
Bay Area housing prices drop in tech-heavy counties - ra7
https://www.mercurynews.com/2019/03/28/bay-area-home-sales-dip-as-prices-continue-to-rise/
======
ChuckMcM
From the article -- _Alan Barbic, president of the Silicon Valley Association
of Realtors, said agents on the Peninsula are working harder to sell high-end
properties. “Without a doubt,” he said, some professionals have been priced
out of the market._

This is why I always cringe at articles that say "Nobody can afford to live
there." The reality is that lots of people can "afford" to pay these prices,
more than there are homes, hence the high prices. When people stop being able
to afford the houses, or willing to pay high prices, guess what, the prices go
down. When I bought my current home it was during one of the "downturns" when
everyone said "Silicon Valley is dead, look at all the chip companies laying
off people and going out of business!" And then the Internet became the new
thing and the market rebounded. And then it crashed again and house prices
went down, and then it rebounded again.

Houses cost what people are willing to pay for them. And when people stop
paying what is being asked, the price goes down. Speculation can hide some of
that dynamic during periods of rapid price increases but a lot of speculators
go broke and give up. We saw a lot of that during the mortgage meltdown.

I think it is great that the prices have moderated. And I think the number of
new housing units coming on line has helped that as well.

~~~
drewblaisdell
> This is why I always cringe at articles that say "Nobody can afford to live
> there." The reality is that lots of people can "afford" to pay these prices,
> more than there are homes, hence the high prices.

A classic example of engaging with semantics over sentiment. "Nobody" is
clearly just a hyperbolic proxy for "only a relatively small number of
people".

~~~
ChuckMcM
I think more accurately "Nobody" is a hyperbolic proxy for "me". Given the
housing supply _m_ the number of people who can afford to live here is
demonstrably _n_ which is >> _m_.

~~~
cylinder
If most people in an area have owned their homes since back when they were
cheap, and say only 1 house out of 1,000 comes up for sale per year with a
high asking price, it's possible for "nobody" (99% of people) to be unable to
afford to buy a home at current asking prices and yet for prices to sell high
and for lots of people to be living in an area.

This is why comparing home prices to average income of the entire population
is a fallacy. Not every home comes up for sale at any given time.

What matters is the sale price of recently sold houses to the incomes of
_those actively searching to purchase a new home_ as well as how many such
people there are in the market.

Older established residents in an area can be earning $80k/yr and be fine
since they purchased the house cheaply and have paid it off. That doesn't mean
you can afford to buy their house on an $80k income.

~~~
bretpiatt
Using data from here: [https://www.bayareamarketreports.com/trend/bay-area-
market-s...](https://www.bayareamarketreports.com/trend/bay-area-market-
survey)

It looks like ~3% of the housing units in the greater Bay Area sell on an
annual basis so if the top 3% of income earners can afford today's prices the
liquidity cliff can hide.

~~~
refurb
That's actually a really good way to look at it. If turnover is really small,
you only need a very small number of wealthy buyers to keep driving the price
higher. Everyone else kind of doesn't matter.

------
ummonk
Article says sale prices dipped in San Mateo and Santa Clara counties, stayed
flat in San Francisco, and rose in the East Bay and Marin county. We are
likely just seeing the effects of the center of gravity for the tech industry
shifting out of Silicon Valley towards SF.

~~~
dilyevsky
Doesn’t explain why san mateo dipped. It’s pretty chill commute from here to
the city. That maybe just increased supply...

------
rixrax
If most 2019 Bay Area IPOs succeed, some say this will introduce over 10,000
new millionaires to Bay Area [0]. And most of them are unlikely to leave and
quite a few will likely want to have a house. I can only guess how this will
impact house prices.

