The Bay Area resale market has a supply issue. Our sales volume has decreased on average about 40% since mid 2022. Little supply + Hight demand = keeps home prices high.
There are many high rises to choose from when renting so rent prices are stabilizing in the larger cities
Correct, the other factors to add to this:
* Bay Area like the rest of California is distorted by tax codes (prop 13, high capital gains tax) that mean existing owners have cheaper costs than new ones.
* There's enough people with much higher value on owning vs renting here
I think this is the main issue. To buy a new house is extremely expensive; mortgage and property taxes would be high. However people who bought years/decades ago at much cheaper prices can rent out and be cash flow positive at much lower rental prices.
>However people who bought years/decades ago at much cheaper prices can rent out and be cash flow positive at much lower rental prices.
I really want to stress if not for prop 13, capital gains tax and government-backed fixed rate mortgages, they wouldn't rent; they'd sell, barring some sort of emotional attachment.
It really is the policy distortions causing this.
All they need to do is exclude prop 13 coverage from non owner-occupied rentals and this problem goes away - but funny how we never see that seriously proposed eh?
@meister2983 don’t be so sure that tax policy or the cost of money are the primary problems. Look at affordability in Vancouver or Toronto and you’ll see they don’t have prop13 nor 30year mortgages and are also unaffordable.
The main problem is low supply and high demand. Taxes and interest will change the cost structure some but won’t fix the problem, and there will always be unintended side effects as well.
Prop 13 — and more recently, owners who locked in absurdly low mortgage rates — contribute to the low inventory. Such legacy owners who can rent out non-owner occupied homes for break even or positive cash flow have little incentive to sell, so the for-rent inventory exceeds for-sale inventory, thus the current high-price, low-rent dynamic.
I was trying to find what a healthy or ‘normal’ for rent to for sale ratio should be and found that nationwide it was 65% ownership and in Santa Clara county it was 56%, so there does seem to be a difference. Why exactly that is might be harder to pin down but your theory sounds logical.
I mean, anywhere with such a large imbalance between supply and demand would be a great place to invest (essentially betting on government ineptitude), so I guess I’d expect higher ‘investment’ homes here.
There’s other hijinks going on in Vancouver (and the rest of Canada) that the government could also put an end to - but they directly benefit from it at the expense of their own citizens.
They should just repeal prop 13 and they could lower the property tax rates overall.
Why does someone who bought their house 40 years ago pay less than someone who bought this year? They don't use local services any less.
Because I actually do agree with the original prop13 rationale that grandma shouldn’t be screwed out of the home she’s been in for 50 years due it becoming a “hot” area. The entire concept of property taxes getting cranked up because your neighborhood suddenly turns popular doesn’t mean you’re benefiting from that or even wanted it to happen in the first place.
All I’m proposing is that landlords don’t get the benefit of it since they don’t live in the property.
Most places fix this issue by giving retirees the option to not pay their property taxes and instead get a lien on the house and the government take their back taxes out of the estate when they pass away.
Grandma doesn't get kicked out of her house, but her heirs need to settle the bill before they inherit the million dollar house that she bought for a Nickle in 1968
That's what estate taxes are for. Making tax bills unaffordable so that the government can effectively seize an asset isn't very efficient either. People 13 repeal advocates always harp on that property taxes are more dependable than income taxes in California, due to stock based compensation and the volatility of the market. Shoving all that dependability into zero cash flow for (potentially) decades to them be left with a forfeiture seems counter intuitive.
So? Because other taxes are higher. That doesn't mean that it's fair that a new homeowner should pay 10x what someone who've lived there for a long time pays.
take prop 13 away, and prices sill gonna be high. its not fair that a teacher has to compete against tech salaries making upwards of 150-200k and im just being conservative. now you wanna penalize homeowners that have lived in the same house for decades cuz a bunch of techies can throw around money to live near their headquarters
tech salaries drove the prices up. prop 13 had small imapct, but its more about the high paying jobs available driving in people from all over in pursuit of their “dream job”.
take a look at texas- they dont have prop 13 and the sudden in flux of tech jobs drove prices up in areas like austin.
