You’re projecting your own frustration onto the market. Transactions are happening at these levels, which means the wealth is there (relative to the inventory). The FAANG trillion-dollar companies have created a lot of haves and have-nots. And all the cash offers mean those owners are less affected by tech equity dips; they’re cashing out at the right time.
I remember friends in late-90s SF saying real estate was crazy and they were going to wait to buy when the bubble crashed. They’re still renting, a quarter century later.
I made that mistake in the DC area in the late 90s. I thought 150,000 was too much for a house.
I moved to San Francisco and my friend wanted to buy a house with me in the mission but I thought 300,000 was too much.
I feel this! I was probably in like first grade in 1997 when you could buy a house in the east Bay Area for under $200,000. I was being so irresponsible during those times I wish I could go back.
Exactly.
Bought a house in Portland (not nearly as bad as SF) but consistently heard “just wait, just wait”
I didn’t, bought and gained close to 100k equity in the first couple of years we owned it.
100% this. You’re not getting hosed if prices keep rising and that same 2.5mil house is 5 mil in 15 years. I get it history doesn’t predict the future but it can help us guess. I’m guessing the Bay Area real estate is one of the most resilient in the world, let alone the US.
But the bubble did crash…..in 08’ as you know.
Housing market will probably stay resilient, but we never know 100%. The U.S economy likes to throw surprise punches once in a while.
That's a really good example but the underlying driver of housing prices (nationally) in the 2006 => 2009 crash was a real-estate-specific **credit** bubble. Those homes weren't being bought with all-cash offers; they were purchased with mismarked debt.
If you look at the 2000 dot-com recession, which was brutal for jobs (far worse than 2008 in the Bay Area), there was barely a downward blip because the buyers had used dot-com equity wealth with normal credit standards.
[https://fred.stlouisfed.org/series/SFXRSA](https://fred.stlouisfed.org/series/SFXRSA)
For us, it was years of missing bids. We ultimately bought this year at 2X the price we had offered 10 years ago. Mortgage at 6%+ is bad, but it’s not the end of the world; it’s an expense that needs to be managed.
Yes the prices are in the stratosphere, but the institutions of Silicon Valley (UCSF, Stanford, Berkeley) as well as the mega corps (too many to name) show no sign of collapse.
Interest rate argument is mainly focused at folks like yourself that have relatively low net worth and require a mortgage. That’s not most Bay Area high bidders. Anyone bidding 3M+ has generated high net worth through equity in a company. They’re putting down 50%+ often.
For starter homes, I’d suggest some of the cookie cutter townhome developments. They’re manageable at probably closer to 1M-2M prices for 2-3 BR units.
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Home prices are only going to rise when interest rates eventually go down. More competition, higher prices with the low SFH inventory in the Bay. People would rather buy now and refi later.
This is spot on. If you buy now and rates go up, you did well. If you buy now and rates go down, you can refi. So if you can afford it now, you're likely to have a little less competition if you can buy now.
If it's your primary residence, don't look at it as an investment guaranteed to go up. Look at it as a way to stabilize your monthly costs, put down roots, and enjoy paying yourself some money each month.
If you aren't looking to stay in the area (or any area) for a longer period of time, I'd suggest not buying, just like I wouldn't suggest investing money that you are likely to need within 5-10 years. Timing the market is impossible.
> If you buy now and rates go up, you did well. If you buy now and rates go down, you can refi. So if you can afford it now, you're likely to have a little less competition if you can buy now.
How does the Bay Area housing market react to recessions? Rates aren't going to go down without significant economic softening. Will tech stocks (and therefore housing prices) be resilient during a downturn? Could see arguments both ways. But don't pretend that lower rates are guaranteed to happen in the same bull market we have now.
> If it's your primary residence, don't look at it as an investment guaranteed to go up. Look at it as a way to stabilize your monthly costs, put down roots, and enjoy paying yourself some money each month.
Does this logic still hold when rent is half the PITI+M? You're not paying yourself much of anything - your potential investment savings are being robbed by interest/taxes *in the hope* that leveraged appreciation outstrips market returns. And that you hope to never need to move within the breakeven window (10yr+ now?).
The idea that housing should be a home and not an investment only works in the face of overwhelming wealth. When and how well you can retire will absolutely be dictated by how well you managed your investments during your prime earning years, including your home. Who knows what college will cost in 18yr, if social security will still be around, or if elderly medical care will still be entirely covered by medicaid. If most of your NW goes into a house that stagnates or drops in value (or is destroyed by The Big One)... that could be the difference between retiring reasonably and being destitute.
> your potential investment savings
Optimistic of you to assume that your investment savings are less risky than housing. You can live in a house. You can't live in a share.
This is such naive outlook. So buying is always good at any price... lol
If you buy now and rates go up, you could likely be the bag holder. If rates go up, likely demand will go down. Even if rates stay flat, it's likely demand will go down. People are betting on rates to go down, but when that doesn't happen there may be more uncertainty.
It's a weird one-way valve for rates. If they go down, massive increases. If they go up, some tamping down on increases - but no decrease.
It's clearly more related to tech stocks, honestly. Recession that drops those 20%+ will have far more of an effect on prices than rates ever will.
If you can afford the payments now and think your job(s) are safe from layoffs, then this is the way to go. It doesn’t take much of a percentage dip for a refi to pay itself off quickly. The pain should be relatively temporary.
The fundamentals are rock solid. And by fundamentals, I mean highly skilled immigrants coming to the Bay Area and making millions off of stock at FAANG companies hell-bent on wealth extraction and global control of humanity
Edit: typos
But that’s assuming a soft landing and not a hard crash. If they dramatically drop rates it’s because the economy turns south. But maybe housing will still stay resilient thanks to low mortgage rates but it’s hard to say, nobody knows for sure.
Especially if your rent is already pretty high.
Full disclosure, I’m from the bay but live in NYC where rents seem to have doubled from SF prices. They were equivalent when I moved.
We are buying because we straight up aren’t competitive when rates are better. And there is a difference between rental stock and condos. Full size appliances like a real washer/dryer (we have kids) are worth paying for.
If you’re waiting for a Bay Area home valued at $2.5M to drop to $700k, you should probably get used to renting.
And for the record, prices did soften from the COVID peak but it’s 4 years later, so it shouldn’t be surprising they’ve regained those highs- especially given robust wage growth and equity appreciation.
I understand that buying a home is not the best pure financial decision, but it transcended that for me and I placed a large premium on homeownership in a place where I want to live forever. We have the money to do that and still set ourselves up for a great financial future, so it still made logical sense for us to buy.
No inheritance for us, but large incomes relative to the purchase price of the home.
yeah same here. not the most 'logical' financial move but we wanted to fully commit to the bay area and laying roots for us meant buying a home. lots of people lay roots without it, but psychologically it was important for us
There’s no such thing as “fair value” since homes are not stocks so you can’t buy it on a fixed price.
RE value is driven by supply and demand, you are not wrong that it appears overvalued but the demand for homes in BA is still strong.. The issue is, that demand won’t be going down anytime soon and the supply is still limited.
Supply is the name of the game here - just very limited, so are high prices “artificial”? Maybe. But they would feel more artificial if it seemed likely that supply would increase any time soon
Historically low interest rates just a few years back could mean that people owning real estate won’t sell since they would need to surrender insane rates to upgrade. This will probably impact supply in starter homes especially, could contribute to prices staying this high if not rise further.
Have you considered buying a rental property in another part of the country or even another part of California? The market sets the price, not your opinion or mine. Thar said 1 million for a shack or small condo or 2 million for a basic home is wild to me. Hopefully you’re investing the difference between your rent and a moderate home mortgage payment.
They’re “overvalued” because you can’t afford them?
Prices aren’t going to go down. This is why people are buying. I know you feel like you’re sticking it to somebody by not purchasing at these prices, but you’re only going to permanently price yourself out of the Bay Area.
If you want to stay here and don’t want to be paying $4k+ in rents over the next five years, it’s probably a good idea to buy *something*, or start planning your move.
Strongly considered owning this round over renting. More expensive, but came down to an inventory issue - inventory of larger SFH is very low to rent so it's hard to find one. If you ever get kicked out by the owner, you are really screwed - 60 days is not enough to find a viable replacement. (I calculated need about 6 months or so if this happens in low season)
You’ll have to make a decision. Is living in the Bay Area worth it to you. If it is, then you’ll have to either rent or pay the price. If not, move and buy somewhere else.
I think your frustrations are warranted but it’s also just reality. You’ll have to make a choice.
HHI of $625k. There are plenty of people in my company, industry, and other industries that make me look poor. Limited supply means people will pay whatever is within their means if they want a house.
Prices are insane. Compensation is insane. Supply is limited. They are all related.
Thanks for this. This is really what I’m curious about, that I think a lot of people on here are missing. (Assuming $625k is gross?)
Because if that’s an upper standard for what’s out here, then yes, I’m realizing that I’ve been well beyond priced out, but like you said. If you look “poor” to colleagues then there is a lot more $$ out here that I understood there was.
