San Francisco Bay Area Real Estate Correction
Investor · Palo Alto, CA · Member since 2015 · 6 posts · 5 votes
San Francisco Bay Area Real Estate Correction
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Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
10yseveral comments:
The paragon data is spot on. A well respected RE group in SF that know their sheite! The first 2 graphs on the link provided above say it all. I don't know how anyone can look at those graphs and debate the long term value of prime Bay Area (especially SF proper) real estate. And people like Jay and Bob have been investing for a while to back it up. I only started in 1994 with a modest condo and parlayed that into 5 buildings worth big bucks. Great cash flow now too. Heck one of my buildings in the mission has had rent increases of 50% in 3 years! So yeah, when I started, it had a modest cash flow. But now....chaa-ching!
As for the tech/bubble debate, everyone is speculating, and that's fine. I just think since some noobs expect some spectacular crash, it will probably be just the opposite...a mundane slow down from hyper growth. Remember, the rate of increase can't go up forever. So if venture funding grows less than last year, it's not a disaster. It simply means the percent increase is more modest. And that's exactly what's happening to housing costs. Instead of going up 15-20% YoY, it's down to 5% YoY. Most fly over states are lucky to keep up with inflation.
As for how dependent our economy is on tech, and if dot.com crash will repeat itself? Um, no. Sure a lot of start ups will vaporize (by design, most fail), and there will be a few spectacular unicorn crashes (too much cheap money went there). But we have huge company's here like Google, Apple, Facebook, salesforce, etc., etc., etc. that still have thousands of unfilled positions. Tech will most likely have a correction, and employment will have a lot less sizzle. But if you expect a major crash and cheap RE again....I don't think so. Barring some global systemic crisis, I'd be surprised if prime Bay Area and SF RE falls even 10%. I expect a leveling off, and maybe, a few percent decline.
China's economy (unless it blows up) will not have a major impact on housing here. Matter of fact it's kinda nice having some nice Chinese folks parking $$ in prime SF. Just as the market may slow down, the Chinese $ helps keep prices up.
And don't worry about over building. Not in SF and peninsula at least. Our nutty politicians and tenacious NIMBY's are doing their damnedest to slow new projects down, which of course helps keep current property values up, up, up. Thanks NIMBY's and leftist-socialist-wackos!
Driverless cars will be a national (and global) game changer. And it's coming quick! That and the Internet of things (plus bio advances, for good measure) are going to keep the Bay Area RE market rocking over the next 20 years. Just wait and see. We'll be laughing at million dollar homes and how cheap they were.
As a local RE investor, the key is: 1- buy well, 2- add value, 3- don't over leverage, and 4- ride the market twists and turns. It's that easy if you follow those 4 primary principals.
Ok, that's my whirlwind tour of RE investing in SF and the Bay Area 😇 Have fun!
80 Replies
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes10y
Foreign clients made up about 7 percent of transactions in the $1.2 trillion US real estate market.
https://www.rt.com/business/171496-china-californi...
So what, that's like 7 houses in Sunnyvale?
- Mountain View, CA · Member since 2015 · 30 posts · 8 votes10y
Originally posted by @Joe Bertolino:
The incomes I see in the Bay Area are staggering, even those that are not tech related. Public school teachers are pushing $100k in many districts. My favorite restaurant in SF has about 12 seats and does about $2.5m in sales. It is not a normal economy. Tech is very important but it is far from the only game in town. When folks in the Bay Area feel
a pinch, they dump their second or third house in Carmel, Santa Cruz or Tahoe.I've heard of a lot of folks struggling after moving out of the Bay Area to "cash out." People make so much money here and appreciate is very high so if you sell out of the BA, it'll be really hard to buy back in unless you have a high probability of getting one of those high paying jobs.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@David Affonso Exactly, my daughter is perfect example she is in senior management at Intel. Living in PDX the last 11 years.. hates the weather and wants to go back home .. She was raised in Palo Alto.. and the Napa Valley.
choice's well she is going to go to Folsom and price points there are akin to Portland.. so we will see how she likes that compared to here in PDX>
For me born and raised in the Bay Area I have no doubt I will never return.. Maybe to the Napa Valley or Santa Rosa area but never the peninsula...
- Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes10y
@Christopher Telles, the experience of a single person from a different era in a single transaction is anecdotal. Look at the prices of homes in the Bay Area in the late '90's when you made your deal in Patterson and compare them to prices today. There is a TON of real data showing the appreciation rate of homes in this specific market.
Even my own experience in the Bay Area, if taken alone, is anecdotal. However, when combined with available data it becomes part of a real trend line.
As for your observations on the Yuan, this news is not new. But you are looking at this in general terms. The impact of damage will not be linear across the US. To make sweeping generalities by glossing over the nuances of the individual markets is not looking through clear lenses.
We are not talking about impacts over the US, the discussion is focused on the Bay Area. Nobody is saying that there will NOT be a down trend in this market. I am just saying that it will not be as bad in the Bay Area as in the Central Valley, because there is a diverse micro economy in play. Basically history has shown that the downside in the Bay Area is manageable and the upside potential is huge.
If the strategy is for long term wealth building, then buy and hold is a viable strategy. If that is agreeable, then why not hold on to property in the Bay Area and prepare finances to take advantage of a market down turn?
He is already in play in this market. Why would anybody take the tax hit by selling his properties to move laterally to a comparable market in some far off place that would also be hit by any global economic downward pressure. The only difference would be that the market outside of the BA would most like not be as well diversified economically and be hurt at a more drastic level.
I again ask the simple question, where is a better micro economy that is as diverse as the Bay Area that has seen decades of appreciation?
- Investor · Mountain View, CA · Member since 2014 · 120 posts · 51 votes10y
Found this to be fairly interesting... Although... I'm not familiar with Paragon so I'm always a little suspicious of data, it works for the best statistician.
http://www.paragon-re.com/3_Recessions_2_Bubbles_a...
The Bay Area has been an anomaly for a while. Many people still choose to live here for a number of reasons. Not just jobs, but the kind of jobs - the collaboration between people. I've lived all over the place and it's not the same anywhere else, this is my 3rd time back and each time that I've moved here, it was always unexpected.
So to @Arlen Chou's point, even with dips, it still consistently moves up and to the right. There might be a correction coming but it'll also likely rebound.
I had read somewhere that Mountain View will be build 30+k units in the next couple of years. Still doubtful that it will satisfy the demand.
When people look at the Bay Area on a map, or have lived here years ago, they are quick to say things like, just live in South San Jose, or Morgan Hill, and commute up to your job in San Francisco or San Mateo. Sorry to be blunt but those people have absolutely zero idea what they are talking about. Do people do that out of necessity? Yes. I assure you, it's rarely a choice since the traffic situation is miserable during anything resembling commute hours and public transportation... not so much.
I remember the market from back in 1999 when I first came out here to work for a budding startup. DIdn't get anything (didn't think that I would stay). Fast forward a bunch of years and wish I had! But there's no use in regret, I've had a lot of adventures and the making it work here will be part of my next one.
- 10yIan WalshBusiness MemberLender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
The truth on predicting a top is that no one knows for sure. People predict tops and bottoms and are either proved a genius when they luck into being right or are wrong. What people can pay attention to is the exact condition of the market right now and if there are indications or red flags of a top/bottom coming. It is more of a preparation of what is to come without knowing exactly when it will hit. No one knows exactly when there will be a correction but you can hedge your bets based on probability and indicators.
For example - I have noticed that the current market in our area is showing a flattening of appreciation. It doesn't mean that I am predicting a top is in and we are headed down. It just means I am aware that many areas are not pushing new highs and there is still market inertia carrying forward.
- Investor · Mountain View, CA · Member since 2014 · 120 posts · 51 votes10y
on @Arlen Chou's point re: experience from a different era...
One of my frustrations on BP (and I love this place!) is hearing people say things like, I used to live in the Bay Area and <fill in the blank>. There are a lot of things that still hold true if you were here in say, the mid 90s and there are a lot of things that have changed drastically in the past 3 years. Same thing goes for NYC metro area. Or really most areas where there has been a boom of some sort.
I used to live in Portland, OR (and owned there). So much has changed. I could share my experiences from that time, and it's highly likely that much of it has changed drastically.
Or Austin, TX (didn't own there). The traffic situation is brutal there now, not when I was there. Migratory from CA? That might be part of it.
There are markets that stay expensive almost regardless of many factors. It doesn't mean that it doesn't dip, it just means that it is likely to recover if the main factors that drive people there, stay.