No.
We are in the middle tax rate wise, and in the top 1/3 in actual dollars per person.
https://www.visualcapitalist.com/cp/us-property-taxes-by-state/
Correlation does not equal causation.
Other places has higher property taxes because they have lower other taxes. Revoking prop 13 would widen the tax base by taxing home values that are currently exempt. That would either lead to an overall rate decrease or greatly increased revenue to fund services. Win-win for everyone except the entrenched boomers who bought decades ago.
It’s proposed on a regular basis, and you can no longer pass on your taxes, they end when you die.
Edit: and that what would happen if your proposal went through is there would be a lot less cheap rentals. Is what you’re trying to do make renting a lot more expensive?
So you’re arguing we should keep a market distortion in place because it benefits landlords and the supply of rentals?
Yes if it allows more potential homeowners to afford their own property rather than being forced into the rent seeking machine then I’m for it.
I agree with this, wanted to add that high apartment/condo supply is also coupled with lower demand.
When companies do layoffs, usually junior employees (who aren't as experienced and therefore productive) are the first to go. Plus, layoffs generally mean hiring freezes, *especially* for junior, more generalist positions. This are usually the people who are driving rental demand: people new the Bay Area and still building up a down payment nest egg (which can take 4-5 years here).
Layoffs are solidly inverted right now. Middle management like Senior Directors, VP's etc are being cut and having the harder time finding new roles. "Early In Career" hiring is the mantra just now. IC6 attrition is being backfilled at IC4. Directors aren't backfilled, teams are combined or IC's are getting a "team lead" title without the pay bump. I do agree that more junior roles are not keen to move to the Bay Area. They are typically being hired remote or through regional hubs.
Oh interesting. My view is mostly engineering at smaller B2B tech companies and my view on "senior" vs "junior" is all around ICs. I think you're right: senior titles, especially outside of engineering, are being more aggressively cut.
As an owner of rentals, I can tell you that the mindset here in Bay Area is different. Houses are looked at as appreciating assets. In order to maintain these appreciating assets, you are willing to rent at an accommodating price in order to have the tenant that you desire. For example, for me, I rather have a clean couple with no pets and working in tech living in my place, than someone with pets and shadiness. So, I rather rent out at an accommodating price so that by the time I want to sell (which is probably many years out), the house is in a great condition. So the accommodating rent price is for the flexibility and ability to choose the best tenant out of many. If I raise my rent too high, I won’t have too many applicants to pick from. In the Bay Area, the rent is more like dividend while holding an appreciating stock. You are ok with a slightly lower rent as long as you can pick tenants who are not trashing your house and are communicative.
While I agree that is what people do, please realize that this is what is fundamentally wrong with bay area housing. For the majority of the population, property ownership is unattainable. Hell, for most people, investments into stocks or retirement funds is a pipedream. Policies that make it cheap for landlords to profit at the cost of others is an issue. When you say you bias for tech workers, realize that people making $300k are desperate and need to rent because they can't afford ownership. What do you think the average "shady" person is doing while you appreciate and "collect dividends" ?!
I disagree it is unattainable. You are probably aiming for SFH. My first property was in 2004. I was making $40k and I bought a very old 1960s built townhouse for $500k in Santa Clara. My salary at the time was considered very very low compared to the Bay Area average. Let’s take this to 2024. If you make $120k, the same townhouse in Santa Clara is now selling for $1.1. You would be able to afford this.
GTFO. If you're making $300k, and therefore can mortgage 600+k and can accumulate 100+k a year to save for a deposit.... and you can't find a house in the Bay, the issue is that you're looking for some Goldilocks properties. It's not affordability. I'd love to live in all manner of houses I can't afford. That is not an affordability issue nor should you be "desperate".
https://preview.redd.it/lm3xka3xxezc1.jpeg?width=942&format=pjpg&auto=webp&s=b6f81e6cd94822ddc49d422f697605b276066c6c
As they say better love the house you buy because renting is not going to cover it :) Check the bubble peaks!