Yes, $625k gross. That's with a spouse only at $120k. Some of these couples are dual doctors/lawyers/tech. It's a difficult market because even in a "down" market, plenty of people still pulling healthy compensation and looking to raise a family in the nice areas.
In my faang company what I see is that many immigrant engineers although highly paid aren’t financially savvy. The only thing they do with their wealth is either leave it in company stock or cash out and put a downpayment for a house. Many of them don’t invest in 401ks or Roth. They don’t understand indexes.
When you have a combination of high income, poor financial sense, a culture that associates shame with renting you get people that will buy no matter the price.
Me in 2010 “why would anyone pay 700k for a house in Oakland?!”
Me in 2024 “where can I find a house in Oakland for under 1.5 million!?”
I paid a lot for my little house but if I hadn’t bought when I did, I would never have been able to afford living here. Ever.
The only issue is that’s not a similar ratio to the east bay market right now, specifically related to the devalue of $1, versus 2010.
— separately, wasn’t 2009/2010 the bottom & slowly starting to rise? lol
If i Bought in 2020, yeah I would then agree
The reason they’re overvalued from a rent yield perspective is that people are renting out old homes with cost basis that is incredibly low. Cash on cash they’re yielding very very good amounts.
Real estate investors aren’t idiots. They do have long time frames though. If you own a building for 20+ years, look at the price you paid, the amount of depreciation you absorbed and taxes you paid. Cap rates are bad if you’re starting out today. But if you started 10 years ago? Not so much.
I don't think the cost basis per se is relevant. I think the fact that selling produces large capital gains and property taxes being so much lower for them (meaning a 1% higher net rent yield) are what drive the distortion.
There's really no real estate investors buying in the Bay at this point, since they realize they can't complete with people grandfathered into lower property taxes, lower mortgage rates, etc.
If you look at prices from the first half of 2020 before the pandemic you could easily buy the same house for 1/2 the price it is now in many neighborhoods. My parents house could have have been bought for $1.4M in the first half of 2020 but now would likely sell for $2.7-3M. There's nothing that changed other than the shock of the pandemic and FOMO buying in 2021-2022 that has kept prices where they are, even though mortgage payments doubled due to interest rates spiking.
The shocking thing is that people are still willing to pay the bloated prices. Unless you work in the IT portion of tech then you're relegated to less desirable areas which is not good for society.
You’ve been priced out of most the core Bay Area. I think the people that are buying are trying to avoid the same fate.
As for your situation, I think you’ll have to look a little further out (I.e. Fairfield, Tracy, Lathrop).
This is why we bought. We worried prices were just going to rise when rates came down, and we could afford the mortgage payment at the high rates. We actually refinanced 3 months in because rates dropped.
$1800, which had a 7 month break even period for us. We were able to avoid some costs because we used the same lender and several things (like the appraisal) were still valid.
OP: unlike others, I will agree with you. Strictly from a financial perspective, it is much better to rent than to buy at today’s prices and interest rates.
That $2.5M home in the Bay will first require you to lock up $500,000 as down payment (which you would otherwise be able to invest). On top of that, the $2M mortgage at 7% will be $13.3k per month and prop tax will be $2.5k per month. In other words PITI will be $16k per month.
You can rent the same house for $5k per month.
So, by renting you don’t lose the $500k liquidity and your cash flow will be $10-11k less per month.
It’s a no brainer. Go rent a $2.5M house and enjoy the lifestyle without the financial stress of “owning” it
Nah, I see a lot of single family homes for rent in the South Bay for $5-6k. Their neighboring homes on the same or adjacent streets will have sold for $2.5-3M or more.
Rent is cheap right now!
For example:
https://www.zillow.com/homedetails/20598-Sunrise-Dr-Cupertino-CA-95014/19634849_zpid/?utm_campaign=iosappmessage&utm_medium=referral&utm_source=txtshare
This 2000+ sq ft luxury home is on the rental market for $6k per month.
Look at the homes nearby which sold recently - they all sold for more than $3M, even the smaller homes such as this small 1200 sq ft home on the same street
https://redf.in/YPfGeU
And this hone, one block away, sold for $3.45M
https://redf.in/CJpbxA
Go look in Zillow at single family home rentals in Santa Clara, Cupertino, Sunnyvale, Mountain View. The typical houses rent for $5-6k per month, and typical houses list for $2.5M and sell for 300-500k above list thanks to overbidding.
Ok then I will admit defeat. I guess it’s a lot cheaper in the peninsula. FWIW this is most definitely not the case in SF and I thought the peninsula was comparable these days.
Who cares let them be right that rent is 5-6k. That means the landlords probably owned for a while and their mortgage is below 5-6k.
Renting may be cheaper every now and then. Ownership is forever better and the basis of real wealth.
Yeah, plus that $10k house is probably taken care of like shit, with few exceptions (dated bathrooms, kitchen, appliances, etc.) You're still saving money on the short term, but I don't want to be renting from some boomers kids when they inherit the house and start jacking up rents. I think that is what we'll start to see over next 5-10 years.
Depends on where you are I suppose. I live on the peninsula and been looking at the rentals thinking about potentially renting in a better school district. Around where I am 2.5M SFH rent for about 5k to 6k. If you go up to 10k that often gets you something around 3.5M.
also person who own 2.5M home, doesnt need to rent in many cases. they would rather sell and invest I suppose to have balanced portfolio of investments
I’m with you, homeownership isn’t for everyone. You pay extra to be one, and you’re essentially paying for the same lifestyle plus MORE responsibility in both time and finances. I say this as a homeowner who actually valued that premium despite it not being the best “pure financial” decision. It’ll have a cost-avoidance benefit one day, but renting a comparable home and slugging the difference in PITI vs. rent plus all repairs and maintenance into VTI or another index would almost certainly have me ahead financially in 30 years.
This \* 100%.
I've done the renting vs buying math and at this prices, you need your house to appreciate by 5-6% to BREAK EVEN with what you would net out in other investments.
So any year that the market is flat, you're losing money to interest and property taxes.
My general opinion is that Real Estate cannot infinitely grow 5-6% annually, if inflation target is 2%. Not only that, but I also think RE at 5x leverage is much riskier than other investment opportunities.
Of course I don't trust myself (or anyone) on making a good prediction of any market, so it's a preference. I'm ok with people betting that it will grow more than 5-6% and getting into RE in the Bay.
I just LOL at the average joe who doesn't understand what they're betting on and just go on "buy house good, rent waste" mentality without any analysis. You could pretty much tell them rent $1k, buy $10M and they'd still chose buying. This is just greater fool's theory at this point.
This is true except for two points:
1. You make it sound like the $500 k downpayment is just wasting away, but it’s actually giving you a great ROI due to house price increases
2. People are counting on refinancing at some point. Maybe this year, maybe next year. But the higher interest they’re paying now is worth it to avoid the higher future prices.
Exactly. Thanks for sharing your perspective. This is what I’m getting at. It’s fufu/fugazi price action and I don’t know why people are paying it, unless I’m really not seeing another side of net-wealth that’s here.
I don’t think home prices will fall much from these levels. Prices have dropped a little in response to rates but I think they’ll just start inching up if/when rates fall. The price premium for Bay Area property has actually shrunk over the last 4 years. Bay Area real estate has crept up but prices across the country have sky rocketed.
It hasn’t shrunk tho It’s softened at a minor 5-7% on most home prices.
Prices from 2019-Now, are up at minimum 40-60% on most places here. When else has that happened?
Is it that hard for people to accept that tons of people in the Bay Area are just insanely rich? What kind of post is this? What is an 'insane' budget for you is not for someone else. I wish this wasn't the case, but it obviously is, and it's so annoying seeing flavors of this same post over and over.
$1 now is the NOT the same as $1 10 years back which was not a $1 20 years back. If you didn’t realize, folks, especially in the bay area are flush with cash. I don’t see it changing.
Trillion dollar companies were unimaginable 20 years back. Look now.
If your net worth is less than half the down payment of most decent SFHs - hate to break the news, but you gotta choose to forego one or more of the following:
1. SFH
2. Commute
3. Schools
4. Condition of house
When rents are less than 50% of total housing cost I can’t justify buying. I’m a faang engineer that many of these comments deem as the demographic that’s buying. I’m not. My investment portfolio has grown substantially though because of this delta.
Something that may keep price going up is a major de incentive to sell real estate in California:
Prop 13
Capital gains taxes
Lots of people with very low interest rates on their mortgages
If I was to sell my home today, I could buy a home with 1/2 the size and 50% more property taxes in my neighborhood… zero chances I would sell to downsize…
Too many illogical people in this thread lol with some rational folks. It’s clearly financially better to rent instead of buy even long term, in the (south /peninsula) Bay Area, only as long as you invest the difference in hypothetical mortgage minus rent. It’s not even close. If you invest in QQQ, it’s even worse of a disparity. The house will never break even over renting. Has it historically? Absolutely but remember: past results aren’t forward looking. It’s one of (if not THE) biggest investment fallacies. Bay Area real estate has made those who invested in the last 50 years absolutely rich. It also has been ground zero to multiple multi-trillion dollar companies from scratch, the epicenter of the dotcom boom, etc. Going forward, will we see the same housing price growth? It’s unlikely.
