A friend of mine is a successful Realtor in San Francisco, but back in the early 90’s she was a receptionist at a brokerage. Getting a lift home from work, she said to the broker, “I could never, in good conscience, become a real estate agent. I mean, why would anyone buy a loft in SOMA for $190,000?”
Now it’s 2015, and the median price for a loft in San Francisco is $1,050,000*.
This just goes to show that in the Bay Area, prices will always seem too high. It’s because we use the completely wrong piece of information for calculating value: THE PAST.
See this chart below. You’ll find that prices have consistently increased in the East Bay, even through the dot com bust. The only exception is the significant decline in value after the crash of 2008, but that is (we hope) a once in a lifetime experience.
So will the East Bay real estate market crash? Instead of using the past, we should be using THE TREND. In other words, have values increased in the past, and how likely are they going to continue increasing? If you look at the chart below, you’ll see prices have increased an average of 10% over the past 17 years.
Does this guarantee future growth? Absolutely not. Markets are cyclical, and as prices are driven up by tech employment – especially in the East Bay – they are more sensitive to the ups and downs of VC investment and IPOs. And there is definitely a concern about over-valuation, as you can see in this recent article on TechCrunch about Fidelity writing down the value of Snapchat.
But there don’t appear to be any significant issues in the macro-economic environment similar to the ones that brought on the housing crisis. Here’s a great podcast from Planet Money about this exact topic.
If you stick with your real estate investment long enough you can weather a storm. Just don’t count on “timing the market,” because without a crystal ball, it’s pretty much impossible.
For more information about market stats in your East Bay neighborhood, just drop us a line.
* Jan-Oct 2015 median price. Source: MLS.
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