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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  • Ramsin Jacob
    Realtor · San Jose, CA · Member since 2018 · 184 posts · 71 votes
    6y

    @Amit M. 100%

    0Reply
  • Danny Webber
    Real Estate Broker · Austin, TX · Member since 2016 · 834 posts · 449 votes
    6y

    tough topic... 

    if people exit the cities then there would theoretically be excess inventory driving down prices but there is a pandemic and there are less sellers out there but there may be a rash of foreclosures which would glut the market but there is 30 million unemployed and more coming which means there are less buyers but interest rates are at historic lows so that normally means more buyers but mortgage companies have tremendous overlays in place right now which makes it harder to qualify but the stock market is at historic highs so people can cash out some and put down larger sums of money but people are saving money at a historic pace in the US right now which means they are not spending it but US consumer confidence in June rose to 98.1 (expected 91) which means people feel good about spending money and the economy, etc... etc....

    We need to pool our funds together and buy the services of a Nostradamus level fortune teller!

    #Igetcarriedaway

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

    @Justin Thorpe the majority of my investor network is from the bay area, SF and San Jose. Most of them are homeowners with properties valued at approx 1M-2M and have household incomes between 250k-350k with both spouses working. Of course, there are outliers in both directions that are less common. 

    Investor money in high priced markets significantly dries up during recessionary times, until values go down. I've observed the following contributing factors:

    -Banks discount income heavily on properties, and properties that already didn't meet debt coverage ratios for full leverage fall even shorter. Buyers are then required to put 50+% down on investment property, which increases barriers to entry thus reducing the number of buyers on the market. 

    -All cash investors enjoy alternatives of higher volatility in the equities market, and stocks crash fast while real estate lags. Investors are then provided with many alternatives to expensive real estate in anticipation of market values softening in the less illiquid asset classes. 

    I've also observed a lot of my high income & high net worth investors (10MM+) selling off secondary properties in expensive CA cities at a high clip right now.

    2Reply
  • Anna Swartz-Lopez
    CA · Member since 2020 · 63 posts · 62 votes
    6y

    I live in the Bay Area, and the price of housing has started to rise again here as we begin to come out of COVID. Demand is always high in this area, and I really don't see that changing anytime soon, so I don't see a crash coming. However, people are always moving out of the Bay Area because it's so expensive, and with the undergoing shift to more remote work, some people are keeping their high income jobs and moving to lower cost areas. Things will doubtless adjust somewhat, but people like living here, and I think will always want to buy here. 

    2Reply
  • Brian Singh
    OP
    Rental Property Investor · San Jose · Member since 2020 · 45 posts · 35 votes
    6y

    @Account Closed please feel free to correct me as I can learn the bay area .

    Best case 8% return , if prices are going at 2017 level that is 10% less asking then a loss.

    8% safety margin. Seems too thin . Other experienced flippers what do you think ?

    0Reply
  • Justin Thorpe
    Member since 2020 · 437 posts · 675 votes
    6y

    @Elliott Elkhoury

    Thanks for your very thoughtful post. I agree that a recession will have its negative impact on home sales and prices and that will impact every market.

    Actually we have seen 3 price contractions in the Bay Area over the past 30 year period. So it’s quite plausible to see a 10% - 20% correction at some point, I don’t doubt that.

    Like every functioning (vs rigged) market, asset prices will fluctuate and the Bay Area will feel it when the time comes.

    That said, people do have a “hangover” that the next housing correction will resemble underpinnings of a 2008 crash. That I have to disagree with and that’s because that was a unique housing/credit driven recession.

    Overall I am in the camp that there will be a recession driven correction. When! I don’t know. But I disagree with @Brian Singh’s stand that we are in for a crash and a sustained and fundamental erosion of the Bay Area RE market.

    Same with some other arguement s which are promoting lower cost states. Well a recession takes down every state. No state is immune from a recession. Locals drive 80% of the market, not investors, not retirees.

    0Reply
  • Account Closed
    Lender · Milpitas, CA · Member since 2016 · 376 posts · 248 votes
    6y

    @Brian Singh there are some assumptions here that don't look correct. Generally, you won't be getting 100% financing unless you're paying some crazy high rate like 12% and 4 pts.

    Due to the COVID-19 pandemic, hard money lenders are more conservative and have lowered their maximum LTVs, so they're likely putting down 20-25%. That reduces the amount that they have to pay for their carrying costs.