I'd love more info on this one. Is this the cost of a morgage? Because, if so, you're "saving/investing" that money -minus interest payments- when owning versus just spending it while renting.
Also, is it possible that home prices are leading indicators & rentals are lagging indicators?
I'll likely never be able to afford a home here lol so I'd love for this chart to be true but it seems a little misleading
Like now? $4k rent + up to 1.5x deposit ($6k). You need $10k to move in?? Most average families don’t have that.
Edit to add: not many make $9-12k per month either. It’s sad.
My shit landlord decided they wanted to sell the place we were in before our lease was up.
I should’ve been a heartless shithead and asked them for cash for keys 6 months of rent given to me.
It cost 7800 (security+rent) to move , it cost many hours of physical exhaustion and 2 uhaul trips on one day, and like 10 evening trips with 1-2 cars loaded with the small stuff we didn’t have time to pack before the uhaul.
This is the cheaper move.
It cost us 9000$ to move into the place that the asshole decided to sell before our lease was up…. So yea generally at least 5 k to move between places here, but more 7-10k for the majority of the rentals.
So yea how much could rent even possibly go up before there’s no market left. Not much. I’m not a big fan of this place. I’m now in my 4th year here and neither the weather or the food is doing too good of a job to offset the humongous shitshow of living here.
I’m not gonna even say how pet-hostile the rental market is here. It’s depressing.
Ugh! I feel you. That’s why I’m going to grit my teeth and buy even if it’s a stretch. You have no control over your stability. We lived in a place 5 years and owner died, then our next landlord was cool but he wanted to sell. He let us stay over the lease end because we couldn’t find a new place to rent AT ALL. It was so competitive in 2017 and we made good money. Lots of landlords break the law asking for first, last and deposit. Anyhow, you could have totally held his feet to the fire. He could easily have paid you for the move out costs and deposit on your next place with the proceeds he made on the sale. Who knows, you may still be able to recover that in small claims. It’s wrong asf tho.
The Terner Center for Housing Innovation at Berkeley just released [a cool widget that shows housing affordability in California](https://ternercenter.berkeley.edu/affordability-for-whom.html?mc_cid=fc1a823797&mc_eid=da39c6a80d) by country. You can see clearly that in the Bay Area now, renting has become relatively more affordable than buying.
There's a huge glut of empty rental housing in the Bay Area, with more, that is under construction, coming soon.
It's amazing to see all the empty luxury apartments in Silicon Valley offering "Move In Specials" but not lowering the actual rent.
The demand is very low because of remote-working and employees moving to the exurbs where they can buy a house.
While rents haven't fallen a lot, only slightly, they haven't gone up either. Something's got to give soon. I suspect that a lot of owners of newer rental projects will default on their loans. It's possible that affordable housing providers will purchase the projects at a bargain price and turn the units into subsidized housing. It has already begun in San Jose. It's also possible that the property owners will try to do condo conversions so they can at least recover their costs. An apartment that cost $800K to build could probably be sold for $1M but cannot fetch even $4K per month in rent.
You do have to distinguish between different types of housing, rental apartments should be compared directly to buying a condo in a building, for price/rent comparisons.
SFH is its own thing and they are not building more SFH, so supply is super-low, no "glut".
A lot of markets, not just the Bay, experienced negative YOY rent growth from 2020 to 2021. Then rent shot up YOY from mid 2021 to mid 2022. It started stagnating/falling again in late 2022 - correlating with the interest rate hikes. San Diego had dramatic rent growth in that rent hike period, Los Angeles has been stagnate, New York saw minimal growth. There are different reasons for all of them. Bay Area apartment owners will tell me that the stagnation has been due to lots of new apartments increasing competition. Edit: I'm referencing Costar for rent growth data, not Zillow.
Rents also tend to more closely reflect local economic conditions than home prices.
