
Is it a good time to buy a house in San Francisco? - tomerico
http://rbhandari.com/2014/01/19/is-it-a-good-time-to-buy-a-house-in-san-francisco/
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ritchiea
If you have money to buy a home in San Francisco right now I'm not too worried
about your financial future.

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abat
True, but most people only have credit to buy a home, which is another matter.

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anewcolor
you'd still need a chunk of change for the downpayment though.

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joshAg
you can get an fha loan for 3.5% down for a house up to $625M. If it's a
multi-tennant property that can go up to $1.4MM. And to answer your next
question, yes you can find housing for those prices in sf. EG I saw a few
800sf 1br and 1200sf 2 br condos about a block and a half from the caltrain
station.

There's also a program called 'kiddie condo' that also allows just 3.5% down,
but that usually if not always requires a cosigner.

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CalRobert
Even in SF, you should manage all right with $625 million!

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jedc
In the notation he used: M=1000 and MM=1,000,000, so $625M = $625,000.

I would LOVE it if the financial world got rid of Roman numbers (M=1000)
because it's just confusing when Roman and metric units are intermixed.

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CalRobert
How about we do that, but go back to long scale just to keep things
interesting?

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pdx6
It depends on your goals. If you plan to live here forever, then you should
buy, no question. If you plan to stay for just a few years, the taxes,
transaction fees, and closing costs will eat you alive.

Now a better question is if you plan to stay 7 years or more, which is the
"normal" amount of time people stay before moving on to a larger home from
their starter home. Real Estate markets have about an 8 year cycle, so this
fits well for this model of buying.

Also keep in mind are the taxes. In San Francisco, there is a special
assessment if you sell a house worth more than 850k or so, and it steps up the
more your house sells for (but there is a rebate if you get solar panels, hint
hint). California takes 12.7% of your profit, which nearly kiss the
$250k/$500k Fed tax exemption for living in a property for 3 out of 5 years.

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ChrisAntaki
Well said. If one's plan is to stay in SF long term, and they can afford a
house they're happy with, they should go for it.

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klochner
Perhaps well said, but presented without evidence or even any attempt at a
persuasive argument.

It's not at all clear to me that one should buy a house in SF at this point in
time regardless of one's expectations for staying.

It's a crazy market. Do you want to go all-in on up to 500% of your net worth
given the market is quite obviously not in equilibrium? The odds are _against_
you getting some great deal here, and there's a very good chance you'll lose
several (5-10?) years of accumulated earnings. Leverage goes both ways </rant>

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minimaxir
The P-value of the coefficient for the supply of new homes (0.10) is not
statistically significant.

There's a high chance that the model is running into a correlation-implies-
causation trap, since it's expected for prices to be correlated with
macroeconomic interest rates.

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Dartanion7
The model is not statistically sound. An R squared of < 50% implies very
little explanation of variance.

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encoderer
I bought a home in Berkeley recently. It was not an easy choice. In the end I
decided to bet that this accumulation of new tech wealth in the bay area will
continue. There will be more IPOs every year with their hundreds or thousands
of engineers/etc making solid six figure paydays. And more growth and hiring
and big RSU grants from existing tech giants. And more people selling pickaxes
to the miners.

I think demand will continue for a long time to come.

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jonnathanson
A lot of the buyers right now, particularly the all-cash-over-asking buyers
running up prices, are not necessarily the newly minted tech millionaires.
They're newly minted Chinese millionaires. If that market deflates, I think
we'd see a significant price correction, or at least a stall-out on the
current frenzy in SF housing.

If you buy now, your property probably isn't going to tank (unless it's just
ridiculously overvalued for what it is, and some houses in SF certainly fall
into that category). SF will be a hot market for a long time to come, thanks
to its constrained inventory. But housing might not appreciate significantly
over a 5-odd year horizon. Which is fine, fwiw, because one shouldn't be
buying housing as an investment in the first place, much less as a short-term
investment. Buy income-generating rental properties, with significantly better
tax incentives to boot, if that's the goal. Buy a house because you want a
place to live. If it happens to appreciate in real terms, and not just in
theory, that's gravy. But over the long run, it's unlikely to do so,
especially when you factor in all your maintenance, holding, and transaction
costs.

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7Figures2Commas
> A lot of the buyers right now, particularly the all-cash-over-asking buyers
> running up prices, are not necessarily the newly minted tech millionaires.

Yes, it's funny that so much of the mainstream discussion around housing in
the Bay Area focuses on the wealth created in the tech industry when much of
the eye-popping housing activity has actually been driven by foreign buyers.

When it comes to the prices these buyers are willing to pay, it's incredibly
important to understand their motivations. Many of these foreign buyers are
not buying houses in the United States as "investments" in the traditional
sense. Instead, they are using houses as stores of wealth because they are
acutely aware that their capital/assets are at risk in their home countries.
In other words, a house in San Francisco may be more secure than a bank vault
in, say, China, as far as wealth preservation is concerned.