    Broker fees in the Bay Area are generally 5% (2.5% for each side) but you also need to add in about 2% for other miscellaneous closing fees (transfer taxes, notary, title, etc...).

    But all that being said, buying for $860K and selling for $1.1M doesn't create a lot of profit (net is around $50K). I'm not sure that's worth risking money on during this economic environment.

    2Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    naivety

    on

    display

    ————

    3words

    2Reply
  • Account Closed
    Santa Clara, CA · Member since 2018 · 100 posts · 71 votes
    6y

    @Brian Singh she is able to roll the same cash multiple times a year then the returns are much higher. She said her broker fees are a lot less as she uses the same realtor from the seller side who doesn't charge her the same %. Edit: removed some text

    0Reply
  • David Schach
    San Francisco, CA · Member since 2010 · 65 posts · 39 votes
    6y

    My crystal ball is still under warranty so take this as 100% accurate future prediction. The SF city market will never ever crash, ever due to COVID or financial reasons etc. It wont ever happen. What people who are not from here fail to understand is that SF is a legally zoned monopoly. They aren't making more dirt, you can't build up in most areas and the immediate land to the south is garbage. What happens here every decade or so is that you get a little softening and buyers have a little less pressure and a few more options and a little more time to be picky. When this happens it FEELS like a collapse as sellers were led to believe that 10-20-50% over asking was guaranteed. So people freak out and think prices are falling when they are just not going up. Then all the data comes in and we had a little dip, 5-10-15% on median sales prices, probably dragged down by high-end condos falling the most. If you can afford to play here and have a 5-10 year time horizon you will never lose money.

    Now...let me add one massive caveat to this for everyone thinking I am not as smart as I think I am.... When the next big earthquake comes, prices will collapse. I mean BIG quake, the 7s, 8s and 9s where the Marina is 50% red-tagged and freeways are flattened. When this eventually happens, and it will, all bets are off. Most people here haven't felt a real earthquake and when it comes I can imagine 10,000s of people will leave and never return. The fear of death is a strong motivator to move. And to all those people complaining about homeless, **** on the street, petty theft etc, thats all part of the charm of SF, its a feature not a bug, very few ppl will move out of here b/c SF city govt cant clean up the tenderloin or parts of SOMA.

    5Reply
  • Brian Singh
    OP
    Rental Property Investor · San Jose · Member since 2020 · 45 posts · 35 votes
    6y

    I am going to wait till December before I put in 500k just for fun in bay area market ; and see if my opinion is correct or FOMO group wins .

    I dont think market is going up but we will see in 6 months. Part II of this post to come there.

    Time for me to find another market to invest in the meantime.

    1Reply
  • Ramsin Jacob
    Realtor · San Jose, CA · Member since 2018 · 184 posts · 71 votes
    6y
    Exactly 100% 

    Originally posted by @Anna Swartz-Lopez:

    I live in the Bay Area, and the price of housing has started to rise again here as we begin to come out of COVID. Demand is always high in this area, and I really don't see that changing anytime soon, so I don't see a crash coming. However, people are always moving out of the Bay Area because it's so expensive, and with the undergoing shift to more remote work, some people are keeping their high income jobs and moving to lower cost areas. Things will doubtless adjust somewhat, but people like living here, and I think will always want to buy here. 

    0Reply
  • Ramsin Jacob
    Realtor · San Jose, CA · Member since 2018 · 184 posts · 71 votes
    6y
    Yup, exactly, 100% agree.  I say the same thing when I hear the words "crashing market" & "Bay Area" in the same sentence.  We'll experience small dips here and there, but overall, long term, it'll be in a steady incline.  There's isn't any extra land that's buildable as you mention.  We are cornered in here in the Bay Area.  Property value will always remain consistent.  2017/2018 we saw an enormous spike with sales over asking and closing 7 days or less.  Comparing 2019 Summer to 2020 summer, prices have in-fact increased by an average of10% in a lot of neighborhoods (outside of SF), specifically in majority of San Jose, sales prices have increased from 2019 Summer.  The Bay Area market will never crash, there will always be demand and the supply will never meet the demand here.  