[0]
[https://www.google.com/amp/s/www.dailymail.co.uk/news/articl...](https://www.google.com/amp/s/www.dailymail.co.uk/news/article-6790069/amp/Experts-
predict-10-000-new-millionaires-San-Francisco-Uber-Lyft-public.html)

~~~
JMTQp8lwXL
So that's 10,000 people and the city SF Bay Area has 7.15 million, and 880k
live in SF proper. It doesn't sound like it'd make a very big dent in prices.

~~~
beamatronic
What’s the float though, the number of homes for sale?

~~~
deathanatos
[https://sf.curbed.com/2019/1/2/18165468/san-francisco-
home-s...](https://sf.curbed.com/2019/1/2/18165468/san-francisco-home-sales-
drop-numbers-2018-figures)

About 2 years worth of new millionaires.

~~~
beamatronic
I think of the housing market here largely as “the latest crop of
FAANG/unicorn millionaires duking it out to get the best schools for their
kids”

------
lsllc
Maybe the new Federal tax S.A.L.T. deduction limit?

~~~
shereadsthenews
Indeed. The prices rise and fall based on the buyer's monthly budget. Taxes go
up, prices go down. Mortgage rates fall, prices rise.

~~~
sk5t
You'd think so, although doesn't this usually take a couple of years to
happen?

~~~
shereadsthenews
It might take people a while to realize their taxes changed but mortgage rates
are instant. The loan you can afford on a given payment goes up and down with
the rate without delay. Since most people go house shopping with a preapproved
mortgage this has an immediate effect on the market price of houses.

~~~
sk5t
This does not mean that RE prices react suddenly; it takes years, usually, and
you see markets not clearing and inventory sitting around rather than price
corrections. Otherwise there would have been plenty of RE steals to snatch up
in 2008; yet, outside of one or two ridiculous areas, there weren't.

Funny to be downvoted for noting sticky prices. I don't make the rules!

------
notadoc
> The record streak of rising Bay Area home prices started in April 2012, when
> the median sale price in the nine county region was $425,000, according to
> CoreLogic. Over the next seven years, median sale prices have more than
> doubled, hitting a peak of $935,000 last May.

Wild housing inflation is similar all along the west coast, with many areas
doubling, tripling, or more in price over the past 6-7 years.

All the more reason for tech companies and startups to look at other parts of
the country. The midwest, south, northeast, are all so much more affordable.

~~~
closeparen
When tech companies have work that does not need to be done in the SF/NYC/SEA,
they go straight to India, Eastern Europe, and (increasingly) Latin America.
There is no role for mid-priced US cities.

Which makes sense. They are trying to maximize human capital : cost ratio.
Ordinary American cities are good at neither. You go for the highest human
capital or the lowest cost. And in some dirt cheap places you can still find a
bunch of underemployed people with STEM education.

~~~
aristophenes
Somebody needs to tell that to Austin, Texas, they don't seem to have gotten
the message. Denver/Boulder too, though housing there is getting pretty high
as well.

~~~
goobynight
Even if it seems high, you get a lot more for the money.

$1700 will get you a luxury 1bd (600+sqft), new/recent construction, a pool,
bbqs, "sky lounge", 5-20 minute walk to work, and so on.

From what I can tell, it takes more than that just to get into a shitty box in
SF.

~~~
hellisothers
True but you’re going to take a 30-40% paycut all to reduce your rent by
$1000-$1500/mo. Rent goes down but a car and an xBox cost the same everywhere.

------
diogenescynic
I don’t understand why anyone would buy a house here, even if they have the
money. There are so many problems with the Bay Area that won’t be fixed for
another generation—-open crime, quality of life, wanton theft and vandalism,
open meth and heroin use, property crime worse than anywhere else in the
country—-and the quality of housing is crap! Traffic, poor public
transportation (still better than other cities, but not amazing), and an
incompetent government that seems to thumb its nose at the working class here.

