Bay area Housing 2020- Crash or no crash

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Bay area Housing 2020- Crash or no crash

Brian Singh
Rental Property Investor · San Jose · Member since 2020 · 45 posts · 35 votes

Just wanted to get a sense of what people are seeing in Bay area and what they think will happen after a few month. Also wanted to see if I am being too negative on bay area and forecasting a 10-15% price drop.


The reason I see a 10 to 15% drop by April 2021 is

1. The virus and unemployment

2. Start-up layoffs

3. H1B ban for next 2 years effectively

4. Tech work from home or anywhere going main stream.

The area I am using as bench marks are

1. San Fran

2. Mountain view

3. Fremont

4. Walnut creek.

Very different demographics in all four and they together represent the Bay area as a whole quite good with the issues highlighted above.

I will write in more details when people write about  their opinion on the points I raised.

I hold no solid stance one way or the other, just want people who are actually investing there give their side of the analysis, so I see if I am thinking correct.

Rents have dropped over 10% for two months now, are property prices next ?

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Tracey Robinson
Member since 2020 · 16 posts · 26 votes
6y

“ Bay Area “ is very different in terms of properties, quality of life, amenities, etc depending on exactly where you are talking about. So what will happen to prices in San Francisco may differ from what happens in Mill Valley, Walnut, Creek, Menlo Park etc. 
I predict a substantial price drop in San Francisco, especially in the condo market for multiple reasons. Tech heavy presence in SF will go down as people switch to working remotely and leave . Quality of life in SF continues to decrease with high burden of homelessness, filth, crime ( car breaks in for example ) which will also prompt people to leave. Covid has caused numerous restaurants and businesses to go bankrupt and shut down, the things that drew people to city life are no longer available, that will also cause an exodus, especially with no real end to the SF lockdown in sight. 
The surrounding suburbs probably will see an increase in price, in part due to some people’s desire to flee the city for more personal space, and freedom from some of the negatives that have become all too common in SF in the last few years. 

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  • Juan Pardo
    Member since 2020 · 201 posts · 118 votes
    6y
    Originally posted by @Justin Thorpe:

    Contrary to what some posters have said about WFH trends negatively impacting SF rentals, I think it could actually be a huge positive. Before Covid-19, hundreds of young pros commuted to the South Bay from SF daily burning up to 3 hours a day. Now they may not have to, at least for a few months. So they may well choose to stay put.

    That also means the young guns who chose to live in the suburbs to avoid long commutes may now start thinking of moving to the city vs live in a less exciting environment.

    To me what breaks the back of SF is 2 things.

    First is if office culture, nightlife/social life does not come back. SF then becomes is a lot less desirable option to live for youngsters. This happens if Covid sustains and is not defeated.

    Second, the homeless population, filth and growing crime will drive away people. That’s where the city administration needs to step up.

    In the end it is in a sad way amusing how the US psyche (me included) are looking to a life where Covid continues to be part of our daily life when countries much smaller than ours have defeated Covid through the right measures, of course with the cooperation of their population.

    The key lies in defeating Covid. If Covid stays it takes down many an American institution with it including large cities, college towns, casino towns, theme park towns etc. Sure it may line up the pockets of a few brokers who sell RE in outer suburbs but that will blow away quickly and it is not the real game.

     In order to defeat COVID some countries went into total lockdown for 2 - 3 weeks, and then partial lockdown for about 2 months. This will mean a -10% to -15% GDP for this year. 

    In the US there are a bunch of cities where new cases of COVID are breaking records, and for the whole country there are about 50.000 new cases per day, which is a lot, and enough to exceed the ICU's capacity in some areas. 

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Brian Singh

    My guess is SF price will be down 10%-15% by 2022, so I am on the sideline..

    That said, my observation from 2009-2011 is that by the time the market hits the bottom, the listings are all bad - bad locations, bad floor plan, bad whatever....

    So if you want a quality property (like me), you might have to get in sometime in 2021 before the market hits the bottom, and be willing to pay a bit more, knowing the price will drop more...

    5Reply
  • Austin Largusa
    Investor · San Francisco Bay Area · Member since 2019 · 119 posts · 79 votes
    6y

    I don't think you can lump the Bay Area in together in any form. We are completely different in each area and city. You went as far North/East as Walnut Creek, which still leaves out a significant part of the Bay Area. 

    San Francisco is going to see significantly different effects than Concord. Milpitas will see different effects than Livermore. Marin will see different effects than Berkeley. 

    In my area, Solano County, we're seeing a pretty consistent market. I've actually seen homes in my area sell for more than they should be. 

