Some very solid points about the market in general, but I wonder how several of these points (particularly the points about oversupply, baby boomers, etc.) apply to places like SF or Manhattan.
SF, in particular, seems to be extremely young (though that could be observational bias on my part), well-monied, in sharp undersupply of housing, with rent matching or in some cases exceeding the cost of a mortgage.
Historically, it's been a boom-and-bust sort of town as far as housing prices are concerned. And there are always places like the East Bay and the Peninsula to capture some of the demand. But it's not as if the Peninsula is cheap these days, so Oakland seems the more likely candidate to take on the burden (which then raises a thorny question of where all the low-income Oaklanders go when the gentrification accelerates).
But it's conceivable that SF basically becomes the Mahattan of the Bay Area, a playground for the rich, while everyone else gets pushed into the outlying boroughs and beyond. In such a scenario, where money is little object to the buyers determined to own in SF, what happens to pricing?
I don't know anyone who owns a home in SF right now who doesn't think the current prices are insane. (Anecdote: one friend just bought a condo in a new building, and three months later, the closing price for a lesser unit in the same building was $200k higher than what he'd paid for his). But are they actually going south anytime soon? Also: while mortgages and interest rates are great indicators for the housing market in general, SF seems to have an unusually large supply of cash buyers.
In conclusion: I'm not disagreeing with the article, nor am I bullish on the local housing market. I don't fully understand why it's behaving the way it is, and that's never a great sign. But superficially, it seems to be the sort of "microclimate" that doesn't track the aggregate US market very closely. How many of these enclaves of wealth does the US have, or will it have, that seem to have a low to zero beta w/r/t the overall market? And if it's a significant amount, when will speaking in aggregate terms start to lose a bit of meaning?
On a related note, I'd love to see a comparison of urban vs. rural vs. suburban areas across the US. I suspect that concentrated urban centers are obeying very different laws of physics, so to speak, than suburbs and semi-rurals with their huge tracts of overbuilt housing inventory. Example: I used to live in LA, and when the press spoke about how hard-hit LA was during the housing crash, they painted with a pretty big and sloppy brush. The surrounding areas (Inland Empire, etc.) got the plague, but housing in LA proper barely registered a slight cough.
> But it's conceivable that SF basically becomes the Mahattan of the Bay Area, a playground for the rich, while everyone else gets pushed into the outlying boroughs and beyond. In such a scenario, where money is little object to the buyers determined to own in SF, what happens to pricing?
I lived in Manhattan and in SF now and I would say, yah, I can see that. Already though, the 'boroughs' are being pushed further out. Buying in SF is an all cash over asking price deal (I've heard over 25%). My wife and I have been looking around the east bay and north bay and while those prices are a little more down to earth, the same thing is going on there as well - cash. Maybe it's not so over the asking price, but those that can't buy here in the city, don't want to ruin their chances buying elsewhere, so cash is still king.
It's pretty crazy; I saw a house by us in the Upper Market around - a 2br 1ba, 900 sqft - go for over $1.2m (I pass this place as I walk to muni every day). That was a month or so ago. Last week walked by it, there was a for rent sign. Looked the place up, $5800/mo rent. Ridic. Yesterday, the rent sign was gone. I was like, wow.. Ok..
I felt like our trade up in our building from a $1500 1br apt to a $2200 2br apt was a little crazy. But I'm sure our place now would rent for $3k easy. Needless to say, we're staying put for a bit, still continuing to save.
I think the big thing on the psychology here is the fact that so many people can swoop in with a lot of cash over ask. You really do realize it's a rich people's city - to own. My wife and I have a small toddler with another kid on the way and couple the current climate with how crappy the public schools are here and it's only a matter of time before we hit the eject button. Add to that the homeless problem that never seems to get any better (I've lived here on and off for 20 years and it seems like its only gotten worse) and you have the makings of a city where families don't live (more dogs than kids here).
We still love the city and we'd never ever thought we'd say we're lookin to the suburbs. But now, we are. Who knows if this will change over the next few years.
"I think the big thing on the psychology here is the fact that so many people can swoop in with a lot of cash over ask."
Yeah, above certain pricing tiers ($1M+ listings), the city seems to be catering to the young and monied without family concerns.
I saw a 1BR / 1 BA in mid-Market listed at $1.39M a few months ago. I thought to myself, how much higher could that ever really go? It's a freaking 1 bedroom. Sure enough, it sold at over-asking, all cash, to what a realtor friend of mine assured me was a twentysomething buyer. Probably Facebook money.
On a semi-related note, these days it seems as if developers are making a serious attempt to gentrify the Tenderloin. Lots of new luxury boutique buildings going up or being converted there. There's a $5M+ penthouse in the heart of the 'Loin for sale right now. And I guess it makes sense, in a way. Provided gentrification can push all the homeless out of the area, it's really centrally located and convenient for people who work in the financial district or general Market / Union Square area.