Why not just buy five houses in the south of France or somewhere actually nice
and liveable? I’m here for work and as soon as my nest egg is big enough, I’m
getting out. Why buy a $2.5m condo and have to watch a homeless camp out your
window? I just don’t really get it.

~~~
shostack
I think you are equating the entire Bay Area to the Tenderloin.

I'm in the mid-peninsula. I've never lived somewhere safer and feel markedly
safer after having lived in Chicago most of my life in nice neighborhoods.

~~~
diogenescynic
I don’t live in the Tenderloin and have these issues. But you’re right, it is
a mostly San Francisco issue. It’s also bad in San Jose, Oakland, and
Berkeley. Not as bad on the peninsula or in east bay suburbs like Walnut
Creek.

------
YeahSureWhyNot
similar trend in new york, I think housing prices reached their peak in 2018
and so far they are either flat or slightly falling. in some parts of the
country they are not even back at pre 2008 levels, in other parts they have
passed pre 2008 levels just recently. sounds about right. now lets wait for
that market correction that 75% analysts predict will happen in next 2 years
to happen

~~~
soVeryTired
> similar trend in new york

Similar trend all over the english-speaking world.

UK:
[https://www.ons.gov.uk/economy/inflationandpriceindices/bull...](https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/january2019)

Ireland: [https://www.daft.ie/report/2018-Q4-houseprice-daft-
report.pd...](https://www.daft.ie/report/2018-Q4-houseprice-daft-report.pdf)

Canada:
[https://housepriceindex.ca/#maps=c11](https://housepriceindex.ca/#maps=c11)

Australia: [https://tradingeconomics.com/australia/housing-
index](https://tradingeconomics.com/australia/housing-index)

My best guess is it's a rising interest rates thing. My second-best guess is
that something has kicked off in China and it's slowly rippling through the
world.

~~~
YeahSureWhyNot
didnt Australia have soft crash this year?

~~~
soVeryTired
I think they're down about 5% year on year, but after routine gains of 5% -
10% a year, I wouldn't really call that a soft crash. We'll see what happens
in the coming months.

~~~
onlyrealcuzzo
It's not the percentage amount that matters, it's the rate of change -- which
is enormous.

------
gumby
Looks like the price of starter homes. The high end is still holding up well,
and will likely get juiced by the spate of IPOs this summer.

~~~
usaar333
No they aren't. Just look at affluent areas like Palo Alto which have fallen
year-over-year: [https://www.zillow.com/palo-alto-ca/home-
values/](https://www.zillow.com/palo-alto-ca/home-values/) (or Atherton for
that matter: [https://www.zillow.com/atherton-ca/home-
values/](https://www.zillow.com/atherton-ca/home-values/))

I'm skeptical IPOs will affect the market outside SF or Northern San Mateo
county, given almost all are SF-based companies [with your windfall, you are
going to buy yourself a crap commute in a more boring area?]. Note that SF
rents and pruchase prices have gone up a bit YTD, but other areas are flat to
falling.

(Finally, people/the media are way over-speculating how many people are going
to start buying homes after an IPO. From my experience, going funemployed for
a year or so was a more common thing to do with the windfall)

~~~
caprese
> with your windfall, you are going to buy yourself a crap commute in a more
> boring area?

Exactly, I'm so glad Silicon Valley made it up to San Francisco for real this
decade. This was always long overdue.

~~~
Nuzzerino
The one thing that bothered me most about the bay area was all the people who
were more willing to live in cold, foggy, crowded, expensive SF AND deal with
a commute to the area with nicer weather (south). Maybe they had family issues
back home and have a need to live somewhere that is more "open minded" than
anywhere else.

~~~
caprese
SF weather is neighborhood by neighborhood, with cold and foggy being
ubiquitous only in the summer time, which is counterintuitive for tourists.
It's anywhere from 58 to 72 degrees almost all times in parts of the city.
Nice weather if you know where to look or have a particular preference.

So maybe thats just a secret for you?

But I do like areas that are warm at night time too, which SF is not.