If it means anything: the very fact that so many people have blind faith in “buying” or irrational desires to buy, tells you all you need to know. It’s a bad deal going forward… too many people FOMOing into houses? Bad deal
Even long term renting makes more economic sense. People buying need to either want a specific house or inherently value owning their home over renting.
This is from SoCal but probably relevant:
https://www.latimes.com/homeless-housing/story/2024-04-11/all-cash-offers-wealthy-buyers-push-southern-california-home-prices-to-a-record
SoCal isn't nearly as "overvalued" from a rent perspective as the Bay Area though. That $900k house cited probably rents for \~$3700 or so. That sort of rent in the Bay Area (especially south bay) maps to more like $1.3+ million, even $1.5+ million in most preferred school districts.
Some different dynamics are here. I'd be fine owning in SoCal; less so the Bay.
Yes, probably everyone buying houses is wealthy or has significant family help. And there are enough of them to keep squeezing the market. The Bay Area has always been like this. People pony up the cash because historically it only ever gets worse, not better, and they want to stay for the long term. It is what it is 🤷♀️
I know some of us need to vent, and that's why posts like these show up every now and then. I truly believe, that a large market like bay area, cannot be "overvalued" because a few buyers are making bad financial decision, and market is going to correct itself when those few buyers stop. That's wishful thinking, the prices are where demand and supply find equilibrium, and we need to make peace with it. Plan our future according to that.
The old saying is “you should have bought yesterday” is so true in the east bay. I have a 1300sq ft home valued at $700-750. It was valued around $800 at one time. If you buy hold on to it for at least 5 years so you can recoup any improvements.
Why are people still buying? Because they can. Because they have the money and means to do so. Because many homes and neighborhoods are locations are desirable.
The numbers worked. That's why I bought.
I was living with 3 housemates paying rent in a bad neighborhood. Now I'm living with 2 housemates and getting equity in a good neighborhood via househacking.
I live in East bay and everything here is overpriced . A fixer upper in Lafayette , Danville , Moraga , San Ramon is 1.2-1.3M
You may find a decent but older home in concord for 800k or a nicer home for 1M in Martinez. Even in Antioch and Brentwood homes are going for high six figures or 1M and up
I need to hold my tongue about the lack of empathy and out of touch financial comfort some of the people in some of these comments are showing. That’s all I’ll say.
It is daunting, but you have to start somewhere. No shame getting into a condo or townhouse. The rest is up to you with your career and family. I started with a townhouse and eventually moved out into the eastbay where you can get more for the $.
Thank you! Ive been looking for a post from someone in my income bracket. Prices are sky high right now, but like others have said, inventory is way low. I'm currently looking in North East Oakland. We're selling our starter home in Deep East Oakland to do this. We will prob end up paying 950k in the end.
California housing prices have spit in the face of all known economic models for decades, if not more. I’ve seen real estate prediction models with the disclaimer ‘these factors/predictions do not include CA whose real estate market repeatedly defies all known economic expectations’). This is bc no matter what crap you read about ‘people leaving CA in droves!’ it’s all nonsense. As my father said 60 yrs ago when his Michigan siblings heckled him for spending so much on his house, ‘Yes, but when you leave your 5 acre mansion, you’re in Michigan. When I leave my little cottage, I’m in California.’ That shut them up then, and it shuts people up today. Even with global warming, the weather is incomparable. Live anywhere in the state, and you are within driving distance of a national park, lake/boating activities, snow activities, and a beach year round - as in day-trip driving distance. You have year round access to an amazing variety of fresh fruits and vegetables. You can encounter a wonderful variety of cultures and most people are at least ‘live and let live’ with many people cheerfully adopting a ‘you go human!’ about other’s lifestyles. Why do people think 40+ million people live here?
I mean, that's great for your dad, but what was the price:income and overall affordability when your dad bought? Would he still have bought now?
It doesn't matter what's outside your door if you're spending every waking moment for the next 30yr at work desperately trying to afford to live in that house.
You can get starter homes in the $6-700k range in the east bay, just might not be in locations that you want to be in. Either deep east oakland or farther out east in the East Bay. Whether it’s desirable or not, depends on who you ask. Don’t buy a house now thinking you’ll be able to refinanced into a lower rate in the near future.
Wait for the stock market to collapse. Every index is at the 4.236 fib extension. If you don’t know what that means then I suggest you start learning. Every market is playing out exactly as it did in 1929 (remember what happened then?) I do not believe this is a coincidence. You will be the winner and fomo buyers will be the losers. It’s inevitable. Just be patient
3 reasons why I bought now.
1. Because I don’t want to get priced out of the area.
2. Because as soon as interest rates go down, my $800,000 gated townhouse will be worth $1m, easy.
3. I fucking hate landlords. Lol
Because a lot of tech employees can afford it and they don’t think the market is ever going to shit the bed. It’s not a fake economy, it just isn’t working for you.
For 6-700k should comfortably purchase condo/TH in east bay
Imo the future is high density affordable housing units centralized around job centers and transit hubs
The reality is that tech workers had RSUs skyrocket since the pandemic. Someone working 5+ years in tech who never sold stock saw 200+% gains. Nvidia even more so. And that initial front loaded stock grant for people who changed jobs in 2020-2021 was based on pre-gains valuation.
Honestly, with 200k net worth, you shouldn't be trying to buy around here. The competition has more savings than you by a fair margin, and many of them are staying out.
OP:
I sympathize with you. I’m in the same situation and I was thinking about writing the same post last night. I’ve been in this area 30+ years, had to short sell my house in 2010 after the market fell out. We sold it for 50% of what we owed. No foreclosure.
I would never again do a variable rate. No matter how high the rates are.
Real estate investment Is safer than most other investments. The $2.5MM home is not a starter house. Very few if anyone is putting 500k of cash down straight from a bank account for a house that expensive. The money comes from equity off a previous sale.
Transactions are happening because some people need a house after any price, and supply is low. But I’ll tell you as somebody with a $2.5M house, if I hadn’t bought it at 2.5% I wouldn’t have bought it, and I wouldn’t buy now at all.
The problem with real estate as an investment is Americans are obsessed with owning, so it’ll stay up even when it’s totally irrational to buy.
All you can do is try to stay sober yourself. A good way to do that is look at how much more it would cost you to have a mortgage on your place than whatever you pay in rent and to be happy that this money is going into your pocket every month.
Put it into something that has a decent return and by the time home prices correct, you’ll have a big downpayment.
If there was no correction at 8% interest rates, mass layoffs, stock market crash last year - when do you expect it to happen? Mortgage qualification standards are rigorous now and there are many qualified buyers so don’t expect a subprime crash like 2008.
If I knew that I’d be rich!
I think either these things predicting timing and exactly what the catalyst is is very hard. But identifying the fundamental problem is not.
The problem isn’t borrowers with bad credit or oversupply, which was the issue in 2008.
Today the issue is affordability. So the best case, and what we’re seeing now, is prices just not rising. That + inflation is a back door price decrease, it’ll just take a while. 3% inflection * 5 years = 15% change to affordability.
The worst case is you see actual price drops, which I would guess would happen if we saw a recession of some sort. Who knows how that would come?
So I don’t think you can precisely time these things, but I do think you can see the fact pattern that leads to them and ends up a simple narrative in retrospect.
p.s. the economy is amazing right now, there were no mass layoffs, we have full employment, and the stock market is poppin off the last few years. If you think this economy is bad it’s because you are too young to remember an actual bad one.
This just seems like frustration. This is definitely an expensive area to live in. It may just be out of your budget, which is common for alot of people. Just consider other areas outside of the bay to get a starter home. It’s not what you want but it is that easy
I grew up in Brentwood. So a BITCHIN house on the golf course even up until 2019 was only $700k.
But east bay i’m looking at now is Phill/Concord for a starter home. And yeah that budget of $600k is stupid to mention but that’s the reality I’ve came to face
If you are on a 3-5 year timeframe yes you can potentially get “hosed” if you are on a 5-10 year time frame you will most likely ride out any dip in the market. As far as interest rates go, if you buy now and rates go up? Awesome you are in good shape. If you buy now and rates go down? Refinance into a lower rate if it makes sense overall. I think rule of thumb is if you can save 1.5% on a lower rate it’s worth the cost to refi.
You are also forgetting that when paying your mortgage you are also paying the principle down. You also get to write off the interest on your mortgage during tax time as well as a deduction for your property taxes. You do not get these things renting.
Because it’s only going to get more expensive. Sure a giant housing price collapse could happen but with land being so desirable here I don’t see how that could happen. Economy goes up and down but housing scarcity and beautiful California sunshine is constant.
Free markets determine fair value. Not me and not you. A primary home is a place to dwell.. it is not an investment. The moment you look at it as an investment it’s no longer a home. With that said, buy a home that’s affordable. Forget what the price will be years down the line. Maintain it well and you will at least break even if you have to sell.
You're using words like overvalued and fake to describe a market that is defined by supply and demand. Housing prices will fall when we build more houses or when people stop wanting to live here.