    3Reply
  • Harry Darmawan
    Investor · Long Beach, CA · Member since 2016 · 27 posts · 0 votes
    6y
    Originally posted by @Derrick Dill:

    I'm currently house hunting in 850k range. Got outbid by 50k, cash with 4 offers on the table excluding mine. It's VERY competitive still. Ridiculously rich people are still ridiculously rich

     @derrick: In what area were you hunting?

    0Reply
  • Derrick Dill
    Investor · Hawaiian Gardens, CA · Member since 2015 · 308 posts · 386 votes
    6y

    ^ Union city, Fremont, San Jose, Hayward, Newark 

    0Reply
  • Brian Singh
    OP
    Rental Property Investor · San Jose · Member since 2020 · 45 posts · 35 votes
    6y

    @Diane G. Thanks for the Pro tip. You are right when market hits bottom most of the properties would be bad or foreclosures.

    Just to clarify my statement before. I am a casual investor have a job and invest on the side. So max I do is light rehab. not major overhaul of property. If plumbing or foundation or electric is bad I run. Basically lipstick on a pig is max I go.

    Thus pro here who do this for a living can make money by adding value . The statement no one made money if they bought 2018 and after applies to people like me. Who mostly buy off MLS maybe do cosmetic fixes .

    0Reply
  • Vikrant Dessai
    Real Estate Professional · Member since 2017 · 11 posts · 4 votes
    6y

    The correction wheels are already in motion. It will start falling in segments. First the rents then those expensive 3 level townhomes and condominiums. I believe there's going to be 10 - 15% correction over the next one year.

    3Reply
  • Ari S.
    Developer · San Francisco · Member since 2020 · 13 posts · 8 votes
    6y

    Many self-appointed prophets have been wrong, and some were right. Only time will tell.
    In about 40-year (just like @Amit M. have mentioned) SF always won, and it has been run the same  (on occasion even worse than now) bureaucrats for the last 40+ years.
    It has 2 major and practically permanent advantages: Weather(especially relevant in the climate change era) and location between Berkeley and Stanford, that no other place in the US can successfully overcome.

    https://www.biggerpockets.com/forums/888/topics/850101-bay-area-housing-2020-crash-or-no-crash

    2Reply
  • Ari S.
    Developer · San Francisco · Member since 2020 · 13 posts · 8 votes
    6y

    @Amit M.  Let me plays the devil's advocate. Just like you II'm active in the SF market as well. Since SF is a tech-oriented city, then many of the renters are in working professionals in the tech industry. 
    I can attest that recently rents went down 20-25% for roommate setups and the market got flooded with inventory from Airbnb units that got vacant (no more short-term), intl students leaving SF (seems like for the next 2 years and with a deteriorating relationship with China, maybe even longer), ppl moving out of town due to covid ("why pay high $/sqft when you can get a better bang for your buck somewhere else 4) tech companies are allowing remote work. I have a few techies tenants that moved temporarily to TX,FL, so Cal, etc (and temp may become permanent).
    Also, the tech companies may move their employees to WFH mode, and that doesn't ensure that their employees will stay in SF, since they don't need to. As for the IPO proceeds, it doesn't always trickle down. very few IPOs recently (yes Uber,Lyft,Slack, etc) but the cash didn't come and didn't trickle down: 

    https://www.bloomberg.com/news/articles/2019-11-08/san-francisco-was-preparing-for-a-flood-of-ipo-cash-that-never-came

    would love to get your take on it


    1Reply
  • David Song
    Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
    6y

    @Derrick Dill

    For 850, you should be able to grab something in Hayward, but not the other cities.

    Castro valley might work also.

    1Reply
  • David Song
    Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
    6y

    @Diane G.

    10 to 15% will not be noticeable. Typical price variation, average or median, will carry an error margin around 10%. Due to small transaction volume, random variation will also carry about 5%. Seasonal variation, from summer to winter, will also be around 5-10%.

    End of 2019 already has a correction of around 10 to 15% from 2018 summer peak.

    I am waiting for a larger correction of more than 25%, if it actually happens. From what I can see now, no sign at all.

    I am waiting until December, and will get in no matter what the price trend is.

    3Reply
  • Justin Thorpe
    Member since 2020 · 437 posts · 675 votes
    6y

    @Ari S.

    For what it’s worth I have renewed 3 of my leases in SF at par post Covid. No increase but no decrease either. All top neighborhoods and working professional tenants. I have 1 more coming up in late fall and indications are that will go ok as well.

    Hence I am a bit surprised at your 25% redux in rent. You may want to hold the line vs give in to tenants. I think the media is wildly exaggerating the rental trends in SF.

    What is clear is people know that leaving SF better be a 1 way ticket because coming back post pandemic will be challenging and history is littered with cases where people left the bay only to come back to 2x rents and RE prices.

