It’s the economy
When I look at Real Estate Markets across the Bay Area it becomes clear that it’s about the economy. Both local and worldwide. People need housing, they want their kids to go to good schools and have a chance at a good life. Real Estate purchases are subsidized both by the MID and by rates that are divorced from any kind of risk premium.
And where else can you put your money? The stock market? Precious metals? Bonds? Treasuries? For very good reason many people are leery of all of these as investments. Look at the areas with rising prices (Go to “Zipskinny”). Notice the median income and education levels.
Then take a look at the areas and price tiers that DON”T have rising prices. Bifurcation, societal change happening before our eyes.
When I look at my little pond in Sonoma County and think about the unemployment levels, the kinds of jobs being created here (Low paying service jobs) and the demographics of buyers this bifurcation becomes very clear.
Lots of people retire here with money, there will be continuing demand for the kind of homes they want, quite a few of those people like the area and eventually will want to downsize to a smaller home in the area in a “Nice” area. But there will be fewer people who can afford to buy on the low end. Until prices for basic housing drop. Rents are even more sensitive to income changes than single family homes are, which will hurt people who paid too much for SFR to rent out.
Genuinely fine homes ( Priced in the $1.25MM and up range) on good land are cheaper than they have been for a decade, at best guess this year or next will be the bottom for this category. As to all the rest, tell me the city or town and the type of property and I’ll give you my best guess.
What do you think will happen with the sub $400k single family homes in the nicer sections of Rohnert Park and Santa Rosa this year? Will we continue to see the prices go up, with every house being bought at above asking as it trickles onto the market and is bid on by 10+ buyers? Is there going to be much opportunity this year for a first time home buyer to get a decent home in these areas in that price range?
First time buyer, I don’t think it will get better this year in RP. It’s a “Flight to safety” and these buyers are looking for somewhere to put their money that appears to promise a decent return and have greater safety than the stock market. RP has historically sold for about 4x income, it’s about 7x income right now. I expect a second wave of distressed sales in about 2 years. It may correct sooner than that, if other places to put your money become more attractive. I don’t like it because it is not sustainable and it’s not good for neighborhood stability. Save your money, you will be in a better position when the market turns.
Let me expand on that a bit. Where’s the money? The well paying jobs to support these prices? At some point there will be a rush for the door (We haven’t seen it yet, the distressed sales were involuntary) as people who have been waiting decide to capture their gains and cash out. Supply goes up and prices down. It doesn’t take much to move prices in Real Estate, it’s priced at the margin. If I had been waiting, and I now had equity, I’d be selling this year (In Sonoma County, $700k or under). Most people wait too long because they have not had the harsh lesson that ANY profit is a good profit.
Thanks for the insight. That was what I feared. Hopefully the recent increases in prices, and the constant bidding wars, will entice some more inventory soon. Do you think the same for the Santa Rosa area?
Yes, I do. And people who are currently planning to sit on the sideline (See Greg’s post on the Redfin poll) can change their minds quickly. Builders can build profitably now in Sonoma County, that’s going to increase inventory. Supply/demand/price.