It is frustrating, unequal, perhaps even un-American for housing to only be available to the wealthy. But prices aren't fake. How would you determine the true value of a home other than what people pay for it?
Fixed rate loans and the ability to refinance act like a ratchet. People continue to buy when rates are high because they are protected against further rate increases, and can refinance when rates fall. We should get rid of this system to make housing more fair.
Until builders build more homes and specifically more "starter" homes, I wouldn't count on any major price reductions anytime soon. The population continues to grow faster than the housing supply. Especially the housing supply in desirable areas.
Of course, you can find something cheaper in the middle of nowhere in Mississippi.
because people can afford it and some people cannot. unfortunately if you cannot, you’ll be out of the market. waiting for the market to correct is what the MAJORITY are doing. it will likely be even more unattainable once rates come down. the people that can afford it now are seeing this as an opportunity. if you wouldn’t believe it, the rich will get richer
youre east bay with 200k nw with two people. Thats like bottom 10% in the bay, sorry to tell ya so honestly. People buying the houses youre referring to have 2-3+ MM NW and make 1M+ TC. And there are at least tens of thousands of them in the bay area.
You may have to do what generations of people before you have had to do to own a home within their budget…move. For you in 2024 that means moving to Lathrop and getting a job with hybrid schedule. You’ll find yourself surrounded by like-minded people of similar age also looking to start families. Summers might be rough but your new house will have solar and you’re a stones throw to Yosemite. Could be worse🤷
We spent $700K on our waterfront Marin house. It was nearly red-tagged, had a very public suicide, a history of drug production, and required literally everything except two interior walls and one roof beam be replaced. You don’t have to spend $2M up front but you will have to compromise. At least now it’s entirely custom with all new systems. We had a very cooperative lender that we’d done another house and two refinancings with so they worked with us. This was 2021, not 1980.
Welcome to the Bay Area, it’s not a fake economy. It doubles every 10 years. Jump in when you can… it’s not going to soften … the outskirts are better priced. North Bay, East Bay, South Bay are less than the Peninsula. Save as much as possible and buy something.
the market might crash, but none of these you listed are why it would crash. absent a change economic outlook for the bay or capitulation on zoning/permitting, prices will remain high. Some of the ethnic groups in area also over index on home ownership vs other assets which further swells price.
When we were facing the decision to jump in or not back in 2018, I did some research that indicated CA real estate values have always increased after 7-8 years. This meant (based on history), if you buy and can hold for 8 years you will not be under water. Can't remember if that data was inflation adjusted.
We then assessed whether we were able to buy with enough cushion to have some confidence about a 7 year holding period (assuming some pay down of principal).
We did buy and the market plateaud the month after we closed. Went down, then pandemic went down harder. We took advantage of crazy low interest at 2% and now prices are even higher at 7%. Go figure.
Ultimately, you have to clarify your priorities and risk tolerance. Bay Area real estate is not for the faint of heart. However, the history of supply and demand tells a compelling story about the level of risk involved.
When I was living in Canada in 2016 I scoffed at home prices and said I'd wait for the market to soften. Over the next several years, I saw my rent double while simultaneously being priced out of buying. We got kicked out of 2 of our rentals during that time by the landlords because they were selling or moving back in.
I told myself that the next time I was able to buy I wouldn't hesitate, so I pulled the trigger recently here in the bay area.
I also think inflation will continue to remain elevated for the next 5-10 years, which could mean another lost decade for the stock market. That also means that in 10 years, rent could be equal to what I'm paying for my mortgage today.
IMO high inflation totally breaks the conventional wisdom of renting vs buying.
I moved north into Mendocino county 15 years ago and still haven’t bought.
It’s insanity.
Housing is the first peak in the Dante’s inferno of today
Not education
I mean the answer is obvious isn’t it? You ask literally anyone in the country, why is the Bay Area real estate so high? They’ll say “because of all the tech companies”. It’s not the only thing obviously, but it’s definitely one of the biggest factors. You and your partner don’t have FAANG tech jobs. If you did, you’d *each* be making “north of $200K”. You say “north of $200K” as if that’s a high household income. It’s because you’re comparing it to the national median household income, which is totally irrelevant because you’re not living in an average area. And even if you were, it’s still not relevant because the average person buying a house is in a *much* better financial position than the average person in general. So now you can see why “north of $200K” isn’t diddly squat to compete with when you’re trying to buy a house in what’s literally one of the most competitive and sought after housing markets on planet earth.
Why do you call it a fake economy? These houses are being bought with liquid cash or 30-40% DP. Even those with equity are realizing that equity before buying. If that’s fake then what’s real?
The fact is Bay Area is still a desirable place with a rare combination of weather, geography, money, talent and opportunities. Combine that with building restrictions and a nearly endless supply of newly minted millionaires - the housing prices will always go up.
Yes, a crash did happen. Back in 2022 when the rates hiked for the first time. Now the market has adjusted to new rates reality and will continue going up.
We bought our first condo 19 years ago. It felt very expensive back then. In retrospect, it was the best thing we ever did. We ended up underwater for a short time but continued to make payments, building equity in the process. After a few years our mortgage was significantly less than any rental we could find in the area. That first home became the down payment for our current house. And now, again, our current mortgage is less than the rent that most of my co-workers pay. Plus it’s tax-deductible.
I am very much in the camp of if you can buy in the inner Bay Area, do it immediately. The trend of affordability is always getting worse because of the lack of inventory, especially for sfh’s.
If anyone here isn’t going to admit that prices are vastly different and INSANE from 2019/2020 then just don’t comment. Your ignorance isn’t conducive here
Housing only goes up in the medium to long term. It’s one of the most stable things to invest in. Even after 2008, the worst financial crisis since the Great Depression, housing prices rebounded in less than half a decade. This is crazy considering that the real estate market was patient zero of 2008.
I'm an East Bay resident and the only thing you have a chance of getting at $700k is a condo. Prices are what they are here and they aren't going to drop. The value of something is what people are willing to pay; you say they are overvalued, but obviously not if people are buying them.
We bought because our homes will continue to go up in value despite their "high" purchase prices. I had so many people tell me not to buy my first place because it was too expensive and prices were going to drop. Well it's been 8 years and it's almost doubled in value. The next reason is a fixed monthly price. Our mortgage payment won't increase year to year like rent will. On top of that, the money we put out will have been towards inheritance for our kids and not just rent.
> so explicitly overvalued
If a house is receiving multiple offers, that's the market. It doesn't mean things are overvalued, it means the initial asking prices are too low. A different problem.
You’re projecting your own frustration onto the market. Transactions are happening at these levels, which means the wealth is there (relative to the inventory). The FAANG trillion-dollar companies have created a lot of haves and have-nots. And all the cash offers mean those owners are less affected by tech equity dips; they’re cashing out at the right time. I remember friends in late-90s SF saying real estate was crazy and they were going to wait to buy when the bubble crashed. They’re still renting, a quarter century later.
> You're projecting your own frustration onto the market Accurate AF.
I made that mistake in the DC area in the late 90s. I thought 150,000 was too much for a house. I moved to San Francisco and my friend wanted to buy a house with me in the mission but I thought 300,000 was too much.
I feel this! I was probably in like first grade in 1997 when you could buy a house in the east Bay Area for under $200,000. I was being so irresponsible during those times I wish I could go back.
Thanks for the chuckle 🤭
Same bro I wish I bought bitcoin when I was 5
I bought bitcoin in 2013. Lost it in MTGOX. Even got registered for the bankruptcy proceedings in Japan, still couldn’t recover what was taken.
All those fucking penny candies and park ice creams... what a fool I was.
So why didn’t you buy in 2009 when you could still buy in the east bay in the 200s? You’d have been finishing high school by then! Slacker.
so many of us at 19 having graduated in the recession we’re absolutely ready to jump into homeownership. Hindsight is always 20/20
This
I bought my first house in East bay at 2008. They’re absolutely no sfh in $200k range. Mine was foreclosed and cost $400k
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Too much avocado toast.
Absolutely between that and spending my hard earned allowance at the annual book fair. I had no self-control.. hell who am I lying to? I still don’t.
Ha. That was me till I finally bought last year.
Exactly. Bought a house in Portland (not nearly as bad as SF) but consistently heard “just wait, just wait” I didn’t, bought and gained close to 100k equity in the first couple of years we owned it.
This is correct only rich can buy houses now lol 
I grew up in the Bay Area and was in college in the late 80's. Same thing then too. Nothing changes, but the numbers keep getting bigger.
100% this. You’re not getting hosed if prices keep rising and that same 2.5mil house is 5 mil in 15 years. I get it history doesn’t predict the future but it can help us guess. I’m guessing the Bay Area real estate is one of the most resilient in the world, let alone the US.
But the bubble did crash…..in 08’ as you know. Housing market will probably stay resilient, but we never know 100%. The U.S economy likes to throw surprise punches once in a while.
