Should I buy a house in SF bay area right now?

Question

I'm a first time home buyer and finally ready to buy where I live in the San Francisco Bay Area. I'm targeting a 3+ bed home to rent out with a granny unit where I will live (or rent out a room at my parents' for that matter). The goal is to bring down my rental costs to $1000 while building equity in a property. Of course it's a sellers market and prices are quite inflated, but I have more purchasing power now that the rates are now. I'm thinking of waiting a year for the crash, but I'm worried about the inventory drying up and IR rates so high that I would now only be able to afford at most a 2 bed condo as opposed to 3+ bed home.

Even with the craze, I'm not seeing a reason to wait for the crash. The Bay Area is affluent so I don't see the foreclosures hitting the market doing a significant dent, and even with work from home a lot of the companies would still prefer for individuals to come in as COVID settles down so I wouldn't predict a significant drop in demand and a huge influx of supply.

So even though it's a crazy market, I'm not seeing enough reasons to wait. Are you seeing something that I may be over looking?

(The one risk that does feel very real is that I don't know what the rental prices will do...)

Darius Ogloza · Answer

I like to tell the story of my friend who has been waiting to jump into the real estate market since 1987.  I have little or no faith in market timing strategies, so my advice would be to find something that pencils out and go for it.

Darius Ogloza · Answer

I was never more scared than when I bought my first SFR back in 1997 for $450K in Mill Valley.

Best financial decision I ever made.

Michael Williams · Answer

Hi @Irina Goriatcheva,

I've been an agent in SF/Bay Area for the past 12 years and happy to discuss the local RE trends. The high level answer is it depends on your goals, needs and what you can afford. Having a second unit whether a duplex, in-law or adu is a great way to reduce expenses although getting your PITI to 1k or less is unlikely is most areas.

Which cities are you looking in? Condo's have experience a steep drop in the past few months and there will be a lengthy recovery period since buyers are unsure if/when HOA amenities will be open again. Also, with work-from-home the new norm, people want outdoor private space to decompress making SFR a hot commodity.

While Bay Area is competitive, I personally feel we will achieve moderate appreciation over the next 5-7 years (2-4% annually) as long as rates stay low. While people may not need to be located here for week, people still want to live in the Bay Area for the schools, nature, weather etc.

If you want to explain your budget and needs, I can tell you a few areas that would be available to you.

Jordan Reid · Answer

We have been seeing rental prices come down in the Bay Area over the past few months. You can see the numbers here: https://abc7news.com/san-francisco-rent-median-drop-covid-19/6288920/But the real estate market has been strong despite  COVID-19. Prices have even continued to rise!

No one can predict when a crash will happen. Although everyone who got lucky and said the crash will happen within a certain time frame will look back and say "I told you so!"

If 1,000's of people are predicting a different time the market will crash, some of them are bound to be right.

Waiting for a crash could leave you waiting for years. There's no way to know. And what if you waited for a crash, but then prices just dropped to where they are today? Or if they crashed to a price higher than where they are today? Waiting would actually cost you more money in that scenario.

If you buy right and plan on holding the property for a long time horizon, you'll more than likely be fine. Especially in the Bay Area where price appreciation over the long term is solid.

I've seen plenty of homeowners who bought their properties 15 - 20 years ago for less under $200,000 in the Bay. Now their properties can be worth close to 1MM.

In the long run, I don't think you'll be concerned over perfectly timing the market :)

Irina Goriatcheva · Answer

@Darius Ogloza haha yep.... you have an excellent point! It’s just terrifying right now!

Should I buy a house in SF bay area right now?

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