I'm pretty certain that there will be a down trend in the Bay Area, I'm also pretty certain that it will rebound.
In another area of the forums, I asked a super vague question, along the lines of "what do people do from an investing standpoint". And not surprisingly the responses were well considered and all over the map. Each of us have different lenses on what works for us which will drive what / where we want to invest. My hope with BP is to learn more of what I don't know to carry forth my own "ideal". Because trust me, I sure as heck wished that I'd known about the blanket rent control ordinances before I bought in certain areas. But as someone wisely said (and I'm forgetting which BP podcast this was...was it @Brandon Turner? or @Joshua D.?) there's always a price for education.
Personally, if I could go back in time to buy that $400k house in Mountain View in '99, I would, and I would hold on to it. Perhaps borrow against it to get other properties... But you know, it just might be because I don't want to get yelled at by my mom again (that woman be fierce!). ;)
There's also much to be said about lifestyle. While REI is passive income for many, I'm not sure just how passive it is during the growth / acquisition phase. I don't know a lot of MFH owners who don't get called in the middle of the night due to some emergency, especially for the first few. For those that have been able to streamline the process, would love to learn more about it. I've found a pretty direct correlation between working my *** off and getting results before figuring out what exactly needs to be done to scale more seamlessly.
Generally, getting the discourse going is extremely valuable. I'm grateful to @Christopher Telles (and everyone else on this thread) for your POVs on this matter. It definitely helps shape my personal goals and I'm quite sure that it helps others as well. At the end of the day, it has also prompted some interesting POVs from a range of participants, and while I may not agree 100% with anyone or everyone, I do appreciate the shared info and seeing more of "what the heck don't I know - Oooooh CRAP". So, thanks folks! More! More! :)
- Investor · Mountain View, CA · Member since 2014 · 120 posts · 51 votes10y
@Ian Walsh would love to chat with you more re: Philly market - that has blown up in the past few years (that I've been noticing...)
- Investor · Mountain View, CA · Member since 2014 · 120 posts · 51 votes10y
@Jay Hinrichs has some great points re: 80s... I uh... don't go back that far... :)
For the Bay Area of today, not just tech but a lot of foreign money as well. China is a main factor but not just China, although... there are RE firms out here who specialize in courting Mainland Chinese (limo tours, etc.). China has been tightening their money export laws but... let's face it, if people are looking to get their cash out of a system and there is a whole lot of it, they usually figure a way to do it.
My biggest concern on foreign investments is that it takes properties off the market for locals, even the rental market. For the super wealthy, these places are 2nd, 3rd homes which sit idle. NYC's Park Avenue has this problem and it's really sad. Here's an article about it.
http://ny.curbed.com/2014/10/24/10031340/shocker-h...
One of the more interesting things to think about is... can we try to ID the market conditions that would trigger a downturn? Maybe it's frothy tech, maybe stronger markets internationally to attract other international investors, there are marco-economic measures that trigger these things along with very emotional measures (exuberance/despair).
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Mimi H. that's a good point of houses sitting idle.
there is a stretch of ocean front in Honolulu... were a Japanese billionaire bought about 20 ocean front poperties all in basically a row.. and never really used any of them they just sat there rotting.
he got In a little twist with Japanese gov over tax's and was forced to finally sell.. Baldwin group I think bought it for something in the range of 200 million or more.. I remember reading about it last time I was there and my business partner lives 2 blocks up from the ocean front so when we walk to the beach we walk by all these 10 million dollar properties sitting idels for the last 20 years.. someone probably knows more detail than me.
and of course you know what the Chinese investor did to Vancouver... just never materialized for the inland areas of BC.. although prices rose nicely in Kelowna I did well there investing.
- 10yMichael BorgerPro MemberRehabber · San Diego, CA · Member since 2010 · 502 posts · 208 votes
@Jay Hinrichs That's Kahala and Genshiro Kawamoto.
- Investor · Mountain View, CA · Member since 2014 · 120 posts · 51 votes10y
@Jay Hinrichs yes, I'd heard about Hawaii and Japanese investors...
Vancouver wise, there were several waves of Chinese investors for different reasons. One of the earlier waves that I know about was trying to get out of HK before '97. A lot of people were afraid of what the handover would be. Most of those people immigrated to Vancouver and surrounding areas though, which, quite frankly, added a lot of color to the place. Also saw the same thing from South Africa, can't remember when exactly though.