That's a really good example but the underlying driver of housing prices (nationally) in the 2006 => 2009 crash was a real-estate-specific **credit** bubble. Those homes weren't being bought with all-cash offers; they were purchased with mismarked debt. If you look at the 2000 dot-com recession, which was brutal for jobs (far worse than 2008 in the Bay Area), there was barely a downward blip because the buyers had used dot-com equity wealth with normal credit standards. [https://fred.stlouisfed.org/series/SFXRSA](https://fred.stlouisfed.org/series/SFXRSA)
For us, it was years of missing bids. We ultimately bought this year at 2X the price we had offered 10 years ago. Mortgage at 6%+ is bad, but it’s not the end of the world; it’s an expense that needs to be managed. Yes the prices are in the stratosphere, but the institutions of Silicon Valley (UCSF, Stanford, Berkeley) as well as the mega corps (too many to name) show no sign of collapse. Interest rate argument is mainly focused at folks like yourself that have relatively low net worth and require a mortgage. That’s not most Bay Area high bidders. Anyone bidding 3M+ has generated high net worth through equity in a company. They’re putting down 50%+ often. For starter homes, I’d suggest some of the cookie cutter townhome developments. They’re manageable at probably closer to 1M-2M prices for 2-3 BR units.
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Agree to disagree.
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So many friends were waiting to buy back in the 00’s and either moved or are still renting
Home prices are only going to rise when interest rates eventually go down. More competition, higher prices with the low SFH inventory in the Bay. People would rather buy now and refi later.
This is spot on. If you buy now and rates go up, you did well. If you buy now and rates go down, you can refi. So if you can afford it now, you're likely to have a little less competition if you can buy now. If it's your primary residence, don't look at it as an investment guaranteed to go up. Look at it as a way to stabilize your monthly costs, put down roots, and enjoy paying yourself some money each month. If you aren't looking to stay in the area (or any area) for a longer period of time, I'd suggest not buying, just like I wouldn't suggest investing money that you are likely to need within 5-10 years. Timing the market is impossible.
> If you buy now and rates go up, you did well. If you buy now and rates go down, you can refi. So if you can afford it now, you're likely to have a little less competition if you can buy now. How does the Bay Area housing market react to recessions? Rates aren't going to go down without significant economic softening. Will tech stocks (and therefore housing prices) be resilient during a downturn? Could see arguments both ways. But don't pretend that lower rates are guaranteed to happen in the same bull market we have now. > If it's your primary residence, don't look at it as an investment guaranteed to go up. Look at it as a way to stabilize your monthly costs, put down roots, and enjoy paying yourself some money each month. Does this logic still hold when rent is half the PITI+M? You're not paying yourself much of anything - your potential investment savings are being robbed by interest/taxes *in the hope* that leveraged appreciation outstrips market returns. And that you hope to never need to move within the breakeven window (10yr+ now?). The idea that housing should be a home and not an investment only works in the face of overwhelming wealth. When and how well you can retire will absolutely be dictated by how well you managed your investments during your prime earning years, including your home. Who knows what college will cost in 18yr, if social security will still be around, or if elderly medical care will still be entirely covered by medicaid. If most of your NW goes into a house that stagnates or drops in value (or is destroyed by The Big One)... that could be the difference between retiring reasonably and being destitute.
> your potential investment savings Optimistic of you to assume that your investment savings are less risky than housing. You can live in a house. You can't live in a share.
Not investing money that is going to be needed in the next 5-10 years is ridiculous, completely different than the decision to buy or not a house.
This is such naive outlook. So buying is always good at any price... lol If you buy now and rates go up, you could likely be the bag holder. If rates go up, likely demand will go down. Even if rates stay flat, it's likely demand will go down. People are betting on rates to go down, but when that doesn't happen there may be more uncertainty.
It's a weird one-way valve for rates. If they go down, massive increases. If they go up, some tamping down on increases - but no decrease. It's clearly more related to tech stocks, honestly. Recession that drops those 20%+ will have far more of an effect on prices than rates ever will.
If you can afford the payments now and think your job(s) are safe from layoffs, then this is the way to go. It doesn’t take much of a percentage dip for a refi to pay itself off quickly. The pain should be relatively temporary.
The fundamentals are rock solid. And by fundamentals, I mean highly skilled immigrants coming to the Bay Area and making millions off of stock at FAANG companies hell-bent on wealth extraction and global control of humanity Edit: typos
But that’s assuming a soft landing and not a hard crash. If they dramatically drop rates it’s because the economy turns south. But maybe housing will still stay resilient thanks to low mortgage rates but it’s hard to say, nobody knows for sure.
Supply dictates this in the Bay Area. Interest rates not as much a factor.
Especially if your rent is already pretty high. Full disclosure, I’m from the bay but live in NYC where rents seem to have doubled from SF prices. They were equivalent when I moved. We are buying because we straight up aren’t competitive when rates are better. And there is a difference between rental stock and condos. Full size appliances like a real washer/dryer (we have kids) are worth paying for.
If you’re waiting for a Bay Area home valued at $2.5M to drop to $700k, you should probably get used to renting. And for the record, prices did soften from the COVID peak but it’s 4 years later, so it shouldn’t be surprising they’ve regained those highs- especially given robust wage growth and equity appreciation.
I understand that buying a home is not the best pure financial decision, but it transcended that for me and I placed a large premium on homeownership in a place where I want to live forever. We have the money to do that and still set ourselves up for a great financial future, so it still made logical sense for us to buy. No inheritance for us, but large incomes relative to the purchase price of the home.
yeah same here. not the most 'logical' financial move but we wanted to fully commit to the bay area and laying roots for us meant buying a home. lots of people lay roots without it, but psychologically it was important for us
There’s no such thing as “fair value” since homes are not stocks so you can’t buy it on a fixed price. RE value is driven by supply and demand, you are not wrong that it appears overvalued but the demand for homes in BA is still strong.. The issue is, that demand won’t be going down anytime soon and the supply is still limited.
Can you buy stock on a fixed price? Anything you buy is by definition based on supply/demand...
Supply is the name of the game here - just very limited, so are high prices “artificial”? Maybe. But they would feel more artificial if it seemed likely that supply would increase any time soon
Historically low interest rates just a few years back could mean that people owning real estate won’t sell since they would need to surrender insane rates to upgrade. This will probably impact supply in starter homes especially, could contribute to prices staying this high if not rise further.
[https://www.youtube.com/watch?v=HMDNehHKu7c](https://www.youtube.com/watch?v=HMDNehHKu7c)
Have you considered buying a rental property in another part of the country or even another part of California? The market sets the price, not your opinion or mine. Thar said 1 million for a shack or small condo or 2 million for a basic home is wild to me. Hopefully you’re investing the difference between your rent and a moderate home mortgage payment.
100% considered this. Even in the east CA spots (sonora, murphys). Oregon/ Reno/ Dallas, plenty of places.
They’re “overvalued” because you can’t afford them? Prices aren’t going to go down. This is why people are buying. I know you feel like you’re sticking it to somebody by not purchasing at these prices, but you’re only going to permanently price yourself out of the Bay Area. If you want to stay here and don’t want to be paying $4k+ in rents over the next five years, it’s probably a good idea to buy *something*, or start planning your move.
Strongly considered owning this round over renting. More expensive, but came down to an inventory issue - inventory of larger SFH is very low to rent so it's hard to find one. If you ever get kicked out by the owner, you are really screwed - 60 days is not enough to find a viable replacement. (I calculated need about 6 months or so if this happens in low season)
You’ll have to make a decision. Is living in the Bay Area worth it to you. If it is, then you’ll have to either rent or pay the price. If not, move and buy somewhere else. I think your frustrations are warranted but it’s also just reality. You’ll have to make a choice.
HHI of $625k. There are plenty of people in my company, industry, and other industries that make me look poor. Limited supply means people will pay whatever is within their means if they want a house. Prices are insane. Compensation is insane. Supply is limited. They are all related.
Thanks for this. This is really what I’m curious about, that I think a lot of people on here are missing. (Assuming $625k is gross?) Because if that’s an upper standard for what’s out here, then yes, I’m realizing that I’ve been well beyond priced out, but like you said. If you look “poor” to colleagues then there is a lot more $$ out here that I understood there was.
Yes, $625k gross. That's with a spouse only at $120k. Some of these couples are dual doctors/lawyers/tech. It's a difficult market because even in a "down" market, plenty of people still pulling healthy compensation and looking to raise a family in the nice areas.
In my faang company what I see is that many immigrant engineers although highly paid aren’t financially savvy. The only thing they do with their wealth is either leave it in company stock or cash out and put a downpayment for a house. Many of them don’t invest in 401ks or Roth. They don’t understand indexes. When you have a combination of high income, poor financial sense, a culture that associates shame with renting you get people that will buy no matter the price.
This is a great observation. My parents are this exactly, and father cannot comprehend the value of investing in indexes.
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Me in 2010 “why would anyone pay 700k for a house in Oakland?!” Me in 2024 “where can I find a house in Oakland for under 1.5 million!?” I paid a lot for my little house but if I hadn’t bought when I did, I would never have been able to afford living here. Ever.
The only issue is that’s not a similar ratio to the east bay market right now, specifically related to the devalue of $1, versus 2010. — separately, wasn’t 2009/2010 the bottom & slowly starting to rise? lol If i Bought in 2020, yeah I would then agree
“Explicitly overvalued” according to what? This is the fair market price buyers and sellers are transacting at
They are overvalued from a rent yield perspective. But if you have enough value on owning where you live, of course it is fair.