------
scurvy
Alameda County increasing while SF and the peninsula are flat to down should
be ringing very loud alarm bells in people's heads. Alameda County is not a
sophisticated buyers market. This same county was hit hardest and had the most
foreclosures in 2008. Peak prices for this cycle folks. This is your loud and
clear indicator.

~~~
jdavis703
The folks paying these peak prices do not seem to match the historic
demographics of their new neighborhoods. While I agree we’re near the peak,
I’m not sure that Alameda is the proverbial canary in the coal mine here.

~~~
scurvy
Gold Coast homes selling at 20% off list (if they sell). Socketsite has a
great example. Alameda has peaked and you're screwed if you bought there in
the last 5 years.

------
sonnyblarney
Macro note: the US still has arguably artificially depressed interest rates as
a hangover from the last crash. Even though the economy has picked up, the Fed
won't lift to normalized rates. Part of the idea was to re-inflate the value
of people's homes after the 2008 crises to get everyone out from underwater
but it will have bubbly effects elsewhere.

We forget that these exceedingly low interest rates are a crazy thing, not
usually considered consistent with any kind of regular economy.

With the US at historically low unemployment rates, and the Fed still not
willing to raise ...

It's like eating sugar and Red Bull at every meal; you'll get ulcers in your
California.

------
beamatronic
I’d like to see a regressive analysis of how many Bay Area instant
millionaires have already been created, over the last 15 years or so. Wouldn’t
these folks help support the floor of home prices?

------
Waterluvian
So this isn't the same as SV, but I grew up in Waterloo, Ontario. Which is
kind of like Canada's SV. The prices have gone just mental over the past few
years.

We're looking at buying a house, and thanks to working remotely, I can live
anywhere. The result is that by buying a house just 45 minutes down the
highway from Waterloo, I get literally 50% more house for the same price.

Location location location is just _mental_.

~~~
whttheuuu
"just" 45 minutes? God forbid you need to find another job in the city - thats
a 1.5 hour a day commute.

There is a reason why location location location has been a truism in real
estate since forever.

------
01100011
I wonder if the trade tensions with China affected foreign sales?

I think most professionals in the valley are smart enough not to buy at the
peak of the market. They don't want to pay top dollar for a 60 year old pile
of crap.

Personally, I think of my time in the valley as limited. I can't retire here,
so why would I want to buy? Also, I'm here to work, not care for a house.

~~~
chrischen
Yea pile of crap, and the knowledge that all that money isn’t really going
towards infrastructure, government, or local economy, but to the lucky schmuck
that was simply here before you.

I would actually _prefer_ high taxes in lieu of high real estate costs, since
at least the money goes back to the public.

~~~
conanbatt
High taxes are the way rents are high. Because the landlords arent paying
them: workers and consumers are. Thats why coffee is 5 dollars, a beer is 8,
you have to lyft to work because the 2billion dollar transit station is
closed, etc.

Its not about high taxes vs low taxes, its about the right tax structure. SF
collects 2800U$S per month per household in taxes!

~~~
overdrivetg
Do you have a source for your "SF collects $2800 per month per household in
taxes" number?

This Quora answer[1] suggests it's more like $3300/person/yr. The 2010 Census
says SF has 345,811 households, or about 2.35 people per household. So $3300 *
2.35 / 12 =~ $650/mo/household in SF.

[1] [https://www.quora.com/How-much-does-San-Francisco-make-in-
ta...](https://www.quora.com/How-much-does-San-Francisco-make-in-tax-revenue-
compared-to-Oakland)

~~~
conanbatt
SF budget is 11 bill. That quora answer is from 2011.

[https://www.sfchronicle.com/bayarea/article/SF-s-budget-
soar...](https://www.sfchronicle.com/bayarea/article/SF-s-budget-soars-
by-937-million-and-will-top-12955416.php).

Even if you cut it inhalf for the general funds, it gives out 1400U$S per
month.

