I have been living in the San Francisco Bay Area for about 9 months now, and the problems with Bay Area housing situation becomes more and more apparent to me.
Of course I knew houses were expensive around here before accepting an engineering job in the Bay Area and moving here. But hearing about something and living it is different.
I moved from New Jersey to Arizona in the past, and I know how housing cost can change from state to state. My observation when I first moved from NJ to AZ was that comparable housing costs approximately twice as much in NJ (at least in the area I was living in NJ) compared to Phoenix, AZ. But this was a normal difference, and each location has its own normal when it comes to real estate prices.
So, my assumption for the Bay Area was that it was just a similar difference, and the housing in the area is just more expensive than average. But what I have been observing here in the last several months tells me a different story. I do not believe this is a normal difference anymore. It is more like a never ending housing bubble in the Bay Area. Similar to the one experienced by the entire nation before the 2008 recession. It is just that the bubble in this area never burst, it just had a hiccup during the recession years, and continued where it left off.
What I didn’t realize before coming here is that it used to be normal, and whatever is happening has been only happening in the last dacade or two. I met people here who bought houses in 1990s for reasonable prices ($200K-$300K would buy you a decent family house for you back then), and those people now easily have more than a million dollar equiy on their homes as of 2016.
Dot com bubble of the late 90s started an inflow of migration to this region, and it appears it still didn’t end even though the tech bubble that started this trend ended in the early 2000s, and the tech sector nationwide only grew slightly in the following years, maybe until recently. After the recovery from the great recession, now the tech sector picked up again, and this may have accelerated the housing cost increase in this area. But this increase never really stopped in this area since it started in the 1990s.
So, whatever is happening is unusual and artificial around here, and it cannot be explained by just considering this area to be more expensive than average. What is happening here is more than that.
It is an artificial housing boom, and all booms eventually go bust. Thinking that this area is different is a dangerous thought. There is a lot of talk among my colleagues at work regarding whether to buy a house in this market, and the ones who buy say that once you stay here long enough, you bite the bullet eventually, and just buy. This assumes you can qualify for a jumbo mortgage of course, but many engineer families around here do.
Houses easily cost 1 to 2 million dollars around here lately, which are just regular 3 bedroom 2 bathroom single family homes, which you can buy in Phoenix, Arizona for about $200K-$300K. In fact, the ones in Phoenix, AZ would even be better, since many of them are newer houses. But many of the ones in the Bay area just sell for their location, not because of how well they are maintained, or because of how good a house they are. I saw a number of those $1M or $1.5M houses, and many of them were in such a bad shape that I wouldn’t pay a similar house in Phoenix even $250K.
I receive those mailings from local real estate agents like most people, and some of them list the recent sales in the neighborhood. What I am noticing in the Bay Area is that every single one of those recent sales, the houses are sold for more than the asking price. And not just slightly more, $100K, or $150K, or even $200K more. And these are houses in the $1M to $3M range. (Just regular single family homes for a family of 4).
In this market, and under these conditions, I wouldn’t take the risk of buying a house in the Bay Area. I personally never liked debt anyway, and the only debt I found acceptable was mortgage, and even for the mortgages, I usually got mortgages below by means. Even if I qualified for the X amount, I looked for houses that costed half that amount, which were still decent houses in my case. But that won’t be the case in the Bay Area of course. And in this market, buying a house, assuming I can get the mortgage, would require accepting the burden of a million dollar mortgage, and I do not feel like it is a smart financial move.
What if this house loses 10% or 20% of its value? Which is a real possibility, and will happen sooner or later. Nothing goes up forever. Even this reasonable decline in the housing market would mean a significant financial loss for most people, even if they have double engineering income. For the amount of money you lose in this scenario, you can buy a better house in Arizona.
So, in short, I am not buying a house in the Bay Area. But renting in the long term is not a good option here either, since the rents are very expensive in this area as well. For a typical single family house, in a good neighborhood, with good schools, you need to pay easily $4000 to $5000 for a 3 bedroom residence. This is throwing money away, and it is a significant expense for any person who lives on wages, no matter how high their income might be.
Then, what is the solution? I think the long term solution, at least for me, is not to stay in the Bay Area. I don’t think what this area provides is worth the hassle.
Many engineers or other technical people come here for the job prospects, but you have to be really willing to stay here to feel motivated enough to settle down around here. For most people, I don’t think it is a good idea to move here. I wouldn’t, if I knew what I know now. And I have made my decision to move back to Arizona when I have a chance.