San Francisco Bay Area Real Estate Correction

[Thomas Seay]

So how much longer can this boom continue around here?  I live in Palo Alto, where I have my main residence.  I own rental properties in San Mateo, Foster City and East Palo Alto.  The one in East Palo Alto I only purchased a couple of months ago, and already I am sure it has appreciated by 60K, if not more.

I am looking to purchase more real estate but there are problems.  Right now I am maxed out in terms of liquid cash.  I have a LOT of equity on my houses, but, as many of you know, around here you've got a lot of deep pockets (and some of it dirty overseas money) that shows up with a suitcase of cash and pays straight out (beating out those who have to acquire loans).  

The other problems is I am just wondering how much longer this boom can continue.  Am I going to get caught holding the hot potato? :)

Given the above two issues, what do you think?  Should I look outside of the San Francisco Bay Area to invest?  If so, where?

[Amit M.]

several comments:

The paragon data is spot on. A well respected RE group in SF that know their sheite!  The first 2 graphs on the link provided above say it all. I don't know how anyone can look at those graphs and debate the long term value of prime Bay Area (especially SF proper) real estate. And people like Jay and Bob have been investing for a while to back it up. I only started in 1994 with a modest condo and parlayed that into 5 buildings worth big bucks. Great cash flow now too. Heck one of my buildings in the mission has had rent increases of 50% in 3 years!  So yeah, when I started, it had a modest cash flow. But now....chaa-ching!

As for the tech/bubble debate, everyone is speculating, and that's fine. I just think since some noobs expect some spectacular crash, it will probably be just the opposite...a mundane slow down from hyper growth. Remember, the rate of increase can't go up forever. So if venture funding grows less than last year, it's not a disaster. It simply means the percent increase is more modest. And that's exactly what's happening to housing costs. Instead of going up 15-20% YoY, it's down to 5% YoY. Most fly over states are lucky to keep up with inflation. 

As for how dependent our economy is on tech, and if dot.com crash will repeat itself?  Um, no. Sure a lot of start ups will vaporize (by design, most fail), and there will be a few spectacular unicorn crashes (too much cheap money went there). But we have huge company's here like Google, Apple, Facebook,  salesforce, etc., etc., etc. that still have thousands of unfilled positions. Tech will most likely have a correction, and employment will have a lot less sizzle. But if you expect a major crash and cheap RE again....I don't think so. Barring some global systemic crisis, I'd be surprised if prime Bay Area and SF RE falls even 10%. I expect a leveling off, and maybe, a few percent decline. 

China's economy (unless it blows up) will not have a major impact on housing here. Matter of fact it's kinda nice having some nice Chinese folks parking $$ in prime SF. Just as the market may slow down, the Chinese $ helps keep prices up.

And don't worry about over building. Not in SF and peninsula at least. Our nutty politicians and tenacious NIMBY's are doing their damnedest to slow new projects down, which of course helps keep current property values up, up, up. Thanks NIMBY's and leftist-socialist-wackos!

Driverless cars will be a national (and global) game changer. And it's coming quick! That and the Internet of things (plus bio advances, for good measure) are going to keep the Bay Area RE market rocking over the next 20 years. Just wait and see. We'll be laughing at million dollar homes and how cheap they were. 

As a local RE investor, the key is: 1- buy well, 2- add value, 3- don't over leverage, and 4- ride the market twists and turns. It's that easy if you follow those 4 primary principals.

Ok, that's my whirlwind tour of RE investing in SF and the Bay Area 😇  Have fun!