With San Francisco real estate prices at all-time highs, does it make sense to buy now? Prices are stratospheric, listings are super scarce, and many of us are feeling the pressure of living in fast-paced and uncertain times.
Yet, the short answer, if you can afford it, is YES! It does make sense to buy San Francisco real estate.
Here’s why:
The number one reason to buy San Francisco real estate is that historically, even with major dips and even crises like the Great Recession, San Francisco real estate has ALWAYS appreciated in value.
What that means is that if you can afford to buy a house and plan to hold onto it for at least 5-7 years, San Francisco real estate is a good bet. There’s an adage in real estate that the best time to buy a home is 10 years ago. The second best? Now.
Let’s take a look at what’s going on in the market.
As I wrote in a 2014 blog post, many experts feel that we are in an “Affordability Crisis,” not a “Housing Bubble.” Just last week, I was at an economic forecast luncheon for top San Francisco Realtors with the California Association of REALTOR®’s Chief Economist, Leslie Appleton-Young who articulated to us that even though we may be shocked by the rapid gains in housing prices, as a whole, the Bay Area remains undervalued.
Undervalued?! Yup, she reminded us that San Francisco is not Modesto and must be compared to like-kind cities. In other words, San Francisco is a premier, global city and we are only now starting to catch up in prices to our peers. Appleton-Young predicts more moderate growth for San Francisco real estate, but most of us in the audience are not seeing signs of a slow down quite yet.
As I’ve written in the past, there is a confluence of factors that keep San Francisco expensive: geography and over-regulation being amongst the top two reasons real estate is pricey and will remain so.
San Francisco real estate is affected by local, global, and national economies. SF and Silicon Valley have the strongest economies in the United States, while the United States, as one Wells Fargo lender recently put it, is the cleanest dirty shirt in the world’s laundry basket. International money is flowing to our country and, in particular, to our real estate market because it is the safest investment available.
If you are hoping to wait until home prices are lower (say you think prices will drop in 2016) and you plan to finance a home purchase, you may find that the decreased home price (if that happens) is offset by the higher interest rate that’s likely to accompany it. Right now, we are experiencing astonishingly low mortgage rates which is a very important factor to consider when you are buying a home because, at the end of the day, buying a home you enjoy living in and being able to afford doing so is the whole point. Never underestimate the power of leverage and the 30 year amortization schedule.
Most current homeowners look back on how they felt when they bought their first home and they remember how tapped out they felt. It’s a huge, scary purchase, I know. I’ve been there both personally and professionally. But, I have to say that I overwhelmingly hear gratitude from folks that they bought when they did.
Although prices may seem outrageous to you now, they will, ultimately, just get higher and today’s prices will not seem that high -- especially when you consider the return on your investment.
A final point is that when you buy a home with a loan, it has a built in hedge against inflation because the cost of the purchase is spread out over the 30 years of amortization. This is true whether you get a 30 year fixed or an ARM (adjustable rate mortgage). Leverage and OPM are your friends.
It’s important to think strategically about your home purchase. Your strategy could be to buy in a neighborhood you think is up-and-coming, enjoying Zillow’s Halo Effect. For example, Dogpatch, Soma, the Excelsior, and even Bayview got hit pretty hard during the last downturn but have bounced back in an incredible way. Many of us feel that the Excelsior is the “next” Bernal in terms of home values. Or you might want to invest in a solid, centrally located A+ location that once was, still is, and will always be in fashion….say Pacific Heights, Russian Hill, Noe Valley, or Mission Dolores just to name a few.
Think, too, about conveniences and amenities. People like to be near freeway access, especially to the Silicon Valley, public transit, shopping, restaurants, nightlife, and culture. Local school districts, while a factor to some families, are not nearly as important as in other areas because of our local admissions system.
Talking to a qualified REALTOR® can help you make sense of all of these market factors and forces. We have our finger on the pulse of what’s happening in the neighborhoods and local economy.
Instead of trying to time the market, I recommend that you focus on your own situation. Is it a good time for you to buy now? Do you have the down payment? Are you feeling good in your job situation? Can you imagine staying in SF for the next 5+ years?
Gather a team of experts (your lender and real estate agent) and do your own analysis to figure out whether it makes sense for you to buy now.
Because the Bay Area is a such a unique place in terms of income, employment, and, yes, housing prices, avoid using online calculators. Instead, sit down with a professional mortgage advisor and get numbers that make sense specific to you.
You’ll also want to compare the costs of buying with the cost of renting. Remember: Tax deductions make a big difference.
The take home is that once you’ve done this kind of homework, you’ll be able to absorb the sticker shock of San Francisco real estate prices much more easily. In fact, you just might be excited and happy to buy a home! 🙂
The difference between real estate and any other investment is that it provides a place to lay your head at night. I’ve been talking about San Francisco real estate in terms of investment, but actually, the most important aspect is that this will be your home…
Owning a home provides you with “intangibles” that really aren’t so intangible, when you think about it. I’m thinking about the creative process of decorating and remodeling your home so it’s just the way you want it, the security of knowing that you are investing in your future, and the pride of knowing that you own a piece of beautiful San Francisco!
Home is where you sit by the fire, take a relaxing bath, recover from a long day at work, play with the dog, spend time with your loved ones, or maybe even dig in the dirt with your kids in the back yard. In other words, real estate is a very unique, and often emotional investment.
On a personal note, I purchased my first home, a loft condo in the Inner Mission, in my mid-20s only a couple of years after I started my real estate career. It was a cool space and a lot of fun to own. At some point, I was ready for more space and a slightly mellower area (though I miss walking to Valencia Street!), so I sold the condo and purchased a single family home nearby in Bernal Heights. I’ve seen real estate prices go up and down over the years and I am here to tell you this: It is a very rare client who regrets having purchased a home in San Francisco.