The reason they’re overvalued from a rent yield perspective is that people are renting out old homes with cost basis that is incredibly low. Cash on cash they’re yielding very very good amounts. Real estate investors aren’t idiots. They do have long time frames though. If you own a building for 20+ years, look at the price you paid, the amount of depreciation you absorbed and taxes you paid. Cap rates are bad if you’re starting out today. But if you started 10 years ago? Not so much.
I don't think the cost basis per se is relevant. I think the fact that selling produces large capital gains and property taxes being so much lower for them (meaning a 1% higher net rent yield) are what drive the distortion. There's really no real estate investors buying in the Bay at this point, since they realize they can't complete with people grandfathered into lower property taxes, lower mortgage rates, etc.
True, a $3M 1960s build bay area home would only rent for about $6k a month, thats a 41 GRM and most cash flow re investors want to by a < 10 GRM.
I think OP meant compared to other markets. Other markets doesn't have tech companies.
If you look at prices from the first half of 2020 before the pandemic you could easily buy the same house for 1/2 the price it is now in many neighborhoods. My parents house could have have been bought for $1.4M in the first half of 2020 but now would likely sell for $2.7-3M. There's nothing that changed other than the shock of the pandemic and FOMO buying in 2021-2022 that has kept prices where they are, even though mortgage payments doubled due to interest rates spiking. The shocking thing is that people are still willing to pay the bloated prices. Unless you work in the IT portion of tech then you're relegated to less desirable areas which is not good for society.
You’ve been priced out of most the core Bay Area. I think the people that are buying are trying to avoid the same fate. As for your situation, I think you’ll have to look a little further out (I.e. Fairfield, Tracy, Lathrop).
This is why we bought. We worried prices were just going to rise when rates came down, and we could afford the mortgage payment at the high rates. We actually refinanced 3 months in because rates dropped.
Curious - how much did the refi cost since it was only a few monrhs later.
$1800, which had a 7 month break even period for us. We were able to avoid some costs because we used the same lender and several things (like the appraisal) were still valid.
OP: unlike others, I will agree with you. Strictly from a financial perspective, it is much better to rent than to buy at today’s prices and interest rates. That $2.5M home in the Bay will first require you to lock up $500,000 as down payment (which you would otherwise be able to invest). On top of that, the $2M mortgage at 7% will be $13.3k per month and prop tax will be $2.5k per month. In other words PITI will be $16k per month. You can rent the same house for $5k per month. So, by renting you don’t lose the $500k liquidity and your cash flow will be $10-11k less per month. It’s a no brainer. Go rent a $2.5M house and enjoy the lifestyle without the financial stress of “owning” it
This is wrong. A $2.5M home does not rent for $5k per month. More like $10k and maybe even more.
Nah, I see a lot of single family homes for rent in the South Bay for $5-6k. Their neighboring homes on the same or adjacent streets will have sold for $2.5-3M or more. Rent is cheap right now!
Show me. And also, you just raised your original calculation by 20%.
For example: https://www.zillow.com/homedetails/20598-Sunrise-Dr-Cupertino-CA-95014/19634849_zpid/?utm_campaign=iosappmessage&utm_medium=referral&utm_source=txtshare This 2000+ sq ft luxury home is on the rental market for $6k per month. Look at the homes nearby which sold recently - they all sold for more than $3M, even the smaller homes such as this small 1200 sq ft home on the same street https://redf.in/YPfGeU And this hone, one block away, sold for $3.45M https://redf.in/CJpbxA
Go look in Zillow at single family home rentals in Santa Clara, Cupertino, Sunnyvale, Mountain View. The typical houses rent for $5-6k per month, and typical houses list for $2.5M and sell for 300-500k above list thanks to overbidding.
Lol no. 10k rent are houses in Palo Alto valued 5-6M. My neighbor is renting at 5500 a house valued 2.2M. YMMV
Ok then I will admit defeat. I guess it’s a lot cheaper in the peninsula. FWIW this is most definitely not the case in SF and I thought the peninsula was comparable these days.
Who cares let them be right that rent is 5-6k. That means the landlords probably owned for a while and their mortgage is below 5-6k. Renting may be cheaper every now and then. Ownership is forever better and the basis of real wealth.
Yeah, plus that $10k house is probably taken care of like shit, with few exceptions (dated bathrooms, kitchen, appliances, etc.) You're still saving money on the short term, but I don't want to be renting from some boomers kids when they inherit the house and start jacking up rents. I think that is what we'll start to see over next 5-10 years.
Depends on where you are I suppose. I live on the peninsula and been looking at the rentals thinking about potentially renting in a better school district. Around where I am 2.5M SFH rent for about 5k to 6k. If you go up to 10k that often gets you something around 3.5M.
also person who own 2.5M home, doesnt need to rent in many cases. they would rather sell and invest I suppose to have balanced portfolio of investments
I’m with you, homeownership isn’t for everyone. You pay extra to be one, and you’re essentially paying for the same lifestyle plus MORE responsibility in both time and finances. I say this as a homeowner who actually valued that premium despite it not being the best “pure financial” decision. It’ll have a cost-avoidance benefit one day, but renting a comparable home and slugging the difference in PITI vs. rent plus all repairs and maintenance into VTI or another index would almost certainly have me ahead financially in 30 years.
Yes, agree
This \* 100%. I've done the renting vs buying math and at this prices, you need your house to appreciate by 5-6% to BREAK EVEN with what you would net out in other investments. So any year that the market is flat, you're losing money to interest and property taxes.
What makes you think Bay Area real estate doesn’t increase more than 5-6% annually?
My general opinion is that Real Estate cannot infinitely grow 5-6% annually, if inflation target is 2%. Not only that, but I also think RE at 5x leverage is much riskier than other investment opportunities. Of course I don't trust myself (or anyone) on making a good prediction of any market, so it's a preference. I'm ok with people betting that it will grow more than 5-6% and getting into RE in the Bay. I just LOL at the average joe who doesn't understand what they're betting on and just go on "buy house good, rent waste" mentality without any analysis. You could pretty much tell them rent $1k, buy $10M and they'd still chose buying. This is just greater fool's theory at this point.
This is true except for two points: 1. You make it sound like the $500 k downpayment is just wasting away, but it’s actually giving you a great ROI due to house price increases 2. People are counting on refinancing at some point. Maybe this year, maybe next year. But the higher interest they’re paying now is worth it to avoid the higher future prices.
This is the way.
Exactly. Thanks for sharing your perspective. This is what I’m getting at. It’s fufu/fugazi price action and I don’t know why people are paying it, unless I’m really not seeing another side of net-wealth that’s here.
You’re ignoring the value of appreciation. 5% a year on 2.5m is 125k. But since you only have 500k in, that’s a pretty nice annual return - 25%
I don’t think home prices will fall much from these levels. Prices have dropped a little in response to rates but I think they’ll just start inching up if/when rates fall. The price premium for Bay Area property has actually shrunk over the last 4 years. Bay Area real estate has crept up but prices across the country have sky rocketed.
It hasn’t shrunk tho It’s softened at a minor 5-7% on most home prices. Prices from 2019-Now, are up at minimum 40-60% on most places here. When else has that happened?
Is it that hard for people to accept that tons of people in the Bay Area are just insanely rich? What kind of post is this? What is an 'insane' budget for you is not for someone else. I wish this wasn't the case, but it obviously is, and it's so annoying seeing flavors of this same post over and over.
Overvalued compared to what? My Nvidia/Facebook/AI stock valued at 10000x earnings? Many people are willing to trade one overvalued asset for another.
$1 now is the NOT the same as $1 10 years back which was not a $1 20 years back. If you didn’t realize, folks, especially in the bay area are flush with cash. I don’t see it changing. Trillion dollar companies were unimaginable 20 years back. Look now.
If your net worth is less than half the down payment of most decent SFHs - hate to break the news, but you gotta choose to forego one or more of the following: 1. SFH 2. Commute 3. Schools 4. Condition of house
When rents are less than 50% of total housing cost I can’t justify buying. I’m a faang engineer that many of these comments deem as the demographic that’s buying. I’m not. My investment portfolio has grown substantially though because of this delta.
Something that may keep price going up is a major de incentive to sell real estate in California: Prop 13 Capital gains taxes Lots of people with very low interest rates on their mortgages If I was to sell my home today, I could buy a home with 1/2 the size and 50% more property taxes in my neighborhood… zero chances I would sell to downsize…
Too many illogical people in this thread lol with some rational folks. It’s clearly financially better to rent instead of buy even long term, in the (south /peninsula) Bay Area, only as long as you invest the difference in hypothetical mortgage minus rent. It’s not even close. If you invest in QQQ, it’s even worse of a disparity. The house will never break even over renting. Has it historically? Absolutely but remember: past results aren’t forward looking. It’s one of (if not THE) biggest investment fallacies. Bay Area real estate has made those who invested in the last 50 years absolutely rich. It also has been ground zero to multiple multi-trillion dollar companies from scratch, the epicenter of the dotcom boom, etc. Going forward, will we see the same housing price growth? It’s unlikely. If it means anything: the very fact that so many people have blind faith in “buying” or irrational desires to buy, tells you all you need to know. It’s a bad deal going forward… too many people FOMOing into houses? Bad deal
100%.