    The WFH trends are temporary in 99% of companies. Even in the 1% like Facebook, WFH comes with a lot of strings attached.

    3Reply
  • Ari S.
    Developer · San Francisco · Member since 2020 · 13 posts · 8 votes
    6y

    @Justin Thorpe spot on!
    The one-bedroom and studio units that I have were taken really fast. What is difficult to lease are the 4bd,5bd,6bd units. 
    I have a 4bd/2ba unit which got snapped at March, and now I had to drop price by 12% already.

    The 25% drop refers to a roommate situation (had tenants that paid very good rent pre-covid). now I see people leasing their room as low as  $1000/mo. I hope it's temp just as you predict. I will hold the line based on your advice. I'm just not sure whether to offer a 15% discounted lease for renewal now,  or wait till the lease ends and then renew when the market could be way softer

    2Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Justin Thorpe -i have to echo your comment about WFH being a temporary thing...

    People who think WFH will be permanent is likely not working in the tech industry....For those of us actually working a corp job in the tech, we all know that WHF means reduced productivity for the companies, and there is NO way companies will allow this forever...

    Also, once some employees start going back to office, the rest will be forced to go back too due to peer pressure... pretty soon, people will be going back for fear of looking bad if their peers are sitting in the office every day.....

    3Reply
  • Ari S.
    Developer · San Francisco · Member since 2020 · 13 posts · 8 votes
    6y

    @Diane G. just came across this post. 

    "If landlords want to avoid the fate of the railroad tycoons, they must understand that tenants lease office space to increase productivity and the engagement of their employees, not just to give companies a place to exist.
    "
    https://www.linkedin.com/pulse/end-office-future-work-guy-vardi/

    1Reply
  • Sheeva R.
    San Jose , CA · Member since 2016 · 52 posts · 12 votes
    6y
    Originally posted by @Ari S.:

    Many self-appointed prophets have been wrong, and some were right. Only time will tell.
    In about 40-year (just like @Amit M. have mentioned) SF always won, and it has been run the same  (on occasion even worse than now) bureaucrats for the last 40+ years.
    It has 2 major and practically permanent advantages: Weather(especially relevant in the climate change era) and location between Berkeley and Stanford, that no other place in the US can successfully overcome.

    https://www.biggerpockets.com/forums/888/topics/850101-bay-area-housing-2020-crash-or-no-crash

     This is a really good point. My only concern/question is with no restaurants, no nightlife and a pandemic with no end in sight why wouldn't people just move out of the city for more space (within the general Bay Area) - therefore making SF less appealing but the outskirts more appealing 

    1Reply
  • Justin Thorpe
    Member since 2020 · 437 posts · 675 votes
    6y

    @Sheeva R.

    I can’t tell you because I am a lot older than your average 25 - 30 year old who likes to live in SF. I guess its more appealing for young people to live in close proximity. Easier to meet others etc.

    Also roommate culture is more pervasive in SF so costs of living get divided and you don’t need a car to get around. That makes life cheaper.

    Desirable suburb living in the bay does not come cheap btw. Also, SF is by itself a very beautiful city. The ocean, the rolling hills, the park make it one of the most picturesque places on this planet. But your point is valid. Minus the social and nightlife, the appeal is diluted by a margin.

    I would add that the end is not in sight now but history is on our side in that every crisis has ended and every pandemic has ended. It’s a shame that we as a country have let Covid take over so much of our lives but that’s a discussion for a different date. These crisis eventually end if the nation puts its mind to it.

    3Reply
  • Erin A.
    Rental Property Investor · SF Bay Area, CA · Member since 2017 · 18 posts · 8 votes
    6y
    Originally posted by @Brian Singh:

    Thanks everyone for the info. This is very interesting .
    @Account Closed Can you elobrate why walnut creek is falling vs nearby antioch which you say is going up, both seem close by in google map , I am quite sure there is some local info you know that would explain it.

    These are totally different markets for both apartments and SFH. They are 20-30 minutes apart which is not adjacent. You could even look at Concord, which is adjacent to WC, and it is not as high as WC. I didn't need to look at listings to know that because I know the area, it just it what it is.

    0Reply
  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    6y

    Volatility and affordability are inversely proportional. The average home value in the bay area is high relative to the average income in the bay area, when compared to the rest of the country or even other parts of California. It's been quite the bull rush, and when the tides turn it tends to fall from the top harder than the middle. Intrinsic value looks low in a lot of expensive CA markets now, and a recession is the ultimate truth serum that will return properties to their intrinsic value. 

