San Francisco Bay Area Rent/Buy Ratios
invite response
2010 Mar 22, 8:09am 56,809 views 140 comments
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RentingForHalfTheCost
2012 Apr 10, 6:20am
Let me ask you this: What do you expect a 700K house in Santa Clara today to cost 10 years from now? What exactly are you betting on? I'll be making 34% more (or more) in nominal-dollar salary 10 years from now and so will most other people. What do you think that will do to house prices and rents?
400-500K would not be surprising. Your a bit overly optimistic in your job security. I've been through a few downturns in high tech, and when they happen forget about job security. I have never been on the cutting side, but have seen some of the smartest engineers I knew struggling. It happens and it will happen again. Today's high tech craze is not permanent. Pretty soon, and I don't think it is that far off, all these gadgets people buy are going to be commodities.
When you get the feeling of instant on, instant response from your computer with life-like graphics, no wait flash transfers, etc. your upgrade cycle will be stretched like never before. Right now the reason to upgrade is already stretching and we are not at the point I described.
Now, bandwidth. Companies pay to upgrade gear because the current gear is not good enough. It shares common pipes, common choke points. What happens when we remove these choke points. When complex networking protocols to guarantee different traffic priority is not needed. It will happen. Then the network is a commodity.
I think about it in terms of a scientific calculator. There was a point where calculators improved. There was a craze when I took my engineering where everyone was buying the latest and greated. HP48SX was the final point. It had everything. It had apps before we even called them apps. I wrote a lot of apps that were shared by many students at the time. Then it all died. No one cared about the next calculator. The craze died, because we had everything we needed.
The mobile, the network, the whole hardware ecosystem will one day be a commodity. Then all that is left is software and service high tech companies. I don't know when this will happen, but it will happen. If you are asking about what Santa Clara will be like in 15 years, then you better worry about what I am saying here. Things will not be like you expect.
bubblesitter
2012 Apr 10, 6:21am
The one thing renters have in the case of the big bad inflation risk is they can always downsize.
I'd keep my 20% DP with me for now. I have a freedom to invest and get as much as my investment strategies pays off. Now,talking about 20% or whatever DP is put on a home purchase is like tying that money making no returns,plus you owe the bank the $ you borrowed - risky strategy,if home values don't go up. Not risky if you are counting on home value to inflate considerably in the next 5-7 years,if not more then that. I'm in for the renters side!
The one thing renters have in the case of the big bad inflation risk is they can always downsize.
True, you can sell all your furniture and downsize from a 2 bedroom to a studio apartment and save a few hundred bucks a month. But there comes a point where the rental price difference between a studio apartment and a 2 bedroom isn't wide enough to really do you any good financially. If your making $75K a year.. it's probably worth it to upgrade your life a bit and get a 2 bedroom vs. a studio.. even though you might lose out on $300-$500 a month of possible savings.
I know when i rented a small 1 bedroom we saved money, but we also went out to eat more.. left the apartment more often to spend money then we do now that we have a house with a backyard and pool. Sure our costs have gone up in monthly nut, but we do different things with our free time that cost a lot less money now. Like gardening, relaxing in the backyard, grilling out back... less driving on weekends to get away from our small cramped apartment.
You may find your employer also moving to Pleasanton. It does happen.
I like Pleasanton but its surprisingly expensive- as in 500-600k houses simply because its apparently got good schools.
RentingForHalfTheCost
2012 Apr 10, 8:17am
You may find your employer also moving to Pleasanton. It does happen.
I like Pleasanton but its surprisingly expensive- as in 500-600k houses simply because its apparently got good schools.
I think what people are forgetting is that sometimes it pays to be the top dog in a medium of the line school. Being pack fodder in a top school really doesn't help the ego.
bdrasin
2012 Apr 10, 8:31am
You may find your employer also moving to Pleasanton. It does happen.
I like Pleasanton but its surprisingly expensive- as in 500-600k houses simply because its apparently got good schools.
I think what people are forgetting is that sometimes it pays to be the top dog in a medium of the line school. Being pack fodder in a top school really doesn't help the ego.
That was my excuse for going to Purdue
HP48SX was the final point. It had everything. It had apps before we even called them apps.
Ha, I had that one too, but you're forgetting the 'G!' I got my 'SX" cheap because everyone was buying the G, which had better graphics/graphing. Maybe you're discounting it for a reason I don't know.
CrazyMan
2012 Apr 10, 9:22am
I'll be making 34% more (or more) in nominal-dollar salary 10 years from now and so will most other people.
That's the rub though isn't it. This is extremely unlikely to happen.
Are you making 34% more now than you were 10 years ago? Are most people making 34% more now than they were 10 years ago?
yeah, I didn't think so either.
CrazyMan
2012 Apr 10, 11:13am
Well, when you're at my income level it becomes difficult to increase it by 50% (though I'm not an executive).
As you stated, nominal increases from the past 10 years was 18%, I'm not seeing how "most people" will get 34% higher nominal wages over the next 10 years. As a matter of fact I don't see it being even close to 18% unless there's another bubble coming along that I don't know about.
Real wages will continue to go down for "most people" as long as commodities continue to go up at their current rate.
RentingForHalfTheCost
2012 Apr 10, 11:41am
HP48SX was the final point. It had everything. It had apps before we even called them apps.
Ha, I had that one too, but you're forgetting the 'G!' I got my 'SX" cheap because everyone was buying the G, which had better graphics/graphing. Maybe you're discounting it for a reason I don't know.
Right, they came out with the HP49G (2MB upgradable) also. I stopped at the 48SX. That Saturn processor was awesome. Miles ahead of its time. I once finished a 2.5hr exam in 15 minutes. ;) It took me 3 days of programming transmission line theories into my calculator to have that advantage. The prof was all pissed and asked me how I did it. When I showed him the code it took, he gladly gave me the A. I probably worked 5 times harder than anyone, but enjoyed the challenge.
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San Francisco Bay Area rent/buy ratios from the housing calcualtor at patrick.net show that housing is still greatly overpriced in most zip codes.
The following average rent vs buy ratios were calculated by considering 97,537 rents and 58,171 asking prices throughout the Bay Area from January to March 2010, comparing properties with the same number of bedrooms and same single-family vs multi-family status. The results generally show that more expensive neighborhoods remain very overpriced, since annual rents are running at 2% or 3% of asking prices for the same size and type of house in the same location. Such low rents are not much more than property tax and maintenance. This means that in wealthy neighborhoods, the use of more than a million dollars in housing capital can be had essentially for free by renters.
Conversely, cheaper Bay Area neighborhoods now show some real bargains for sale, with annual rents running at 9% or 10% of the purchase price. Landlords are buying these places because they are clearly profitable as rentals as long as rents hold up.
A few zip codes such as Menlo Park are split, having both a poorer area and a richer area with very different rent/buy ratios. The average in this case masks large local differences. Zip codes with fewer than 10 rentals for each housing size category were ignored.
The hightest ratio was 14.8%, in Vallejo, making this area the most promising for new house buyers and for landlords. The lowest ratio was 2.1%, in the Berkeley hills neighborhood with zip code 94705, making this real estate the worst deal for buyers in the Bay Area, on average.
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