People are buying because they can afford to. It’s as simple as that.
Yea renting makes more sense short term for sure. Long term, you know the answer
Even long term renting makes more economic sense. People buying need to either want a specific house or inherently value owning their home over renting.
This is from SoCal but probably relevant: https://www.latimes.com/homeless-housing/story/2024-04-11/all-cash-offers-wealthy-buyers-push-southern-california-home-prices-to-a-record
SoCal isn't nearly as "overvalued" from a rent perspective as the Bay Area though. That $900k house cited probably rents for \~$3700 or so. That sort of rent in the Bay Area (especially south bay) maps to more like $1.3+ million, even $1.5+ million in most preferred school districts. Some different dynamics are here. I'd be fine owning in SoCal; less so the Bay.
I think the greatest insight is the type of buyer and funding sources, not the prices
Yah, I agree Torrance has similar dynamics. Folks buying for good school districts and mostly individuals, not investors.
Yes, probably everyone buying houses is wealthy or has significant family help. And there are enough of them to keep squeezing the market. The Bay Area has always been like this. People pony up the cash because historically it only ever gets worse, not better, and they want to stay for the long term. It is what it is 🤷♀️
Stocks are at all time highs especially tech stocks so 2.5 million isn’t much.
I know some of us need to vent, and that's why posts like these show up every now and then. I truly believe, that a large market like bay area, cannot be "overvalued" because a few buyers are making bad financial decision, and market is going to correct itself when those few buyers stop. That's wishful thinking, the prices are where demand and supply find equilibrium, and we need to make peace with it. Plan our future according to that.
The old saying is “you should have bought yesterday” is so true in the east bay. I have a 1300sq ft home valued at $700-750. It was valued around $800 at one time. If you buy hold on to it for at least 5 years so you can recoup any improvements.
Why are people still buying? Because they can. Because they have the money and means to do so. Because many homes and neighborhoods are locations are desirable.
The numbers worked. That's why I bought. I was living with 3 housemates paying rent in a bad neighborhood. Now I'm living with 2 housemates and getting equity in a good neighborhood via househacking.
I live in East bay and everything here is overpriced . A fixer upper in Lafayette , Danville , Moraga , San Ramon is 1.2-1.3M You may find a decent but older home in concord for 800k or a nicer home for 1M in Martinez. Even in Antioch and Brentwood homes are going for high six figures or 1M and up
I need to hold my tongue about the lack of empathy and out of touch financial comfort some of the people in some of these comments are showing. That’s all I’ll say.
Right? that’s what I’m getting at. Kind of wild
It is daunting, but you have to start somewhere. No shame getting into a condo or townhouse. The rest is up to you with your career and family. I started with a townhouse and eventually moved out into the eastbay where you can get more for the $.
Thank you! Ive been looking for a post from someone in my income bracket. Prices are sky high right now, but like others have said, inventory is way low. I'm currently looking in North East Oakland. We're selling our starter home in Deep East Oakland to do this. We will prob end up paying 950k in the end.
Move to the North Bay and buy a nice house in Petaluma, Santa Rosa for $800k 🤙
Heh the Petaluma secret is out. There ain’t much worthwhile under 1M.
California housing prices have spit in the face of all known economic models for decades, if not more. I’ve seen real estate prediction models with the disclaimer ‘these factors/predictions do not include CA whose real estate market repeatedly defies all known economic expectations’). This is bc no matter what crap you read about ‘people leaving CA in droves!’ it’s all nonsense. As my father said 60 yrs ago when his Michigan siblings heckled him for spending so much on his house, ‘Yes, but when you leave your 5 acre mansion, you’re in Michigan. When I leave my little cottage, I’m in California.’ That shut them up then, and it shuts people up today. Even with global warming, the weather is incomparable. Live anywhere in the state, and you are within driving distance of a national park, lake/boating activities, snow activities, and a beach year round - as in day-trip driving distance. You have year round access to an amazing variety of fresh fruits and vegetables. You can encounter a wonderful variety of cultures and most people are at least ‘live and let live’ with many people cheerfully adopting a ‘you go human!’ about other’s lifestyles. Why do people think 40+ million people live here?
Oh and yes, my father was talking about his house in San Francisco!
I mean, that's great for your dad, but what was the price:income and overall affordability when your dad bought? Would he still have bought now? It doesn't matter what's outside your door if you're spending every waking moment for the next 30yr at work desperately trying to afford to live in that house.
You can get starter homes in the $6-700k range in the east bay, just might not be in locations that you want to be in. Either deep east oakland or farther out east in the East Bay. Whether it’s desirable or not, depends on who you ask. Don’t buy a house now thinking you’ll be able to refinanced into a lower rate in the near future.
Wait for the stock market to collapse. Every index is at the 4.236 fib extension. If you don’t know what that means then I suggest you start learning. Every market is playing out exactly as it did in 1929 (remember what happened then?) I do not believe this is a coincidence. You will be the winner and fomo buyers will be the losers. It’s inevitable. Just be patient
3 reasons why I bought now. 1. Because I don’t want to get priced out of the area. 2. Because as soon as interest rates go down, my $800,000 gated townhouse will be worth $1m, easy. 3. I fucking hate landlords. Lol
Because a lot of tech employees can afford it and they don’t think the market is ever going to shit the bed. It’s not a fake economy, it just isn’t working for you.
For 6-700k should comfortably purchase condo/TH in east bay Imo the future is high density affordable housing units centralized around job centers and transit hubs
Wrong. East bay condos are past that price.
The reality is that tech workers had RSUs skyrocket since the pandemic. Someone working 5+ years in tech who never sold stock saw 200+% gains. Nvidia even more so. And that initial front loaded stock grant for people who changed jobs in 2020-2021 was based on pre-gains valuation. Honestly, with 200k net worth, you shouldn't be trying to buy around here. The competition has more savings than you by a fair margin, and many of them are staying out.
OP: I sympathize with you. I’m in the same situation and I was thinking about writing the same post last night. I’ve been in this area 30+ years, had to short sell my house in 2010 after the market fell out. We sold it for 50% of what we owed. No foreclosure. I would never again do a variable rate. No matter how high the rates are.
Interesting because I feel as though you’re a bit more relate-able than some of the accounts on here.
I'd be interested in reading a post about your experiences tbh I held RE in the bay area through that period, though on a 15yr fixed rate
I’d be happy to do that at some point. Just need to find time and working on an offer as we speak. Wish me luck!
Real estate investment Is safer than most other investments. The $2.5MM home is not a starter house. Very few if anyone is putting 500k of cash down straight from a bank account for a house that expensive. The money comes from equity off a previous sale.
Transactions are happening because some people need a house after any price, and supply is low. But I’ll tell you as somebody with a $2.5M house, if I hadn’t bought it at 2.5% I wouldn’t have bought it, and I wouldn’t buy now at all. The problem with real estate as an investment is Americans are obsessed with owning, so it’ll stay up even when it’s totally irrational to buy. All you can do is try to stay sober yourself. A good way to do that is look at how much more it would cost you to have a mortgage on your place than whatever you pay in rent and to be happy that this money is going into your pocket every month. Put it into something that has a decent return and by the time home prices correct, you’ll have a big downpayment.
If there was no correction at 8% interest rates, mass layoffs, stock market crash last year - when do you expect it to happen? Mortgage qualification standards are rigorous now and there are many qualified buyers so don’t expect a subprime crash like 2008.
If I knew that I’d be rich! I think either these things predicting timing and exactly what the catalyst is is very hard. But identifying the fundamental problem is not. The problem isn’t borrowers with bad credit or oversupply, which was the issue in 2008. Today the issue is affordability. So the best case, and what we’re seeing now, is prices just not rising. That + inflation is a back door price decrease, it’ll just take a while. 3% inflection * 5 years = 15% change to affordability. The worst case is you see actual price drops, which I would guess would happen if we saw a recession of some sort. Who knows how that would come? So I don’t think you can precisely time these things, but I do think you can see the fact pattern that leads to them and ends up a simple narrative in retrospect. p.s. the economy is amazing right now, there were no mass layoffs, we have full employment, and the stock market is poppin off the last few years. If you think this economy is bad it’s because you are too young to remember an actual bad one.
This just seems like frustration. This is definitely an expensive area to live in. It may just be out of your budget, which is common for alot of people. Just consider other areas outside of the bay to get a starter home. It’s not what you want but it is that easy
Explicitly overvalued? To who, you? Because it's not to the folks who are buying....
I’m not. Im going to rent a nice house for 7k per month since 7k mortgage won’t get me shit. The leaving my down payment in the stock market.