    2Reply
  • Brian Singh
    OP
    Rental Property Investor · San Jose · Member since 2020 · 45 posts · 35 votes
    6y
    Goldman Case shiller report is out they have national price drop now.
    0Reply
  • Justin Thorpe
    Member since 2020 · 437 posts · 675 votes
    6y

    @Elliott Elkhoury

    I am not sure if you fully get to any answer by relying on medians and averages. This more so in the bay than anywhere else where RE is driven more by wealth vs income. This wealth is comes from stocks and overseas investors. In fact I know a couple who recently closed on a $4m home in Saratoga, CA. Combined income maybe $500 - 600k, but stock option wealth at least 4 - 5x that number.

    1Reply
  • Brian Singh
    OP
    Rental Property Investor · San Jose · Member since 2020 · 45 posts · 35 votes
    6y

    @Justin Thorpe It interesting to see bay area thinking. I am assuming you were born there or been there 20+ year. If you do a word cloud of your answers . It usually FOMO or outlier examples. ( not good or bad) just an observation.

    I personally think Median and average tell the true story vs $1M+ houses or ( $3M in Palo alto/SF) . These people are 1% and they are not affected by normal issues like most people

    1Reply
  • Brian Singh
    OP
    Rental Property Investor · San Jose · Member since 2020 · 45 posts · 35 votes
    6y

    Thanks everyone for their insights. I think I have enough knowledge to go to action on Bay area. I'll start small and put 500k for a 2 Br as a test of bay area in one of the markets  below by finding a deal at 2015 prices.

    1. Fremont/Newark
    2. Walnut creek
    3. San jose
    4. Daly city
    5. Sunnyvale

    Any advise or general comment is always welcome. Will update when I close. Maybe nov -dec might be a good time

    1Reply
  • Juan Pardo
    Member since 2020 · 201 posts · 118 votes
    6y
    Originally posted by @Amit M.:

    My response from a similar post:

    “I think the recent work from home hysteria is a fallacy. Conceptually, working from home has NOTHING to due with covid 19. If it’s so awesome, why wasn’t it adapted en mass years ago? Yahoo a couple years back even rolled back WFH. It’s a trend that will have some effect yes, but it’s being way over hyped. For two main reasons: 1- I’m not sure it will really provide long term benefits to the tech firms jumping on the bandwagon now 2- I’m not sure how many employees will ultimately like it, after the forced-Covid-novelty wears off. i.e. it’s hard to get all those cool tech co benefits like free gourmet food, gyms, awesome office spaces, etc., etc. piped over a zoom meeting ;)

    As for WFH effect on the Bay Area, keep in mind that when people work from home, their direct environment becomes MORE, not less important. Would you rather be home based in the Bay Area with tons of things to do nearby, good weather, lots of nature, etc. or someplace with little culture, extreme temperatures, bland immediate environment, etc., etc. There is a reason many people, who can afford to do so, aspire to live in CA and especially the Bay Area. Working from home isn’t going to radically change those aspirations.”

    WRT downtown condos, those are usually not the best investments anyways. No upside as you pay a premium. They do crash harder (as in 2008-09), so I guess some people made money by buying them on the dip. But if you invest in residential S.F. neighborhoods, add value, and also buy in gentrifying areas (as I have) you can do very well.

    Lastly, as for S.F. quality of live, etc. Yes it's at a downturn now and there is some flight, but that will blow over in 1-2 years, and young folks will return en mass. There are still people coming in now with new professional jobs, it's just not as crazy as before. Same thing happened in lower Manhattan after 9/11. Market was soft for 1-2 years, and then back on. Cities like NYC and SF have intrinsic qualities that just can't be found in the surrounding burbs.

    Will there be another leg up on this chart by 2030? I bet there will.

    "

    As for WFH effect on the Bay Area, keep in mind that when people work from home, their direct environment becomes MORE, not less important. Would you rather be home based in the Bay Area with tons of things to do nearby, good weather, lots of nature, etc. or someplace with little culture, extreme temperatures, bland immediate environment, etc., etc. There is a reason many people, who can afford to do so, aspire to live in CA and especially the Bay Area. Working from home isn’t going to radically change those aspirations.”

    Could people work from a different country?

    Also.. looking at the long-term graphic you posted, doesn't it look like it's heading for a correction?

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    The same debate has been raging for the 26 years I have been living/investing in the Bay Area.  When I paid $1,700 rent per month for a 3/2 view house in Sausalito in 1994 and then when I bought a Mill Valley rambler in 1997 for $450,000, all of my friends/family/associates who lived outside the Bay thought I was nuts to pay such a huge sum for such modest accommodations.  The dot.com bust in 99 was going to end it all.  Then 9/11.   Then the financial crisis in '08.  As the mutual fund guys like to say, the past is no guarantee of future success but the resilience of this area has been remarkable.  Have there been dips?  Sure.  Any reason to think that the Bay is going to drop further on a percentage basis relative to other areas, I don't see it.  

    6Reply
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