To your point, though: where do all the homeless people go? They seem to be getting pushed further and further south, especially now that SOMA (South Beach in particular) is the most expensive neighborhood in the city. And if the 'Loin turns posh, what the f- happens to all of them there?
> Add to that the homeless problem that never seems to get any better...
I was amazed when I learned that Orange County busses its homeless to SF. I often wonder how many other affluent areas sweep their troubled people under their neighbor's rug?
I know this is going to sound nuts to you, but if you're a tech worker that can do a day a week at home you really should check out north of San Rafael. Last year I bought a house in Petaluma that was way beyond what I thought I could own. More important to me is that the schools and community are great. 3 parks and a historic downtown all within walking distance. I feel like I live in a town from the 1950s.
Granted, I knew I'd be working more and more at home, but for the first year I road a 1 hour commuter bus (with wifi!) that picked me up a block from my house and dropped me a block from my Soma office. East Bay has BART, but don't discount the other public transportation options that do just as well.
Petaluma is an awesome place and it has a fair share of tech culture. Bias, TwitVid and a number of agencies are all westside downtown locals. Housing on the westside is getting more competitive though. Nothing like SF I'm sure but difficult to get into unless you make 150k+.
Petaluma has that nice old-world vibe because it sits on a slab of granite. During the big earthquakes of the past century the neighboring cities' buildings collapsed but that slab of granite provided a buffer for Petaluma, keeping its turn of the century downtown. It also ended up being the default relief center during those disasters :) Way to go, slab.
Prices in the east bay are still way over asking and there is a lot of cash. My wife and I paid $75k over asking for our 1300ft2, 1 bed, 1 bath house in north oakland just shy of a year ago. We bid on 6 houses total and every one of those was in the same ballpark over ask.
I'm not sure what it's like over the hills, but in north oakland and berkeley you'll still have to pay over asking and compete against 5-10 other bids.
I see this and it blows my mind, coming from a low-income family growing up and a low-COL but mid-to-high-income household now. I've never heard of anyone even paying asking price, let alone above it (and having the seller pay most or all of closing costs is a non-starter around here). We only paid $113k for our 3br 2.5ba home (list $139k) with the seller chipping in $7k or so seller's help and although it wasn't the case when we bought it a few years ago, we make more in a year than the house is worth.
This is tempered by the fact that the medium HHI of our zip-code is in the high 30k's and we've got the amenities to match, but we're in a suburban area outside of small city/large town (200k or so during the week?) and with me being a developer my income isn't necessarily tied to a specific geographic area.
"I've never heard of anyone even paying asking price, let alone above it..."
For what it's worth, paying above asking is a pretty bizarre concept to me as well, and I lived most of my life in LA (LA LA, not an outlying area) before moving up to SF. Having owned and sold a home in LA, I would have been smoking crack to believe I'd get my asking price, let alone exceed the asking. And there was no shortage of crazy money floating around that town.
But here in SF, asking is basically the floor, not the ceiling. This is probably because of supply & demand. SF has much more constrained inventory and less liquidity in that inventory -- so you get things like bidding wars, and multiple offers on listings are the rule and not the exception.
I have seen people get carried away with their pricing here, and the market usually punishes those people until they lower their asking prices. But for condos or houses priced "appropriately" relative to their comps, asking is almost assured, and above-asking is far from uncommon.
> but I wonder how several of these points (particularly the points about oversupply, baby boomers, etc.) apply to places like SF or Manhattan.
First, it's a bit of a cliché from realtors in every area of the US to say: "It's different here". Sometimes it might be, but when interest rates and cheap money are available nation-wide, it pays to think about what that implies about prices.
If buyers were using only their own cash, then you don't have to worry about what interest rates are doing. But if people of varying levels of financial sophistication are competing to purchase, and some of those people are using borrowed funds, then it implies something about how the least sophisticated buyers are going to bid.
But it's conceivable that SF basically becomes the Mahattan of the Bay Area, a playground for the rich, while everyone else gets pushed into the outlying boroughs and beyond
It certainly was true and happened when I lived there in the 90's. All the "artists" and young (not dotcom) people pushed out to Oakland. Gentrification of The Mission (inner then outer), of 16th St, of Hayes Valley, Condofication/Dotcom offication of SOMA, etc.
It will happen again. Pushing out the middle class yuppies who pushed out the poorish people before them, who pushed out the immigrants before them, who pushed out...
Some very solid points about the market in general, but I wonder how several of these points (particularly the points about oversupply, baby boomers, etc.) apply to places like SF or Manhattan.
I was just coming to say the same thing. Solid advice, but housing has such metro-geographical differences, 40% of this doesn't line up with my area (Atlanta).