More recently it's been people "parking" their money. Ironically, Vancouver is one of the least tax beneficial places to invest as a non-resident, 25% higher tax rate vs a resident. You can already guess why I know that. :(
- Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes10y
Originally posted by @Jay Hinrichs:
@David Affonso Exactly, my daughter is perfect example she is in senior management at Intel. Living in PDX the last 11 years.. hates the weather and wants to go back home .. She was raised in Palo Alto.. and the Napa Valley.
choice's well she is going to go to Folsom and price points there are akin to Portland.. so we will see how she likes that compared to here in PDX>
For me born and raised in the Bay Area I have no doubt I will never return.. Maybe to the Napa Valley or Santa Rosa area but never the peninsula...
Ah, c'mon Jay. Sell the plane and live on ramen and Mac n cheese for the first year, and I'm sure you can make it back to the peninsula (oh yeah, no beers either ;~)
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Amit M. and no business class tickets to Singapore would be added to that list !!!
- Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes10y
several comments:
The paragon data is spot on. A well respected RE group in SF that know their sheite! The first 2 graphs on the link provided above say it all. I don't know how anyone can look at those graphs and debate the long term value of prime Bay Area (especially SF proper) real estate. And people like Jay and Bob have been investing for a while to back it up. I only started in 1994 with a modest condo and parlayed that into 5 buildings worth big bucks. Great cash flow now too. Heck one of my buildings in the mission has had rent increases of 50% in 3 years! So yeah, when I started, it had a modest cash flow. But now....chaa-ching!
As for the tech/bubble debate, everyone is speculating, and that's fine. I just think since some noobs expect some spectacular crash, it will probably be just the opposite...a mundane slow down from hyper growth. Remember, the rate of increase can't go up forever. So if venture funding grows less than last year, it's not a disaster. It simply means the percent increase is more modest. And that's exactly what's happening to housing costs. Instead of going up 15-20% YoY, it's down to 5% YoY. Most fly over states are lucky to keep up with inflation.
As for how dependent our economy is on tech, and if dot.com crash will repeat itself? Um, no. Sure a lot of start ups will vaporize (by design, most fail), and there will be a few spectacular unicorn crashes (too much cheap money went there). But we have huge company's here like Google, Apple, Facebook, salesforce, etc., etc., etc. that still have thousands of unfilled positions. Tech will most likely have a correction, and employment will have a lot less sizzle. But if you expect a major crash and cheap RE again....I don't think so. Barring some global systemic crisis, I'd be surprised if prime Bay Area and SF RE falls even 10%. I expect a leveling off, and maybe, a few percent decline.
China's economy (unless it blows up) will not have a major impact on housing here. Matter of fact it's kinda nice having some nice Chinese folks parking $$ in prime SF. Just as the market may slow down, the Chinese $ helps keep prices up.
And don't worry about over building. Not in SF and peninsula at least. Our nutty politicians and tenacious NIMBY's are doing their damnedest to slow new projects down, which of course helps keep current property values up, up, up. Thanks NIMBY's and leftist-socialist-wackos!
Driverless cars will be a national (and global) game changer. And it's coming quick! That and the Internet of things (plus bio advances, for good measure) are going to keep the Bay Area RE market rocking over the next 20 years. Just wait and see. We'll be laughing at million dollar homes and how cheap they were.
As a local RE investor, the key is: 1- buy well, 2- add value, 3- don't over leverage, and 4- ride the market twists and turns. It's that easy if you follow those 4 primary principals.
Ok, that's my whirlwind tour of RE investing in SF and the Bay Area 😇 Have fun!
- Hong Kong, Hong Kong · Member since 2015 · 140 posts · 89 votes10y
Great discussion here - I would like to add a few thoughts on the Chinese buyers from our perspective here in China:
- Most Chinese are buying real estate in cash. They do this both domestically and overseas. As such, there is limited risk for defaults by Chinese families on their mortgage as we have seen in the US during 2009 crisis
- Asian investors love San Francisco for a variety of reasons (diverse set of industries, good climate and air, great schools, diverse community,...)
