Author Topic: SF real estate the new gold rush?  (Read 2546 times)

Mobius

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SF real estate the new gold rush?
« on: March 08, 2019, 10:06:44 AM »
According to this article in the NYT, upcoming IPOs in 2019 are expected to drive real estate prices to historic highs, which will only make it more difficult for 'average folks' to live in the area. At what point does the demand and limited supply work against itself?

https://www.nytimes.com/2019/03/07/style/uber-ipo-san-francisco-rich.html
« Last Edit: March 08, 2019, 10:09:40 AM by Mobius »

Money Ronin

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Re: SF real estate the new gold rush?
« Reply #1 on: March 08, 2019, 04:38:19 PM »
It's an interesting article and dilemma because it's an anomaly to have such a high concentration of new found wealth.  "Old money" is less prone to ostentatious displays and there aren't just that many old money families.

I think SF real estate will continue to increase as long as Silicon Valley is churning out millionaires and billionaires.  That party will come to an end, as it always does, but it doesn't mean prices go back to year 2008.  I'm lame and don't know how to paste a chart here but just read this article https://www.bayareamarketreports.com/trend/3-recessions-2-bubbles-and-a-baby

Young And The Invested

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Re: SF real estate the new gold rush?
« Reply #2 on: March 09, 2019, 03:51:09 AM »
I saw that yesterday and wondered if this would still be the case after tax reform.  Home ownership in high-tax/high cost-of-living areas has only gotten more expensive since the tax code changes.  I wonder how much of the new IPO money coming out will be put into real estate in the crowded SF market or if people will take their millions and run.

I did research in graduate school on Pennsylvania dairy farmers who received millions of dollars in oil and gas royalties for allowing companies to drill on their farm land.  While there's a clear environmental component to this research, we found once farmers earned a certain amount of money from their bonus payments, many opted to sell their land and get out of the area.  They didn't choose to buy more farm land or reinvest in their businesses.

Our conclusion was that millionaires don't milk cows.  It will be interesting to see how these newly-minted millionaires react with their windfalls.  I know I'm keenly following that market.
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Sam

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Re: SF real estate the new gold rush?
« Reply #3 on: March 09, 2019, 09:56:59 AM »
Stay tuned for a very detailed post on how the new Tech IPOs could hurt real estate prices.

I use math and analysis. The other writers are using sensationalist headlines eg NY Times Lifestyle Sextion “eat SF alive”
Regards,

Sam

Mobius

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Re: SF real estate the new gold rush?
« Reply #4 on: March 10, 2019, 05:33:21 AM »
Looking forward to it Sam.
While not specific to this SF bubble, this recent documentary on HBO I thought was one of the best I've seen on the 2008 crisis and does a good job (on the basics) of what happened. They do not (nor cannot in 90 minutes) get much into the HOW, but I thought it was a good overview and more importantly we get to hear from those directly involved just how close the US and the world came to a financial melt down.

I was working in the financial industry during this period and have tried to be a student on this event reading/watching/researching all that I can find. We were darn close (as in a few days) from a tipping point that I do not think most realize. "Those who do not remember the past..."

https://www.hbo.com/vice/special-reports/panic-the-untold-story-of-the-2008-financial-crisis

Money Ronin

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Re: SF real estate the new gold rush?
« Reply #5 on: March 10, 2019, 09:53:11 PM »
The tax reform has certainly affected how I think about buying another house.  If I stay in California, I will never buy a another home--not even one equal in value to my current home. 

1.  I refinanced to a $1M mortgage just before the tax law took effect so my mortgage interest destructibility is grandfathered at the former limit of $1M. 
2.  My property tax is $12,000 which is under market because of California's proposition 13.  If I bought my house today, my property tax would be closer to $20,000 which is largely not tax deductible due to the $10,000 SALT limit.
3.  If I bought my house today, I would need a far larger mortgage while being able to deduct interest only on the first $750,000.
4.  I locked in a 3.5% 30 year rate on my refi.  I'd likely pay 4.5% to 5.0% on a new 30 year mortgage.

I definitely feel stuck.  That being said, people shopping for homes above a certain threshold are perhaps less sensitive to the tax law.  There is very little difference between being able to deduct a $1M mortgage vs. a $750K mortgage.  The loss of property tax deductability does hurt, but if you can afford a $2M + home, that deduction itself isn't going to make or break your decision.  If anything, of the variables I mentioned, higher mortgage interest rates would have a greater impact on the housing market.