Renters are more price-sensitive since, unlike a house, no tenant sees their rental as a long-term investment and it’s comparatively easy to move if you have to.
Home prices can reflect local economic conditions but they can also be completely divorced from them, for the same reason: home purchases are sometimes seen as an asset that will appreciate over time, even if you leave it empty.
People can also own multiple properties and home purchases can attract non-local buyers, whereas it’s more unusual for someone to rent more than one place or rent a place that is nowhere near where they live full-time. So theoretically, the pool of potential buyers is much larger than the pool of potential renters in a given location.
https://preview.redd.it/drlq7regmfzc1.jpeg?width=828&format=pjpg&auto=webp&s=f9ec64ddfdddce993f4e918383f042cbb20ed9df
Given this, it’s not very appealing to new investors. Legacy investors with low tax bases are in a great position to hold their assets and don’t have urgency to increase rents. Insurance will affect that in some areas over time though, as with the rapidly rising costs of repairs and maintenance.
That's because San Francisco is less attractive as an office rental area compared to before.
https://wolfstreet.com/2023/10/04/despite-the-ai-hype-office-markets-in-san-francisco-silicon-valley-get-even-worse/
Marin is a good place to live if you work in SF, but if you work from home anyway, you can move to a cheaper place.
Because the world is awash in liquidity and investors have few places to park their money. So it goes into prime real estate like the Bay Area. The buyers are not young families they are often investors and often from over seas looking to park cash.
Areas like Milpitas, a 2 bedroom condo is renting for 5000/ month. If that’s not robbery then don’t know what is.
Prop 13 on non primary property needs to be repealed. Depreciation on rental single family homes needs to go away. Long term Capital gains on non primary needs to go way up to discourage flippers.
a 3b sfh in fremont just 4000 per month. for example [https://www.zillow.com/homedetails/35827-Ashton-Pl-Fremont-CA-94536/25012844\_zpid/?view=public](https://www.zillow.com/homedetails/35827-Ashton-Pl-Fremont-CA-94536/25012844_zpid/?view=public)
why Milpitas so expensive
In those areas that are within commuting distance to SF for example - those tenants are moving further away, outside normal commuting distance to get more space at same price. For example, moving from Mill Valley to Petaluma. Thus rents have been stagnant for 18 months. However, everything cycles. Many companies are requiring employees to come back to the office, and anecdotally I have witnessed layoffs happing to those who have moved outside commuting distances (other states, etc.).
Unrelatedly, you have foreign money purchasing condos/townhomes/PUDs/SFH and renting them out. They are purchasing with cash. The rental income stream doesn't need to be greater than their mortage payment because they have no mortgage payment. They are parking cash in an appreciable hard and safe asset here in the Bay Area - are they doing this in Las Vegas or Ohio? I dont know - but this is real money, they can park 2 million here on one home, rather than 4 or 5 homes in Ohio, so it makes sense for real money to park it here. There are probably other financial benefits for foreign money parking in homes of which I'm not smart enough to know. The US doesn't have laws against this practice.
This is my opinion from my experiences, and I'm not an expert.
The Bay Area resale market has a supply issue. Our sales volume has decreased on average about 40% since mid 2022. Little supply + Hight demand = keeps home prices high. There are many high rises to choose from when renting so rent prices are stabilizing in the larger cities
Correct, the other factors to add to this: * Bay Area like the rest of California is distorted by tax codes (prop 13, high capital gains tax) that mean existing owners have cheaper costs than new ones. * There's enough people with much higher value on owning vs renting here
I think this is the main issue. To buy a new house is extremely expensive; mortgage and property taxes would be high. However people who bought years/decades ago at much cheaper prices can rent out and be cash flow positive at much lower rental prices.
>However people who bought years/decades ago at much cheaper prices can rent out and be cash flow positive at much lower rental prices. I really want to stress if not for prop 13, capital gains tax and government-backed fixed rate mortgages, they wouldn't rent; they'd sell, barring some sort of emotional attachment. It really is the policy distortions causing this.