    Originally posted by @David Schach:

    My crystal ball is still under warranty so take this as 100% accurate future prediction. The SF city market will never ever crash, ever due to COVID or financial reasons etc. It wont ever happen. What people who are not from here fail to understand is that SF is a legally zoned monopoly. They aren't making more dirt, you can't build up in most areas and the immediate land to the south is garbage. What happens here every decade or so is that you get a little softening and buyers have a little less pressure and a few more options and a little more time to be picky. When this happens it FEELS like a collapse as sellers were led to believe that 10-20-50% over asking was guaranteed. So people freak out and think prices are falling when they are just not going up. Then all the data comes in and we had a little dip, 5-10-15% on median sales prices, probably dragged down by high-end condos falling the most. If you can afford to play here and have a 5-10 year time horizon you will never lose money.

    Now...let me add one massive caveat to this for everyone thinking I am not as smart as I think I am.... When the next big earthquake comes, prices will collapse. I mean BIG quake, the 7s, 8s and 9s where the Marina is 50% red-tagged and freeways are flattened. When this eventually happens, and it will, all bets are off. Most people here haven't felt a real earthquake and when it comes I can imagine 10,000s of people will leave and never return. The fear of death is a strong motivator to move. And to all those people complaining about homeless, **** on the street, petty theft etc, thats all part of the charm of SF, its a feature not a bug, very few ppl will move out of here b/c SF city govt cant clean up the tenderloin or parts of SOMA.

    0Reply
  • Ari S.
    Developer · San Francisco · Member since 2020 · 13 posts · 8 votes
    6y

    @David Schach Spot on, I'm with on the long-term view.
    That said, aren't you concerned about all the tech companies that are leaving due to the homelessness situation and cleanliness state of the city? Orcale and other companies moved their conference for that reason too. 

    I have some tenants that are thinking? why should I per that much rent to be in this place where I see needless left right and center, tons of homeless ppl and have my bike stolen twice a year, plus some vandalism?

    I just wonder, whether this time it is different. After 2008 companies started to move to the city and VCs as well, and there was an amazing 10-12 years run. Is this a temp draw or the end of the road?

    0Reply
  • Joyce Riley
    Member since 2020 · 6 posts · 10 votes
    6y

    https://www.sfgate.com/living-...

    1Reply
  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    6y

    @Joyce Riley I saw that same story about the 2020 San Francisco exodus, and a similar one in the WSJ: Remote Work is Reshaping San Francisco as Tech Workers Flee and Rents Fall. 

    Coincidentally, a friend of mine just had some long term tenants move out of one of his rentals in Tahoe. He’s currently in the process of remodeling it and will be raising the rent a little over 30% when he puts it back on the market!

    He’s seeing what the article you linked to is saying, which is that a lot of Bay Area people are leaving and moving to places like Tahoe now that they can work remote. Which is good for him and equates to a huge jump in rent (at least where he’s at, but apparently means falling rent in some places where the people are fleeing from).

    1Reply
  • Ana Marie B.
    Rental Property Investor · SF Bay Area, CA · Member since 2015 · 206 posts · 156 votes
    6y

    I find it funny that people who don’t live or invest in CA start these outrageous threads about the “impending doom” of SF Bay Area RE, only to find out they actually wish to purchase RE in the state (but usually can’t in their desired cities due to limited funds).

    It’s almost like they hope their thread will somehow help spur or add to an exodus, thereby allowing them a way in. 

    Same goes for NY and other high priced cities... 

    2Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    That article is garbage. Click-bait-hype. 

    So SF inventory goes from an insanely small amount by 2x. Wow, 100% increase! Yeah, 100% increase of a tiny # is still a tiny #. 

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    It's crashing, to the upside :) 

    Do you even know what does it mean by this question? Most of S&P Tech company that empowers the whole country is located here.

    0Reply
  • Brian Singh
    OP
    Rental Property Investor · San Jose · Member since 2020 · 45 posts · 35 votes
    5y

    Checking in after 6 months and a lot has happened so lets see if bay area crash 2021 will be a thing .

    First crash is 25% price drop in 12 months.

    So of the bat , answer is no.

    Correction 10% .. answer is depends on the property.

    Single family.. no

    Apts, condo, multi.. yes yes.

    Inventory to come back June afterwards, September should be the peak .

    Buyer demand remains low for non SFH.

    Remote work is official till sep 2021.

    CalExit is real ....

    1Reply
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