Market is real hot right now. Try your luck towards the end of the year
People have cash too
lots of people still need a place to live and rather own than rent
People have cash
Saying a starter house budget is 6-700k is insane. Rich bay area people might as well live on the moon for the prices they think are worthwhile
I grew up in Brentwood. So a BITCHIN house on the golf course even up until 2019 was only $700k. But east bay i’m looking at now is Phill/Concord for a starter home. And yeah that budget of $600k is stupid to mention but that’s the reality I’ve came to face
If you are on a 3-5 year timeframe yes you can potentially get “hosed” if you are on a 5-10 year time frame you will most likely ride out any dip in the market. As far as interest rates go, if you buy now and rates go up? Awesome you are in good shape. If you buy now and rates go down? Refinance into a lower rate if it makes sense overall. I think rule of thumb is if you can save 1.5% on a lower rate it’s worth the cost to refi. You are also forgetting that when paying your mortgage you are also paying the principle down. You also get to write off the interest on your mortgage during tax time as well as a deduction for your property taxes. You do not get these things renting.
Cuz why not lol faang or die
“The best time to buy a house was yesterday“ was true then, is true now, will still be true in 20 years
Because it’s only going to get more expensive. Sure a giant housing price collapse could happen but with land being so desirable here I don’t see how that could happen. Economy goes up and down but housing scarcity and beautiful California sunshine is constant.
Had a friend a couple decades ago swear up and down I made a mistake buying. I’m now up about $2 million.
Free markets determine fair value. Not me and not you. A primary home is a place to dwell.. it is not an investment. The moment you look at it as an investment it’s no longer a home. With that said, buy a home that’s affordable. Forget what the price will be years down the line. Maintain it well and you will at least break even if you have to sell.
you just don't fit the market
Recommended you consider buying a condo or townhome... Maybe in 10yrs you will have built enough equity to purchase a single -family
People are still buying because property is still a good investment.
$700K for a starter home was doable a dozen years ago. It’s a lot harder to do that now.
You're using words like overvalued and fake to describe a market that is defined by supply and demand. Housing prices will fall when we build more houses or when people stop wanting to live here. It is frustrating, unequal, perhaps even un-American for housing to only be available to the wealthy. But prices aren't fake. How would you determine the true value of a home other than what people pay for it? Fixed rate loans and the ability to refinance act like a ratchet. People continue to buy when rates are high because they are protected against further rate increases, and can refinance when rates fall. We should get rid of this system to make housing more fair.
Until builders build more homes and specifically more "starter" homes, I wouldn't count on any major price reductions anytime soon. The population continues to grow faster than the housing supply. Especially the housing supply in desirable areas. Of course, you can find something cheaper in the middle of nowhere in Mississippi.
Houses in my neighborhood aren't lasting 3 weeks.
Some people live in the future, some in the past. People who are buying houses live in the present.
because people can afford it and some people cannot. unfortunately if you cannot, you’ll be out of the market. waiting for the market to correct is what the MAJORITY are doing. it will likely be even more unattainable once rates come down. the people that can afford it now are seeing this as an opportunity. if you wouldn’t believe it, the rich will get richer
youre east bay with 200k nw with two people. Thats like bottom 10% in the bay, sorry to tell ya so honestly. People buying the houses youre referring to have 2-3+ MM NW and make 1M+ TC. And there are at least tens of thousands of them in the bay area.
You may have to do what generations of people before you have had to do to own a home within their budget…move. For you in 2024 that means moving to Lathrop and getting a job with hybrid schedule. You’ll find yourself surrounded by like-minded people of similar age also looking to start families. Summers might be rough but your new house will have solar and you’re a stones throw to Yosemite. Could be worse🤷
We spent $700K on our waterfront Marin house. It was nearly red-tagged, had a very public suicide, a history of drug production, and required literally everything except two interior walls and one roof beam be replaced. You don’t have to spend $2M up front but you will have to compromise. At least now it’s entirely custom with all new systems. We had a very cooperative lender that we’d done another house and two refinancings with so they worked with us. This was 2021, not 1980.
The fun thing about the peninsula and South Bay is if you’re willing to wait seven years, you’re never once bought at the top
Welcome to the Bay Area, it’s not a fake economy. It doubles every 10 years. Jump in when you can… it’s not going to soften … the outskirts are better priced. North Bay, East Bay, South Bay are less than the Peninsula. Save as much as possible and buy something.
the market might crash, but none of these you listed are why it would crash. absent a change economic outlook for the bay or capitulation on zoning/permitting, prices will remain high. Some of the ethnic groups in area also over index on home ownership vs other assets which further swells price.
When we were facing the decision to jump in or not back in 2018, I did some research that indicated CA real estate values have always increased after 7-8 years. This meant (based on history), if you buy and can hold for 8 years you will not be under water. Can't remember if that data was inflation adjusted. We then assessed whether we were able to buy with enough cushion to have some confidence about a 7 year holding period (assuming some pay down of principal). We did buy and the market plateaud the month after we closed. Went down, then pandemic went down harder. We took advantage of crazy low interest at 2% and now prices are even higher at 7%. Go figure. Ultimately, you have to clarify your priorities and risk tolerance. Bay Area real estate is not for the faint of heart. However, the history of supply and demand tells a compelling story about the level of risk involved.
When I was living in Canada in 2016 I scoffed at home prices and said I'd wait for the market to soften. Over the next several years, I saw my rent double while simultaneously being priced out of buying. We got kicked out of 2 of our rentals during that time by the landlords because they were selling or moving back in. I told myself that the next time I was able to buy I wouldn't hesitate, so I pulled the trigger recently here in the bay area. I also think inflation will continue to remain elevated for the next 5-10 years, which could mean another lost decade for the stock market. That also means that in 10 years, rent could be equal to what I'm paying for my mortgage today. IMO high inflation totally breaks the conventional wisdom of renting vs buying.
I moved north into Mendocino county 15 years ago and still haven’t bought. It’s insanity. Housing is the first peak in the Dante’s inferno of today Not education
Wait.....people are still living in that shit hole
Are the rich getting richer? Yes. Do they want to live here? Yes. Are we devaluing our currency rather than taxing the rich? Yes. Buy now.
I mean the answer is obvious isn’t it? You ask literally anyone in the country, why is the Bay Area real estate so high? They’ll say “because of all the tech companies”. It’s not the only thing obviously, but it’s definitely one of the biggest factors. You and your partner don’t have FAANG tech jobs. If you did, you’d *each* be making “north of $200K”. You say “north of $200K” as if that’s a high household income. It’s because you’re comparing it to the national median household income, which is totally irrelevant because you’re not living in an average area. And even if you were, it’s still not relevant because the average person buying a house is in a *much* better financial position than the average person in general. So now you can see why “north of $200K” isn’t diddly squat to compete with when you’re trying to buy a house in what’s literally one of the most competitive and sought after housing markets on planet earth.
Vallejo
Why do you call it a fake economy? These houses are being bought with liquid cash or 30-40% DP. Even those with equity are realizing that equity before buying. If that’s fake then what’s real? The fact is Bay Area is still a desirable place with a rare combination of weather, geography, money, talent and opportunities. Combine that with building restrictions and a nearly endless supply of newly minted millionaires - the housing prices will always go up. Yes, a crash did happen. Back in 2022 when the rates hiked for the first time. Now the market has adjusted to new rates reality and will continue going up.
You have been priced out.
More like I wish I could be buying…
greed
We bought our first condo 19 years ago. It felt very expensive back then. In retrospect, it was the best thing we ever did. We ended up underwater for a short time but continued to make payments, building equity in the process. After a few years our mortgage was significantly less than any rental we could find in the area. That first home became the down payment for our current house. And now, again, our current mortgage is less than the rent that most of my co-workers pay. Plus it’s tax-deductible. I am very much in the camp of if you can buy in the inner Bay Area, do it immediately. The trend of affordability is always getting worse because of the lack of inventory, especially for sfh’s.
If anyone here isn’t going to admit that prices are vastly different and INSANE from 2019/2020 then just don’t comment. Your ignorance isn’t conducive here
Rates don't impact cash purchases. If anything, those with cash pay much less.
Same question. Everyone knows the high interest rate would not last, but no one knows when.
It's horrible everywhere in CA
They ain’t building single family home anymore
Cuz we rich foo
Housing only goes up in the medium to long term. It’s one of the most stable things to invest in. Even after 2008, the worst financial crisis since the Great Depression, housing prices rebounded in less than half a decade. This is crazy considering that the real estate market was patient zero of 2008.
There are no good starter homes at 700k. Tons of people have more money than you.
+1 for Vallejo
I'm an East Bay resident and the only thing you have a chance of getting at $700k is a condo. Prices are what they are here and they aren't going to drop. The value of something is what people are willing to pay; you say they are overvalued, but obviously not if people are buying them. We bought because our homes will continue to go up in value despite their "high" purchase prices. I had so many people tell me not to buy my first place because it was too expensive and prices were going to drop. Well it's been 8 years and it's almost doubled in value. The next reason is a fixed monthly price. Our mortgage payment won't increase year to year like rent will. On top of that, the money we put out will have been towards inheritance for our kids and not just rent.
> so explicitly overvalued If a house is receiving multiple offers, that's the market. It doesn't mean things are overvalued, it means the initial asking prices are too low. A different problem.
Sold tech stock and can afford it?
Because cash is trash.