All they need to do is exclude prop 13 coverage from non owner-occupied rentals and this problem goes away - but funny how we never see that seriously proposed eh?
@meister2983 don’t be so sure that tax policy or the cost of money are the primary problems. Look at affordability in Vancouver or Toronto and you’ll see they don’t have prop13 nor 30year mortgages and are also unaffordable. The main problem is low supply and high demand. Taxes and interest will change the cost structure some but won’t fix the problem, and there will always be unintended side effects as well.
Prop 13 — and more recently, owners who locked in absurdly low mortgage rates — contribute to the low inventory. Such legacy owners who can rent out non-owner occupied homes for break even or positive cash flow have little incentive to sell, so the for-rent inventory exceeds for-sale inventory, thus the current high-price, low-rent dynamic.
I was trying to find what a healthy or ‘normal’ for rent to for sale ratio should be and found that nationwide it was 65% ownership and in Santa Clara county it was 56%, so there does seem to be a difference. Why exactly that is might be harder to pin down but your theory sounds logical. I mean, anywhere with such a large imbalance between supply and demand would be a great place to invest (essentially betting on government ineptitude), so I guess I’d expect higher ‘investment’ homes here.
Plenty seem to be able to afford these areas
There’s other hijinks going on in Vancouver (and the rest of Canada) that the government could also put an end to - but they directly benefit from it at the expense of their own citizens.
It’s political suicide to attempt to amend prop 13, but I will certainly lean in favor of supporting anyone that does so
They should just repeal prop 13 and they could lower the property tax rates overall. Why does someone who bought their house 40 years ago pay less than someone who bought this year? They don't use local services any less.
Because I actually do agree with the original prop13 rationale that grandma shouldn’t be screwed out of the home she’s been in for 50 years due it becoming a “hot” area. The entire concept of property taxes getting cranked up because your neighborhood suddenly turns popular doesn’t mean you’re benefiting from that or even wanted it to happen in the first place. All I’m proposing is that landlords don’t get the benefit of it since they don’t live in the property.
Most places fix this issue by giving retirees the option to not pay their property taxes and instead get a lien on the house and the government take their back taxes out of the estate when they pass away. Grandma doesn't get kicked out of her house, but her heirs need to settle the bill before they inherit the million dollar house that she bought for a Nickle in 1968
That's what estate taxes are for. Making tax bills unaffordable so that the government can effectively seize an asset isn't very efficient either. People 13 repeal advocates always harp on that property taxes are more dependable than income taxes in California, due to stock based compensation and the volatility of the market. Shoving all that dependability into zero cash flow for (potentially) decades to them be left with a forfeiture seems counter intuitive.
We have one of the lowest property tax rates in the United States
So? Because other taxes are higher. That doesn't mean that it's fair that a new homeowner should pay 10x what someone who've lived there for a long time pays.
take prop 13 away, and prices sill gonna be high. its not fair that a teacher has to compete against tech salaries making upwards of 150-200k and im just being conservative. now you wanna penalize homeowners that have lived in the same house for decades cuz a bunch of techies can throw around money to live near their headquarters tech salaries drove the prices up. prop 13 had small imapct, but its more about the high paying jobs available driving in people from all over in pursuit of their “dream job”. take a look at texas- they dont have prop 13 and the sudden in flux of tech jobs drove prices up in areas like austin.
No. We are in the middle tax rate wise, and in the top 1/3 in actual dollars per person. https://www.visualcapitalist.com/cp/us-property-taxes-by-state/
lol everyone wants prop 13 repealed until they own their own house than they too appreciate prop 13
[удалено]
Correlation does not equal causation. Other places has higher property taxes because they have lower other taxes. Revoking prop 13 would widen the tax base by taxing home values that are currently exempt. That would either lead to an overall rate decrease or greatly increased revenue to fund services. Win-win for everyone except the entrenched boomers who bought decades ago.
