Friday, November 9, 2018

Is it better to buy or rent in San Francisco?

The better deal in the long run depends on how long your run is

San Francisco has always been a renter’s city. Even in recent years, when soaring real estate prices have increased the incentive to buy, the SF Planning Department estimates that nearly 65 percent of San Franciscans rent.

The question for a newcomer arriving to the city after both home prices and rents ran away with the bank in recent years is: What makes more economic sense these days, renting or buying?

That depends. In the short term, renting is always more affordable—otherwise why would anyone do it?—but after a certain number of years the returns diminish.

How long that takes depends on a lot of predictions—or assumptions. In 2018, an increasing number of economic prognosticators suggest that SF is in a weird season when renters are actually getting the longer end of the stick.

Here’s the breakdown:

  • In July, real estate site Trulia declared that, for the first time since it began evaluating the relative merits of renting versus buying, renting had finally become the more affordable option in both San Francisco and San Jose. Trulia economist Cheryl Young wrote that “escalating prices are driving homes further out of reach” during a time when rent price stayed relatively flat. Young’s study assumed that households stayed in the same place for at least seven years and that homebuyers went in for a 30-year fixed mortgage.
  • Note that Trulia’s rent figures reflect only the homes on Trulia, not a truly objective survey of rent prices across SF. But since Trulia prices are likely to be higher than average, this doesn’t detract much from Young’s conclusions.
  • Trulia does provide its own rent-versus-buy calculator to determine the break-even point for a hypothetical deal. For example, using data firm Core Logic’s latest SF home price median of $1.31 million, renting at $4,370/month is more affordable than buying up until the nine-year mark. On the other hand, any rent less than that will always be cheaper than buying in SF—provided that the aforementioned median price doesn’t depreciate.
  • For a different perspective, in 2017 real estate group Paragon compared buying a two-bed, two-bath condo (for $1.15 million, a median price on MLS at the time) to renting a similar sized home for around $4,500/month—an average market rent at the time. By refining the type of home to this specific size, Paragon found “using the specified rates of appreciation, inflation and investment returns, your home purchase breaks even in approximately 2.7 years.” Note that in the year since the 2017 report, the median price for an SF condo ballooned to $1.2 million, according to Paragon’s summer of 2018 SF report.
  • The New York Times has a rent-versus-buy calculator tool similar to Trulia’s: As the Times’ Upshot site reckons, a $1.31 million median home price in SF means that any rent less than $4,230/month is a better deal over nine years, while any amount higher would be best suited for buying.
  • Of course, this changes as the variables change: If you stay in place for 15 years instead, then the competitive rent drops to $3,922/month. Whereas staying for only one year means any rent less than $14,000 is better—although few people buy a house for only one year.
  • Keep in mind that these guidelines assume you’re buying at the current estimated median home price. A cheaper home—say, just $800,000—changes the results too: At that price point, hypothetical rent has to decline to $2,628/month by the NYT estimate.
  • Finally, one more rubric: Investment site Smart Asset crunched numbers earlier this year and determined that in San Francisco, a $550,560 home price is needed to beat out a $1,000/month rent. Of course, only with assistance from the city can people find a deal at either of those prices, but it’s a scalable ratio. 

For what’s it worth, Dropbox software engineer Aaron Staley took to Medium in April with his own rent/buy calculations to warn readers that “you shouldn’t buy a home in the Bay Area right now.”

The reason: “Under most plausible return scenarios, housing is overpriced in every examined market,” according to Staley’s calculations. The engineer goes on to caution that at current prices “abnormally high returns” would have to continue for years to make buying a better option.

By Adam Brinklow

Wednesday, November 7, 2018

San Francisco ranked fifth best city for tech jobs

San Francisco ranked fifth best city for tech jobs

The Computing Technology Industry Association [CompTIA], a nonprofit trade association for people in the technology industry, ranked which American cities are best for jobs in the tech sector. Among the surprises, Silicon Valley hubs San Jose and San Francisco came in fourth and fifth, respectively, beneath cities in North Carolina and Texas.
The report, “Tech Town USA,” compared 20 metro areas “where demand for tech workers is greatest,” and compared how great demand for jobs in those areas was weighed against the local cost of living.
Despite the fact that Silicon Valley is, well, Silicon Valley, the top two spots on the list went to cities in North Carolina—Charlotte and Raleigh, respectively—with Austin coming in third. All California destinations ranked somewhere below.
Here’s a look at some of the results:
In this assessment, the best place to work in tech isn’t Silicon Valley but the Tar Heel State: “North Carolina was a major stand-out, with Charlotte earning the number one spot and Raleigh just behind at number two.”

The Bay Area underperformed, though the sheer power of Silicon Valley is still hard to ignore: “Despite the cost of living factors, tech-heavy hitters like San Jose and San Francisco and themselves at number four and number five, respectively— as an opportunity in these areas continues to skyrocket faster than housing costs.”

No big surprise here: The difference maker was the cost of living: In the rankings, San Francisco and San Jose earned high marks for job opportunities. But for ease of paying bills, SF came in dead last at No. 20 out of 20 cities. San Jose came in at No. 19.