Edit: Had 60% went back and modified to 40% after reading again.
There was a flood of people out of Atlanta and into the surrounding counties in two waves during the late '90s and early 2000s. The flood was driven by prices going higher. After the market collapse, there are plenty of empty suburbs going to literal rent-seeking speculators at rock-bottom prices. Something similar could happen in SV if the market cools.
Source: Barrow County resident who would have preferred Gwinnett.
I'm in the Atlanta area and purchased a home (out in the burbs ) over the last year. Price there fell significantly (up to 50%) during the last 5 years and have finally started to rise. Supply is much lower than it was even a year ago too.
I think there are a lot of generalizations in the article that people have been preaching for a few years now. If you sit on the sidelines and worry about of the potential problems, you're never going to purchase.
Glad you brought up the Bay...entirely different animal than anywhere in the country. Oakland does represent a potential bright spot, but I disagree that there needs to be displacement to achieve it.
Oakland, like most cities, suffers from antiquated and restrictive zoning model (among other things). Already a crowded city in most parts (Lake Merrit), it is largely inefficient. Although they are on different scales (3M vs 300K), Chicago is a good model of how to develop a downtown--the one area where Oakland could add 100k--and help the crime issue. You could argue Detroit has a better downtown.
A tepid Twitter IPO right on the back of Facebook's might convince people to start looking to places with higher growth potential. Anywhere Google takes its Fiber is a good bet.
I don't know about a bust, but things can only go so high before people with money and ambition start looking elsewhere.
This... is not as true as you think it is, even here in Silicon valley.
If I could get $50/month/resident out of any of the reasonable-sized condos around here, I could easily give everyone gigabit Ethernet.
Problem is? even here in the heart of silicon valley, most people don't give a shit. Faster than wi-fi doesn't matter.
Hell, even you and me... I talk about bandwidth being important, but surewest has had fiber to the home in Sacramento for some time now... fast and very cheap. Do you see me moving to Sacramento? No, screw that.
I mean, it's a cool project, and I wish google luck, but the fiber itself isn't going to move real-estate markets.
>Do you mean provide everyone shared access to gigabit Ethernet? Or each unit gigabit Ethernet. Those are likely two very different things.
Obviously, we're not talking about datacenter-levels of oversubscription. You'd be talking consumer-levels of oversubscription. Yes, this would be an oversubscribed gigabit link, really a whole lot like DSL, except that instead of 10Mbps max, you get 1000Mbps max, and because the physical plant is so much cleaner, you could do much better QoS.
I mean, a shitty datacenter-level gige link delivered to a data center where the provider has a POP (if you are only buying a single gigabit; this stuff gets way cheaper as you buy in bulk) is about $750/month. Less if you know people, more if you sound like you have money when you call the sales rep; maybe 3x to 5x that if you want a big name. ($750 is what the he.net guys will quote you straight off.)
You would, of course, put 50 or 100 folks on that gigE link. Would this mean that everyone would get 1-2Mbps? not unless everyone was running the link full-throttle all the time.
This is... not dissimilar to the over-subscription ratios on DSL. And it mostly works okay, because it's hard to run a gigE link full-throttle all the time. And like I said, having clean physical plant (where you know the actual maximum throughput of a line, rather than the DSL bullshit, where it's loss depends on the phase of the moon and last time it rained) makes doing QoS way easier.
In many ways, this would be a lot like DSL, in that you'd have a 'star' topology within the building, each customer having a full-duplex connection to your pop within the building, then 'oversubscribe' according to cost concerns at the network edge.
It's never obvious why a technology is valuable before someone invents an application for it. No one knew what to do with broadband before VoD and digital delivery (Steam, GoG, app stores, etc.) came along, and we're only a few years into widespread adoption of those technologies. Anything could happen on the 5-15 year time scale we're talking about here. Gigabit Internet and the places that have it could look very appealing once the technology that puts it to work starts to gain traction.
> It's never obvious why a technology is valuable before someone invents an application for it.
Well that's just provably false:) Before flight people knew why flight would be useful. And before broadband people already knew that it would be important. I remember my mom in 1995 saying how useful she thought the internet would be once it was fast enough to transfer videos and pictures of her grand kids.
>Gigabit Internet and the places that have it could look very appealing once the technology that puts it to work starts to gain traction.
I certainly agree that gigabit internet will be more valuable in the future than it is now.
But, will that make property way more valuable? maybe. thing of it is, compared to silicon valley property values, getting fiber in to multi-family dwellings isn't all that expensive.
You are gonna need like 50 neighbors to make the ongoing cost reasonable, so that's harder with single-family homes, but not impossible. Install costs are high, but not that high; generally $5-$15K one-time to trench from the street into a property and splice in, so if you can talk all your neighbors into blowing 10K+ each on the install, plus your $50 each ongoing, well, you could totally do it. The whole project is way more appealing than, say, moving your ass to Sacramento or Kansas or somewhere else you probably don't want to live.