- Real estate prices in San Francisco are still relatively cheap compared to some cities in China
- The economic situation in China is challenging at the moment. The volatility of the stock market certainly does not help. As a result, there is more demand from Chinese for overseas investment products and overseas result.
Based on the all factors above, I think San Francisco will continue to see an influx from overseas Asian investors over the next years. However, as someone pointed out above, the majority of the transactions are still done by the local Americans so it is more important to assess how the local economy and drivers are affecting real estate than what overseas buyers are doing in San Francisco.
- Investor · Mountain View, CA · Member since 2014 · 120 posts · 51 votes10y
Ok first of all, I'm wondering how many of you are showing up at tomorrow's meetup. It'll be my first so would love to put faces to names!
Second of all, amazing discussion! So great to see so many different perspectives! I'm trying to get into something here this year (owee) and I'm going smaller due to budget. Let's just say that I'm in the "don't over leverage" stage. :) As much as I love my prime job (makes financing easier) I'm considered an old lady in tech.
@Amit M. do you find it ironic that the people who are protesting growth and labels as "far left" are the ones who are most likely to profit greatly? If we want to make the Bay Area more affordable, build more housing, right? Supply and demand? as for mac and cheese... haven't you seen that all the hipster mac and cheese joints charge $15+ for mac and cheese these days? @Jay Hinrichs can't eat that and afford the bay area, come on... ;) ;) btw - thanks for letting us know that the paragon data is respectable. Good to know.
@Sam Van Horebeek has excellent points - esp re: mortgage. I keep hoping for an extremely strong China economy + a massive improvement in their pollution challenges so the mainland Chinese would reinvest in their own country. :) I know, I'm just selfish that way. I'd thought about buying in HK when I was living there in '09 and HOLY PRICED OUT OF THE MARKET. Yes, Brooklyn proved way higher value.
- Mountain View, CA · Member since 2015 · 30 posts · 8 votes10y
@Jay Hinrichs Not sure if you are still acquiring properties on your own credit, but if not head over to www.flyertalk.com and more specifically:
http://www.flyertalk.com/forum/credit-card-program...
This will get you first class tickets on any airline to any country and more.
@Mimi H. can you link your meetup? I may be taking a client out for my day job but hopefully can try and make it.
@Amit M. It does seem that all the seasoned investors expect a softening rather than a crash. I'm always the one in the room hoping for the meltdown so I can get in with a big holding.
- Investor · Mountain View, CA · Member since 2014 · 120 posts · 51 votes10y
@David Affonso can't take credit for the meetup as someone else in BP is hosting... :)
http://www.meetup.com/SF-Bay-Area-Real-Estate-Investing-Club/events/230009252/
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Arlen Chou well to use a mid west cash flow term.. your just speculating and you can't eat appreciation and equity LOL... good job.. LA is a prime place to live.... I lived right off of Arastadero and Foothill for a decade.. nice spot.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Account Closed I was speaking of higher end real estate.
I had a loan on a 5k sq ft remodel on Green street.. when I made the loan in 88.. it apprasiased for 2 million.. I even had an MAI done on it... 91 it sold at auction for 925k B of A foreclosed.. my investors who were in second at 100k... just walked.. I told them not to but they don't listen.
home sold in 99 for 5 million.. and who knows what its worth now.
My brother in Law bought a home in Los Altos hills at the bottom it also sold north of 2 million.. and he bought it for 1.2 million.
so I suspect your rentals were east bay or lower price point and did not suffer as much as the high end.. the High end defiantly fell.
My little bungalow I lived in in PA reached 499k I sold it for 425k in 92 to move to Silverado.. but I bought a home there that was sold new for 650k and I paid 450k for it.. so its all relative and that was in the day you could do an assumption.. I assumed the loan with 5k down to seller.. and paid the 10k Country club transfer fee... ONe of my best moves ever.. Napa valley and Silverado in particular ( especially as an avid golfer) was one of the great places in my mind to live in the US.
- Investor · Miami, FL · Member since 2013 · 2 posts · 1 vote9y
I lived in Sacramento during the 2002 - 2006 time and let me tell you, I saw the price of my house go from the mid 200K to the upper 500K and then dropped back to the price I paid for the house to begin with. As everyone, we don't know for how long will the SFO market continue to increase and it seems like it will continue with no end in sight, however, as they say "All that goes up, must come down"......
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