~~~
overdrivetg
OK, I finally did what I think is the real, updated math:

According to [1] from 2018, "Roughly half of the budget consists of self-
supporting activities at the City’s Enterprise departments"

So that leaves $5.5B in General Fund taxes.

According to [2], in 2017 SF had 884,363 residents with 13.4% under 18, so
765,858 adult residents.

$5.5B divided over 765,858 taxpaying adults is $7,181/adult/yr, or just under
$600/mo.

You can roll that up into households if you want, but it feels more
illustrative to have the number be per taxpaying adult IMO. Having said that,
I'll buy your $1,400/household/month number as being basically about right.

I don't disagree with your point about high taxes, but I did want to actually
see what the accurate numbers were. Thanks for the interesting discussion.

I'm in LA so I ran the numbers down here for comparison... We turn out to tax
at $262/adult/mo, so SF's effective city tax rate is about 2.3x vs Los
Angeles.

[1]
[https://sfmayor.org/sites/default/files/CSF_Budget_Book_June...](https://sfmayor.org/sites/default/files/CSF_Budget_Book_June_2018_1_Final_REV1_LR.pdf)

[2]
[https://www.census.gov/quickfacts/sanfranciscocountycaliforn...](https://www.census.gov/quickfacts/sanfranciscocountycalifornia)

~~~
conanbatt
> You can roll that up into households if you want, but it feels more
> illustrative to have the number be per taxpaying adult IMO. Having said
> that, I'll buy your $1,400/household/month number as being basically about
> right.

My initial comparison was about rent, so household is what I wanted to compare
to. When you get a studio apartment for 2000U$S, the state gets 1400U$S. And
because they do not raise 1400U$S through property taxes, they are skimming
you somewhere else, by taxes that affect your income in unclear ways (business
taxes, sales taxes, etc).

A landlord outside of san francisco, renting out that studio aprt, pays a
fraction of the taxes that household consumes.

Its a major distortion.

~~~
overdrivetg
I'm not sure I know too many 2.3 person households that are in a studio
apartment, though. Also above we counted adults vs everyone so the numbers are
a bit high for the full household - SF turns out to be more like
$1200/household/mo.

Looking again at averages [1], we have average SF rent in 2018 at $3787, so
taxes account for roughly 1/3 (32%) of the rent cost.

And let's also compare LA at 2.83 persons/household [2] and $2371 in avg rent
[3], so tax per household is $583, or about 25% of rent.

I was just curious to compare that - although you are right that property tax
is only $1.7B of SF's $5.5B General Fund revenue [4]. It turns out that most
of the rest are Business Taxes and "Other Local Taxes", which look like maybe
Transfer Tax is a big piece?

...but if your argument is that SF taxes things _other_ than property tax to
raise most of their tax revenue, you are correct, but total business taxes are
only $880M, or averaging about $26K/yr.

If you look at an average Starbucks, they're pulling in $880K/yr gross or
$200K net [5], so business taxes end up at ~3% of gross, plus SF sales tax of
8.5% means you're paying 11.5% or $0.69 on your $6 cuppa joe.

Expensive, yes - but probably not the major reason rents are high. The rent
costs on a 1500sf Starbucks might be as high as $80/sqft/yr = $120,000 - 4.6x
the impact that SF business taxes have.

So as far as the numbers go, it looks like supply and demand pushing rental
prices up are the primary cost drivers in SF, not any sort of "hidden" SF
taxes.