I saw that yesterday and wondered if this would still be the case after tax reform.  Home ownership in high-tax/high cost-of-living areas has only gotten more expensive since the tax code changes.  I wonder how much of the new IPO money coming out will be put into real estate in the crowded SF market or if people will take their millions and run.

I did research in graduate school on Pennsylvania dairy farmers who received millions of dollars in oil and gas royalties for allowing companies to drill on their farm land.  While there's a clear environmental component to this research, we found once farmers earned a certain amount of money from their bonus payments, many opted to sell their land and get out of the area.  They didn't choose to buy more farm land or reinvest in their businesses.

Our conclusion was that millionaires don't milk cows.  It will be interesting to see how these newly-minted millionaires react with their windfalls.  I know I'm keenly following that market.

Young And The Invested

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Re: SF real estate the new gold rush?
« Reply #6 on: March 11, 2019, 03:32:37 AM »
  If anything, of the variables I mentioned, higher mortgage interest rates would have a greater impact on the housing market.


Despite the recent lull in interest rates, we all saw the 10-year Treasury trudge headlong above 3.00% last year before receding to 2.5-2.75%. 

Either way you look at it, those rates are higher on an absolute basis than they were in 2016-2017.  Therefore, the rate on a 30-year conventional mortgage must be higher as well.  As you state, this higher cost also serves as a deterrent for home sales because they're overall more expensive AND less tax-friendly.

I'm sorry to hear you feel stuck.  The SF Bay area market has had a tremendous run since the recession and created considerable wealth for many with the resources to invest during it. Fortunately for you, your tax bill is lower than it otherwise would be and you locked in a super-low 30-year interest rate and a mortgage which is grandfathered in.  Silver linings, I know.
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Sam

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Re: SF real estate the new gold rush?
« Reply #7 on: April 27, 2019, 06:38:39 AM »
I've definitely noticed an uptick in demand, along with supply. Remember, data coming out is lagging. But just got this


Inventory (combined Single Family, Condominiums & TICs)

March 2018 units SOLD were 489.  March 2019 units sold were 418 which represents a 14.5% DECREASE.
March 2018 units FOR SALE were 1,529. 
March 2019  units FOR SALE were 1,248 which represents an 18.4% DECREASE.
The Months Supply of Inventory (MSI) decreased from 1.7 in 2018 to 1.2 in 2019.  MSI is an indicator of sales absorption.  A low MSI indicates it is a fast market and a generally a sellers market.  The MSI of 1.2 is the lowest in 2 years.  This further suggests that demand is outpacing supply and that there will be upward pressure on prices.
Prices (combined Single Family, Condominiums & TICs)

January 2019 median price was $1,200,000 which was down -3.6% Year-Over-Year (YOY)
February 2019 median price was $1,269,000 down -2.4% (YOY)
March 2019 median price was $1,397,500 down ONLY -0.6% Year-Over-Year (YOY)
In March 2018 the median price increased 8.1% from February 2018-- a Month-Over-Month (MOM) gain of 8.1%.
Last year March 2018 represented the HIGH POINT of prices for 2018 which was unusual.
This year, in March 2019 the median price increased 10.1% from February 2019-- a Month-Over-Month (MOM) gain of 10.1%

Even though 2019 had a very slow start and prices were down in January 2019 and February 2019, the rate of increase in prices (January to February, February to March) was even higher than that of 2018—so much so that March 2019 prices have caught up to March 2018.
Moving forward, a depressed inventory combined with a quick moving market and rapidly accelerating appreciation should lead to YOY price appreciation beginning in April 2019.
Regards,

Sam

Mobius

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Re: SF real estate the new gold rush?
« Reply #8 on: April 27, 2019, 12:58:15 PM »
Some strong numbers, especially MSI of 1.2

Do you know what the avg price per sq foot runs? Of that median $1.2M how much is land value vs construction cost.
In metro Atlanta, $200-250 a sq ft will get you a nice custom home (not including land).



Sam

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Re: SF real estate the new gold rush?
« Reply #9 on: April 27, 2019, 09:46:50 PM »
We’re around $900/sqft median
Regards,

Sam