Silicon Valley workers net huge paychecks, but sometimes it’s still just not worth it: “While tech workers in San Jose earn a median income of $122,242 per year—the highest salary on our list—would-be California dreamers need to take costs into account. Those who call Silicon Valley home understand that everything is more expensive—43.6 percent more than the average cost of living in the U.S.”

While housing is one element of the cost of living, the contrast is stark:According to the California Association of Realtors, the median price of a house in San Francisco and Santa Clara County is $1.5 million and $1.25 million, respectively. In No. 1 ranked Charlotte, North Caroline, it’s over $300,00. Median rent for a one-bedroom apartment in SF on Zumper is $3,650/month; in Charlotte, it’s $1,150/month.

Nevertheless, Silicon Valley remains the center of the universe, tech-wise: “A staggering 112,388 Bay Area IT jobs were posted between August 2017 and July 2018 (the second highest on our index) and demand for IT pros are projected to increase a whopping 15 percent by 2023.”
  
On a final note, CompTIA claims, “More residents left San Francisco than any other city in the last quarter of 2017, according to real estate website Redfin.”
However, as we’ve taken pains to explain, this is not accurate: Redfin doesn't measure how many people move out of San Francisco, as it has no access to such data.
Rather, Redfin measures the number of Redfin users in the Bay Area—not just SF—who appear to be shopping for homes in other cities.
That figure is indeed going up, but San Francisco’s actual population—as well as the population of the Bay Area—continues to rise, largely on the extra bump provided by immigration.

Tuesday, October 2, 2018

Bay Area home sales grinding down — could this be the top?

Bay Area home sales grinding down — could this be the top?

As Bay Area home prices rise, more residents are unwilling or unable to meet sky-high down payments and mortgages.

Home sales in the nine-county region slowed to their lowest point in August in seven years, as median sale prices again climbed double digits — 12 percent — to continue a record streak.

Bay Area home sales dropped 10 percent from the previous year, according to a monthly report released Thursday by real estate data firm CoreLogic, but super-hot prices in Santa Clara, San Francisco, Alameda and San Mateo counties pushed the median sale price of existing homes in the region to $860,000.

“This summer, we saw more buyers hesitate,” said CoreLogic analyst Andrew LePage. The number of homes sold in the region has fallen year over year for the last three consecutive months, he said. This summer’s activity was the slowest June-through-August period in seven years.

LePage attributed the decline to a lack of affordable choices and higher mortgage rates pushing up the cost of home ownership.

The average 30-year fixed mortgage rate climbed to 4.72 percent this month, its highest level since 2011, according to FreddieMac.

The smaller pool of buyers has allowed the local inventory of homes to grow, LePage said. “You’re transitioning from an extremely tight market to a tight market,” he said.

The region’s economic expansion has collided with long-standing, local resistance to building new housing, boosting home values for long-time property owners while leaving newcomers outside and struggling to buy in.

Typical home sale prices in the region have increased an average of 13.4 percent, year-over-year, every month since January, according to CoreLogic. Double digit gains have now stretched for 13 consecutive months.


Every Bay Area county last month saw median sales prices for existing homes rise. Santa Clara increased 17.4 percent to $1.24 million; San Mateo increased 10.9 percent to $1.42 million; Alameda was up 13.8 percent to $910,000; Contra Costa rose 6.9 percent to $620,000; and San Francisco increased 16 percent to $1.48 million.

The number of homes for sale in California has been creeping up for the last five months after 33 months of decline, according to the California Association of Realtors. The increase in available homes in August was the greatest in nearly four years.

The unsold inventory index — which measures how long it would take to sell every home on the market, given the current sales rate — rose from 2.9 months in August 2017 to 3.3 months last month in California. Santa Clara and Alameda counties had a 2 month supply, while San Mateo and Contra Costa counties had 2.1 and 2.2 month supplies, respectively.

Agents have noticed the increased inventory. Tim Ambrose with Berkshire Hathaway in the East Bay said listings for home tours have doubled in recent months. Clients have more options as homes are sitting on the market longer.

Matt Rubenstein, an agent with Compass Real Estate in Contra Costa County, said he’s seeing more price reductions, an indication that some sellers are being too aggressive in a strong market. The East Bay market has been cooler than the South Bay, he said, and buyers still require contracts with contingencies for inspections.

“I’m not calling that a buyer’s market,” he said. “I’m calling it a level market.”

Mark Wong, an agent at Alain Pinel in Saratoga, said the market is still  good for sellers, but coming back to a normal balance. “How you price a house is very crucial in this market,” Wong said. “At this point, we still have demand.”

Long-time homeowners in the South Bay have much to gain, even as they have seen their communities change dramatically over decades from a sleepy, orchard-filled valley to the center of the world’s technology and innovation.

Wong said homes in good school districts near the tech employment corridors continue to fetch strong returns. One of Wong’s clients, Scott Bailey, quickly sold the family home in August, about a year after Bailey’s father died.

Bailey’s parents, Richard and Helen, bought their three-bedroom, two-bath house in West San Jose in 1967 for about $28,000. Orchards and open space surrounded their little ranch home.