[1] [https://www.rentjungle.com/average-rent-in-san-francisco-
ren...](https://www.rentjungle.com/average-rent-in-san-francisco-rent-trends/)

[2]
[https://www.census.gov/quickfacts/losangelescitycalifornia](https://www.census.gov/quickfacts/losangelescitycalifornia)

[3] [https://www.rentcafe.com/average-rent-market-
trends/us/ca/lo...](https://www.rentcafe.com/average-rent-market-
trends/us/ca/los-angeles/)

[4]
[https://sfmayor.org/sites/default/files/CSF_Budget_Book_June...](https://sfmayor.org/sites/default/files/CSF_Budget_Book_June_2018_1_Final_REV1_LR.pdf)

------
chocolatebunny
The factor they kind of glossed over is the bumpy stock market last year.
People who are looking to buy something in the bay area are going to sell all
that company stock they've gained over the years to buy a place. So if the
tech sector drops for a year then people are less likely to sell their stock
to buy a home.

------
dpc_pw
No one mentioned the magnitude?

"Resale home prices dropped year-over-year in February in Santa Clara County
by 16 percent"

"Santa Clara home prices fell from $1.29 million last February to $1.09
million this year,"

Doesn't -16% y/y qualify as "crashing" in the real estate?

------
dawhizkid
On an average tech salary, it's relatively easy to save enough to buy a 1
bedroom condo after a few years. The homes that are the highest in demand, at
least in SF, are single family homes, which average at least $2m.

------
tibiahurried
Buying a house and settling in the Silicon Valley/SF/etc... does not make any
financial sense whatsoever. They are all pretty much overpriced, crappy and
old. Even the quality of the new "luxury condos" is crap. Seriously, take a
closer look at the quality of the windows, walls, doors, floor,
everything...it is all paper thin cheap stuff way overpriced. Not to consider
taxes, earthquake and fire insurance.

Cost of life, school, pre-school, daycare etc, they are all crazy expensive.
Public transportation is nearly non-existent. Traffic is insane. People who
live in SF wake up at 5.30am/6.00am to catch the bus and commute to the Valley
oO. They spend at least 2hours if not more a day in traffic.

The only thing that imo makes sense is to move there, save as much money as
possible. Maximize your 401k and pension plan contributions. Don't work in
scrappy startups for a low paycheck and stock options (most startups are
doomed to fail or will never go IPO) but prefer instead bigger companies or
close to IPO ones that have a good 401k matching plan, bonuses, incentives,
and higher base salary.

Get a new job every 2/3 years, so that you can increase your salary quickly +
signing bonuses.

Do this for ~10years and then move to a normal place where you could buy a
super nice house in cash and then work remotely.

~~~
byebyetech
>> move to a normal place where you could buy a super nice house in cash and
then work remotely.

Can't you do that without doing time in Silicon Valley?

~~~
gwbas1c
It's almost impossible to start a _new_ job remotely.

~~~
nwatson
I've started a new job twice in the last 6 years working remotely from North
Carolina (after already having been established here in NC), and not in one of
the tech-heavy areas (RTP / Charlotte).

In the first remote job I worked nearly 3 years at a Santa Clara, CA startup.
I've been almost 3 years at a large 10K-plus employee Mountain View, CA
company now ... first non-startup in 20+ years. It helped that both jobs came
through my network.

------
stanski
Funny. That's not what the link says: "/bay-area-home-sales-dip-as-prices-
continue-to-rise"

~~~
minimaxir
Headlines change for various reasons, but slugs are forever.

~~~
toomuchtodo
Slugs should be GUIDs! :D

~~~
minimaxir
Slugs are one component of SEO.

~~~
toomuchtodo
Lots of unfortunate realities in life.

------
thorwasdfasdf
We all know Supply is severely constrained. So, ultimately, it's all about
demand which determined by how many employers are hiring.

Have google and facebook cooled off their highering now that they may be
facing potential regulations/being broken apart? Have other companies reduced
their highering in the area?

~~~
refurb
It's not just supply of new homes, but also existing homes. Inventory for sale
at any given time in the bay area is really low. Things like Prop 13 give
people a LOT of incentive to stay put and not leave (until they are ready to
never come back).

Combine that with a small group with extremely high incomes and you've got a
recipe for outrageous home prices.

~~~
tehlike
Or pass it on to their estate and never pay taxes on it.

