) and hasn't been updated in decades.
If you want what most of the rest of the country deems a middle class house, you're looking at $2.0M+ unless you're living in a neighborhood with shootings.
[deleted]
I’m putting an offer on this home; no joke.
Ah the Silicon Valley Oasis.
"I will say there is more feces on the sidewalks than I’ve ever seen..."
https://www.nbcbayarea.com/news/local/SF-Mayor-Theres-more-f...
"I will say there is more feces on the sidewalks than I’ve ever seen..."
https://www.nbcbayarea.com/news/local/SF-Mayor-Theres-more-f...
Silicon Valley is about 40 miles south of San Francisco :)
Ah yes, I hear the trailer parks in East Palo Alto are lovely this time of year.
SF has a severe lack of free toilets, besides the streets.
Like anything in life you either got lucky or didn't with Bay Area housing. It's a contentious subject and people who are new are paying a premium to "get in".
I would be interested to read more about what'll happen in the case of the next large quake. Since we're overdue a big one[1]. I recently had a friend big on a duplex in the Marina. I'm not sure if I would take a 20 - 30 yr real estate bet in a liquefaction zone.
1. http://theconversation.com/californias-other-drought-a-major...
1. http://theconversation.com/californias-other-drought-a-major...
I have Earthquake insurance from the CEA and it was surprisingly cheap, but of course, one thing is for the insurance to cover your home repairs and quite another to actually be able to do them because if/when the next big one hits, if you think contractors/developers are overbooked now it will be 100 times worse then, basically I suspect we'll live in a tent for a while. But at least I have my own piece of land where to do that.
This report juxtaposed with some of the descriptions I was reading on a reddit thread about what it's like to be in SF on a day to day basis just paint such an insane picture. A place where the median house price is 1.6 million dollars and it's completely commonplace to see a person defecate on a street in broad daylight.
For a place that has generated such wonder, it seems like some kind of social anti-pattern born out of a hyper-capitalist society.
For a place that has generated such wonder, it seems like some kind of social anti-pattern born out of a hyper-capitalist society.
Page down.