Richard Bailey taught students piano and organ in the home. He played a Steinway grand and performed at concerts and the neighborhood pizza parlor.

They grew peaches, oranges and apricots in the yard. They had an in-ground pool and a two-car garage. They raised a son and daughter, sent them to public schools, and a built a life on Ivy Lane for more than 50 years.

Over the years, the orchards became shopping malls and tech offices. The house stayed the same.

By Louis Hansen

Thursday, September 6, 2018

UC Berkeley professor blames rent control for California’s housing shortage.

Kenneth Rosen, a UC Berkeley economist and real estate consultant, published a paper Wednesday titled The Case For Preserving Costa Hawkins, in hopes of swaying voters against Proposition 10.
 
Proposition 10, which will go before voters in November, would repeal the 1995 Costa-Hawkins Act, a state law that severely curtails rent control in California cities. For example, under Costa-Hawkins, only San Francisco apartments built before 1979 may be subject to rent control.

Passing Proposition 10 would not in and of itself create any new rent control housing, but it would allow cities to expand rent control stock for the first time in decades if they so choose.
Rosen, however, argues that turning the clock back to 1994 will stifle new housing and drain apartment stock.

Here’s how his case breaks down:
  • Rosen cites the usual supply and demand argument about housing costs:“Following decades of strong population growth and persistent underbuilding, California is in the midst of a housing crisis. The statewide failure to keep up with new demand for housing, even through the recent period of rapid economic growth, resulted in a shortage of available housing and rapidly rising housing costs.”
  • In fact, Rosen goes one step further and blames the housing shortage partly on rent control: “Rent control incentivizes property owners to convert rental units to other uses, such as for-sale housing units or non-residential buildings. [...] Rent control limits the creation of new rental supply by discouraging development activity, especially without guaranteed exemptions for new properties.”
  • Of course, there are other factors at play: “Persistent low levels of construction reflect a wide range of factors including a combination of high construction costs, restrictive land use zoning, community obstruction and prohibitive or costly regulatory hurdles.”
  • The threat of landlords yanking homes from the rental market looms over the debate: “The supply of rent-controlled units also declined in California cities since the enactment of rent control, as property owners converted apartment buildings to other uses.” Note that this declaration is a little nonsensical—after all, the supply of rent controlled units would be zero before the enactment of rent control—but the gist seems to be that rental stock is lost.
  • Rosen cites a popular Stanford study, penned by economists Rebecca Diamond and Tim McQuade, to bolster these claims: “A recent Stanford University study examined the effects of a 1994 ballot initiative (Proposition I) passed in San Francisco. [...] Nearly 10% of the properties newly covered by the updated ordinance were redeveloped dur-ing the period from 1994 through 2016.”
  • Throughout the report he characterizes Costa-Hawkins as a “compromise”:Note that this is highly subjective, as rent control boosters usually frame the 1995 law as onerous deregulation that principally or exclusively benefits landlords. Rosen, on the other hand, hopes voters will see it as a middle ground.
  • He predicts disaster if Proposition 10 passes: “Costa-Hawkins established between local and statewide interests a degree of certainty for the housing market and supported the development of new apartment supply in recent years. Today, however, repealing Costa-Hawkins could create a haphazard patchwork.”
Rosen’s analysis mostly covers familiar arguments—as such the pro-Proposition 10 crowd has rejoinders on standby.

For example, Rosen suggests that developers won’t want to build in California if there’s a chance new units will be subject to rent control. But at a July debate, Yes On 10’s Amy Schur said she had never heard of any city putting rent control on new construction and argued that this was a paper tiger.

Rosen’s sources offer some competing conclusions as well. For example, the oft-cited Stanford study did conclude that rent control drove up housing costs in SF.

But economists Diamond and McQuade also concluded that the net benefit to rent controlled tenants was slightly larger during the studied period than the costs elsewhere, and that many renters would have been unable to live in the city at all otherwise.

Rosen also writes, “A 2006 Brigham Young University study found that rent control in the Greater Boston area led to an increased number of units converting” to non-rentals, which is true.

However, in that same study, BYU economist David Sims also concluded that “rent control had little effect on the construction of new housing [...] and reduced rents substantially,” which undermines some of Rosen’s arguments.

Rosen cites a 1998 survey conducted by the city of Berkeley that found “rent control encourages alternative use of rental space by reducing the opportunity cost of conversion,” which, again, is accurate.

However, the rest of that same sentence notes that “conversion can be restrained by the creation of new condominiums to meet the demand for ownership and by regulatory restrictions on conversion of existing rental properties with multiple units.”

By Adam Brinklow


Thursday, August 30, 2018

Coming soon!

Located in the heart of Telegraph Hill, this wonderful and cozy renovated condo offers two bedrooms one bath approx. 580 square feet, a bright living room, and a comfy kitchen with new granite counters. New tiling in the bathroom, new flooring and fresh interior paint. Pleasant and warm home! Located close to public transportation, spectacular restaurants and North Beach eateries and great shopping. Walk Score 100! Excellent location and value. City living at its finest!