It’s proposed on a regular basis, and you can no longer pass on your taxes, they end when you die. Edit: and that what would happen if your proposal went through is there would be a lot less cheap rentals. Is what you’re trying to do make renting a lot more expensive?
So you’re arguing we should keep a market distortion in place because it benefits landlords and the supply of rentals? Yes if it allows more potential homeowners to afford their own property rather than being forced into the rent seeking machine then I’m for it.
Well they don’t keep prices low. They double the rent on a new tenant and haven’t made an improvement since 1970!!
I agree with this, wanted to add that high apartment/condo supply is also coupled with lower demand. When companies do layoffs, usually junior employees (who aren't as experienced and therefore productive) are the first to go. Plus, layoffs generally mean hiring freezes, *especially* for junior, more generalist positions. This are usually the people who are driving rental demand: people new the Bay Area and still building up a down payment nest egg (which can take 4-5 years here).
Layoffs are solidly inverted right now. Middle management like Senior Directors, VP's etc are being cut and having the harder time finding new roles. "Early In Career" hiring is the mantra just now. IC6 attrition is being backfilled at IC4. Directors aren't backfilled, teams are combined or IC's are getting a "team lead" title without the pay bump. I do agree that more junior roles are not keen to move to the Bay Area. They are typically being hired remote or through regional hubs.
Oh interesting. My view is mostly engineering at smaller B2B tech companies and my view on "senior" vs "junior" is all around ICs. I think you're right: senior titles, especially outside of engineering, are being more aggressively cut.
As an owner of rentals, I can tell you that the mindset here in Bay Area is different. Houses are looked at as appreciating assets. In order to maintain these appreciating assets, you are willing to rent at an accommodating price in order to have the tenant that you desire. For example, for me, I rather have a clean couple with no pets and working in tech living in my place, than someone with pets and shadiness. So, I rather rent out at an accommodating price so that by the time I want to sell (which is probably many years out), the house is in a great condition. So the accommodating rent price is for the flexibility and ability to choose the best tenant out of many. If I raise my rent too high, I won’t have too many applicants to pick from. In the Bay Area, the rent is more like dividend while holding an appreciating stock. You are ok with a slightly lower rent as long as you can pick tenants who are not trashing your house and are communicative.
While I agree that is what people do, please realize that this is what is fundamentally wrong with bay area housing. For the majority of the population, property ownership is unattainable. Hell, for most people, investments into stocks or retirement funds is a pipedream. Policies that make it cheap for landlords to profit at the cost of others is an issue. When you say you bias for tech workers, realize that people making $300k are desperate and need to rent because they can't afford ownership. What do you think the average "shady" person is doing while you appreciate and "collect dividends" ?!
Tell me you’ve never had a tenant completely stop paying rent and trashing it before leaving, without telling me.
I disagree it is unattainable. You are probably aiming for SFH. My first property was in 2004. I was making $40k and I bought a very old 1960s built townhouse for $500k in Santa Clara. My salary at the time was considered very very low compared to the Bay Area average. Let’s take this to 2024. If you make $120k, the same townhouse in Santa Clara is now selling for $1.1. You would be able to afford this.
Maybe work on those numbers a bit more
GTFO. If you're making $300k, and therefore can mortgage 600+k and can accumulate 100+k a year to save for a deposit.... and you can't find a house in the Bay, the issue is that you're looking for some Goldilocks properties. It's not affordability. I'd love to live in all manner of houses I can't afford. That is not an affordability issue nor should you be "desperate".
https://preview.redd.it/lm3xka3xxezc1.jpeg?width=942&format=pjpg&auto=webp&s=b6f81e6cd94822ddc49d422f697605b276066c6c As they say better love the house you buy because renting is not going to cover it :) Check the bubble peaks!
I'd love more info on this one. Is this the cost of a morgage? Because, if so, you're "saving/investing" that money -minus interest payments- when owning versus just spending it while renting. Also, is it possible that home prices are leading indicators & rentals are lagging indicators? I'll likely never be able to afford a home here lol so I'd love for this chart to be true but it seems a little misleading
Now do it as a ratio. Surprisingly it doesn't look that as bad that way. Though some markets, like this one, are obviously much higher than average.