Imagine moving to a place without cable, DSL, or even a wireless provider. Now imagine 5-6 very popular services depend on gigabit speeds in the same way YouTube or Steam depends on cable, DSL, and wireless. How many people would buy a house without a gigabit link in that environment?
My point is that if something changes the SV market situation, like an exodus of investors to Texas or another Google Fiber location, housing prices are going to fall fast as the money leaves.
tl;dr: the fiber will come to the consumer, not the other way around.
You misunderstand. I'm not saying that gigE isn't great. Certainly within the next decade, (and hopefully sooner) nearly all of us are going to demand gigE to the home.
My point is just that the economics of the situation are such that the presence of gigE lines isn't going to move the price of real-estate all that much. In expensive areas, the cost of real-estate utterly dominates the cost of getting gigabit network connections, if all your neighbors want the same speed.
The main reason gigabit to the home is unaffordable right now is due to low density of demand, and as you point out, that is going to change.
> No one knew what to do with broadband before VoD and digital delivery (Steam, GoG, app stores, etc.) came along, and we're only a few years into widespread adoption of those technologies
Napster, then other file-sharing services (Morpheus, Kazaa), Bittorrent, etc. This was ~25% of internet traffic in the mid-00s
25% of 5% of the current population of Internet users isn't much. It wasn't that long ago that people wondered if the Internet had staying power. Few people believed it had much influence outside itself before the 2008 elections. The greatest period of Internet growth was post-YouTube. The greatest growth in build out and adoption of gigabit Internet will be post-whatever takes advantage of it.
My point still stands:
> No one knew what to do with broadband before VoD and digital delivery (Steam, GoG, app stores, etc.) came along, and we're only a few years into widespread adoption of those technologies
My money is on Austin. Low taxes, reasonable rents, plenty of culture (SXSW, "Keep Austin Weird", lots of nightlife, etc.), and a history of tech seems like the perfect combination.
Ding ding ding. You are correct! The number of people showing up here (disproportionately from California, actually) is pushing housing prices through the roof. Houses sell about 10% over ask pretty much anywhere.
Rent has doubled for most of the area over the last 5 years. In my dismay a few months ago, I did some research into buying a place but quickly came to the same conclusion as the author.
I just did a quick look around my area over on Zillow. A condo comparable to my apartment (townhome style, 2-car garage, similar sq ft / bedrooms, location, etc) is still listed for 23 times my current annual rent, even though rent went up 15% last year. I'm renting for 4.3% the price of an (old!) condo. Anyone who thinks this is sustainable is going to be in for a surprise.
SF, in particular, seems to be extremely young (though that could be observational bias on my part), well-monied, in sharp undersupply of housing, with rent matching or in some cases exceeding the cost of a mortgage.
Historically, it's been a boom-and-bust sort of town as far as housing prices are concerned. And there are always places like the East Bay and the Peninsula to capture some of the demand. But it's not as if the Peninsula is cheap these days, so Oakland seems the more likely candidate to take on the burden (which then raises a thorny question of where all the low-income Oaklanders go when the gentrification accelerates).
But it's conceivable that SF basically becomes the Mahattan of the Bay Area, a playground for the rich, while everyone else gets pushed into the outlying boroughs and beyond. In such a scenario, where money is little object to the buyers determined to own in SF, what happens to pricing?
I don't know anyone who owns a home in SF right now who doesn't think the current prices are insane. (Anecdote: one friend just bought a condo in a new building, and three months later, the closing price for a lesser unit in the same building was $200k higher than what he'd paid for his). But are they actually going south anytime soon? Also: while mortgages and interest rates are great indicators for the housing market in general, SF seems to have an unusually large supply of cash buyers.
In conclusion: I'm not disagreeing with the article, nor am I bullish on the local housing market. I don't fully understand why it's behaving the way it is, and that's never a great sign. But superficially, it seems to be the sort of "microclimate" that doesn't track the aggregate US market very closely. How many of these enclaves of wealth does the US have, or will it have, that seem to have a low to zero beta w/r/t the overall market? And if it's a significant amount, when will speaking in aggregate terms start to lose a bit of meaning?
On a related note, I'd love to see a comparison of urban vs. rural vs. suburban areas across the US. I suspect that concentrated urban centers are obeying very different laws of physics, so to speak, than suburbs and semi-rurals with their huge tracts of overbuilt housing inventory. Example: I used to live in LA, and when the press spoke about how hard-hit LA was during the housing crash, they painted with a pretty big and sloppy brush. The surrounding areas (Inland Empire, etc.) got the plague, but housing in LA proper barely registered a slight cough.