American buyers competing for assets that have appreciated rapidly in value in
recent years due to foreign demand, and who may be far more sensitive to the
potential for gain or loss, should at least understand this.

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w1ntermute
> In other words, a house in San Francisco may be more secure than a bank
> vault in, say, China, as far as wealth preservation is concerned.

But wouldn't a bank vault in America be an even better choice than a house in
SF? Why aren't these wealthy Chinese people making more liquid investments
once they've moved their money abroad?

~~~
7Figures2Commas
There are a lot of factors. I'll point out two:

1\. Negative real interest rates.

2\. It's easier to protect your identity/privacy. Notably, real estate agents
and title insurers are exempt from having to file Suspicious Activity Reports
with the Treasury Department.

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refurb
I'm not sure about #2.

When you buy a home the information on the title is public knowledge. Sure,
you could create a holding corporation, but the officers of a company are also
public information.

Also, real estate agents and title insurers don't handle cash at all. If you
buy a house from me in cash, I'll kindly ask you to deposit it and send me a
check. When the buyer goes to a bank with cash or other suspicious sources of
money, the banks will fill out a SAR.

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sytelus
Like most models this assumes there are no black swans. If housing follows
tech valuations in bay area then this question is just another way of asking
are we living in tech bubble? If bubble is going to burst then hot market will
suddenly become very cold.

Looking at valuations of things like Whatsapp or even AirBnB or Dropbox for
that matter, I personally think we are living in giant bubble. The profit has
little meaning in tech now, revenue projections are extremely optimistic and
on the top of that there is huge factors applied on to it to arrive at
valuations. This causes funny implications like Dropbox can buy entire chain
of Cheesecake Factory with over 150 stores and still have 3/4 of its valuation
intact. This would be despite of the fact that all prospective buyers have
developed effective competitive products and are giving it away for free.

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GFischer
Another poster was downvoted but raised a very valid point: what about the
"big one", the earthquake that's supposed to hit SF sometime in this decade or
the next? That's one big Black Swan.

[http://www.sanandreasfault.org/BigOne.html](http://www.sanandreasfault.org/BigOne.html)

I guess insurance can be depended upon to offset that particular risk? (do try
to insure with a company that reinsures somewhere that won't go broke in the
event of said earthquake).

Other post:
[https://news.ycombinator.com/item?id=7882603](https://news.ycombinator.com/item?id=7882603)

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nostrademons
It's nearly impossible to buy earthquake insurance (affordably) in the Bay
Area, because all the big insurance companies know that it's going to happen
and aren't willing to expose themselves to a potentially company-destroying
event. Policies are available, but the cost of insuring against them is nearly
as much as insuring against everything else that your homeowner's policy
covers.

Most Bay Area homeowners are depending on a combination of prayer and federal
disaster-relief funds, figuring that the government will bail them out if an
Act of God destroys San Francisco.

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jph
Summary: No. "Buying now will not yield to you a big upside in 5 years."

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fiatmoney
For most people, houses are machines for living in and not "investments".
Given large up-front costs, you will almost always be in the hole for some
amount of time after you purchase, but depending on what you buy and the
alternative it can substantially lower your ongoing costs. Little of this has
to do with year-to-year fluctuations in the housing market.

Of course, in SF, buying usually raises your ongoing costs. So...

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cliftonk
Agreed. Buy for utility rather than as an investment. If you end up making
money selling the house at some point in the future net transaction costs I'd
consider it a bonus.

That said, IMO buying a house with the goal of selling it in a 2-5 years is
foolish.

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zurn
Are there companies in the US that will buy a house you pick and rent it to
you?

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rdl
Not so much for single family detached houses, but built-to-rent apartment
buildings are becoming a fairly popular investment class. Real estate has
generally used different capital structures for tax reasons (REITs) and to
access the artificially subsidized by the federal government individual
mortgage market, but there are now funds which buy distressed or underpriced
real estate and convert it en masse into rentals, and companies building
various kinds of multifamily dwellings-to-let.

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UweSchmidt
No:

\- supposedly there's going to be a big earthquake in the area:
[http://www.earthquakesafety.com/earthquake-
faults.html](http://www.earthquakesafety.com/earthquake-faults.html)

\- other places have been trending on HN recently, Los Angeles, even Berlin
([https://medium.com/wandering-cto/my-journey-into-the-
berlin-...](https://medium.com/wandering-cto/my-journey-into-the-berlin-
startup-scene-4dc8faecd305)), suggesting hot things going to happen elsewhere
in the future?

Last point is wild speculation of course: Peak Silicon Valley? The earthquake
though...

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steven2012
The OP forgot about inflation and its effects on the model. It will probably
have a much more profound effect that number of housing starts.

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yellowapple
Is it _ever_ a good time to buy a house in San Francisco? It's cheaper to buy
a house in Sacramento instead and pay for the gas and/or transit fares
required to commute.

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luminiferous
That's a 90 minute commute by car, which is not very practical for most
people. However, it is usually a better idea to buy a house across the Bay,
where it is significantly cheaper, and commute the 15-30 minutes to work in SF
or wherever every day.