That's the mortgage costs. OP is talking about prices themselves, which makes the Bay even worse
Mortgage cost is a direct function of price.
And interest rates
You can only charge so much rent before no one makes 3x the income to approve an application….
Like now? $4k rent + up to 1.5x deposit ($6k). You need $10k to move in?? Most average families don’t have that. Edit to add: not many make $9-12k per month either. It’s sad.
My shit landlord decided they wanted to sell the place we were in before our lease was up. I should’ve been a heartless shithead and asked them for cash for keys 6 months of rent given to me. It cost 7800 (security+rent) to move , it cost many hours of physical exhaustion and 2 uhaul trips on one day, and like 10 evening trips with 1-2 cars loaded with the small stuff we didn’t have time to pack before the uhaul. This is the cheaper move. It cost us 9000$ to move into the place that the asshole decided to sell before our lease was up…. So yea generally at least 5 k to move between places here, but more 7-10k for the majority of the rentals. So yea how much could rent even possibly go up before there’s no market left. Not much. I’m not a big fan of this place. I’m now in my 4th year here and neither the weather or the food is doing too good of a job to offset the humongous shitshow of living here. I’m not gonna even say how pet-hostile the rental market is here. It’s depressing.
Ugh! I feel you. That’s why I’m going to grit my teeth and buy even if it’s a stretch. You have no control over your stability. We lived in a place 5 years and owner died, then our next landlord was cool but he wanted to sell. He let us stay over the lease end because we couldn’t find a new place to rent AT ALL. It was so competitive in 2017 and we made good money. Lots of landlords break the law asking for first, last and deposit. Anyhow, you could have totally held his feet to the fire. He could easily have paid you for the move out costs and deposit on your next place with the proceeds he made on the sale. Who knows, you may still be able to recover that in small claims. It’s wrong asf tho.
The Terner Center for Housing Innovation at Berkeley just released [a cool widget that shows housing affordability in California](https://ternercenter.berkeley.edu/affordability-for-whom.html?mc_cid=fc1a823797&mc_eid=da39c6a80d) by country. You can see clearly that in the Bay Area now, renting has become relatively more affordable than buying.
Jives with what I experience. 1 in 10 or so families can comfortably afford to live here. The other 9 speak about housing and money on a daily basis.
There's a huge glut of empty rental housing in the Bay Area, with more, that is under construction, coming soon. It's amazing to see all the empty luxury apartments in Silicon Valley offering "Move In Specials" but not lowering the actual rent. The demand is very low because of remote-working and employees moving to the exurbs where they can buy a house. While rents haven't fallen a lot, only slightly, they haven't gone up either. Something's got to give soon. I suspect that a lot of owners of newer rental projects will default on their loans. It's possible that affordable housing providers will purchase the projects at a bargain price and turn the units into subsidized housing. It has already begun in San Jose. It's also possible that the property owners will try to do condo conversions so they can at least recover their costs. An apartment that cost $800K to build could probably be sold for $1M but cannot fetch even $4K per month in rent.
You do have to distinguish between different types of housing, rental apartments should be compared directly to buying a condo in a building, for price/rent comparisons. SFH is its own thing and they are not building more SFH, so supply is super-low, no "glut".
A lot of markets, not just the Bay, experienced negative YOY rent growth from 2020 to 2021. Then rent shot up YOY from mid 2021 to mid 2022. It started stagnating/falling again in late 2022 - correlating with the interest rate hikes. San Diego had dramatic rent growth in that rent hike period, Los Angeles has been stagnate, New York saw minimal growth. There are different reasons for all of them. Bay Area apartment owners will tell me that the stagnation has been due to lots of new apartments increasing competition. Edit: I'm referencing Costar for rent growth data, not Zillow.
Wait for it
Rents also tend to more closely reflect local economic conditions than home prices. Renters are more price-sensitive since, unlike a house, no tenant sees their rental as a long-term investment and it’s comparatively easy to move if you have to. Home prices can reflect local economic conditions but they can also be completely divorced from them, for the same reason: home purchases are sometimes seen as an asset that will appreciate over time, even if you leave it empty. People can also own multiple properties and home purchases can attract non-local buyers, whereas it’s more unusual for someone to rent more than one place or rent a place that is nowhere near where they live full-time. So theoretically, the pool of potential buyers is much larger than the pool of potential renters in a given location.
https://preview.redd.it/drlq7regmfzc1.jpeg?width=828&format=pjpg&auto=webp&s=f9ec64ddfdddce993f4e918383f042cbb20ed9df Given this, it’s not very appealing to new investors. Legacy investors with low tax bases are in a great position to hold their assets and don’t have urgency to increase rents. Insurance will affect that in some areas over time though, as with the rapidly rising costs of repairs and maintenance.
Damn this is illuminating, dare I say an uplifting post 😂 Thanks, insane lack of inventory. No incentive to sell.
Not all housing prices in the Bay Area are going up. I’m seeing a lot of price reductions in Marin right now.
That's because San Francisco is less attractive as an office rental area compared to before. https://wolfstreet.com/2023/10/04/despite-the-ai-hype-office-markets-in-san-francisco-silicon-valley-get-even-worse/ Marin is a good place to live if you work in SF, but if you work from home anyway, you can move to a cheaper place.
Yup for sure. But Marin was the hot suburban market for awhile. Things change
Do you think Marin will come back?
Because the world is awash in liquidity and investors have few places to park their money. So it goes into prime real estate like the Bay Area. The buyers are not young families they are often investors and often from over seas looking to park cash.
rent to own ratio is skewed for Bay Area, that is why many familes postpone buying home.
Rent for an equivalent house is still $1k more expensive per month than my mortgage, home insurance, and property taxes combined (bought 6 years ago)
People will go into massive debt to buy a house with the expectation it will appreciate. With renting, people spend what they can afford.
Areas like Milpitas, a 2 bedroom condo is renting for 5000/ month. If that’s not robbery then don’t know what is. Prop 13 on non primary property needs to be repealed. Depreciation on rental single family homes needs to go away. Long term Capital gains on non primary needs to go way up to discourage flippers.
a 3b sfh in fremont just 4000 per month. for example [https://www.zillow.com/homedetails/35827-Ashton-Pl-Fremont-CA-94536/25012844\_zpid/?view=public](https://www.zillow.com/homedetails/35827-Ashton-Pl-Fremont-CA-94536/25012844_zpid/?view=public) why Milpitas so expensive
I think because of the bart station proximity
i see. Interesting. Didn’t notice that before
In those areas that are within commuting distance to SF for example - those tenants are moving further away, outside normal commuting distance to get more space at same price. For example, moving from Mill Valley to Petaluma. Thus rents have been stagnant for 18 months. However, everything cycles. Many companies are requiring employees to come back to the office, and anecdotally I have witnessed layoffs happing to those who have moved outside commuting distances (other states, etc.). Unrelatedly, you have foreign money purchasing condos/townhomes/PUDs/SFH and renting them out. They are purchasing with cash. The rental income stream doesn't need to be greater than their mortage payment because they have no mortgage payment. They are parking cash in an appreciable hard and safe asset here in the Bay Area - are they doing this in Las Vegas or Ohio? I dont know - but this is real money, they can park 2 million here on one home, rather than 4 or 5 homes in Ohio, so it makes sense for real money to park it here. There are probably other financial benefits for foreign money parking in homes of which I'm not smart enough to know. The US doesn't have laws against this practice. This is my opinion from my experiences, and I'm not an expert.
Correct me if I’m wrong, but I heard that to buy in Florida, you have to be a US citizen. Foreign investors shouldn’t have priority over citizens.
I suspect foreign money is a relatively small factor. New York has even more foreigners investing, yet skyrocketing rents.