SF Rental Prices Skyrocket Yet Again!
According to this article in SF Gate, San Francisco rents shot up 14.4 percent from a year ago!
So here’s my hypothetical question to the renters that can afford to buy – (and I’d love to hear from some of you readers if you feel like answering):
If you can afford to buy and aren’t planning on moving outside of SF in the next five years, why are you still renting?
Now – don’t get me wrong – I get it. Buying a home is expensive. Lenders aren’t exactly giving money away. In fact, there’s all sorts of stuff they want you to do to get pre-approved. They want money in reserves in addition to your down payment. They want good documented income. They want your first born child. (Just checking to make sure you’re still following along 
)
But the reasons I hear for not buying real estate just don’t make sense to me. Shoot, they don’t even make sense to Donald Trump.Â
In fact, the Don’s blog says:
Are you the type of investor that waits for a stock price to escalate before you buy? Do you wait for that sale to end before going into the store and purchasing the item you have been dreaming of? Of course not! “Buy low, sell highâ€Â is capitalism at its finest. The best times to make money in real estate as well as the stock market, is when you have volatility.Â
The emphasis at the end was added by me. But it’s a damn good point!Â
Now - we’re not exactly seeing what I’d call “bargains” right now in the San Francisco real estate market, but we ARE seeing relatively good deals that you can buy without a lot of competition from other buyers. In fact, the people that have the most at stake to lose if the real estate market collapses (that would be REALTORS) are the people that are out there and buying real estate right now! They are “buying low!” or as low as this market will let them buy, that is.Â
So, if you’re renting but have good income and a ton of money for a down payment AND aren’t planning on moving out of San Francisco in the next few years, get off your behind and buy something. And then you can call me in five years and thank me for telling you to do it!
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Buying low and selling high is not capitalism at its finest. Selling high and buying low is capitalism at its finest. Many of us renters are short the real estate market and will continue to remain short until we see a capitulation bottom. Why would anyone buy on the downslope? Wait until we see a confirmed bottom and then buy. Why buy low now when we can buy lower later?
Let me guess, you’ve been a realtor for maybe 10-20 years tops? All you’ve known is a bull market — just step back for a second here and look at the bigger picture. If you do a fair amount of research on credit availability in relation to housing prices and GDP, you’re going to realize that we’re nowhere near the bottom yet. On top of all that, we haven’t even made it through a single “busy” spring selling season yet. Smart money is on the sidelines waiting to see how things turn out. Smart money waits for confirmation — dumb, fast money buys the top.
I continue to rent because I have a large, dog friendly, 1 BR Rent Controlled apt w/parking and storage in an excellent neighborhood for under 800 a month.
The same size condo in my hood would be between 500 – 600k, (and I would never buy a TIC).
I am thinking of buying a multi-family out of state for investment purposes, but I would be crazy to buy in SF with my current situation.
It’s simple. I don’t think prices are low enough yet. I have rent control and can afford to wait.
Even with the recent rise in market rents, purchasing does not make financial sense when compared with renting — if I keep my down payment invested and put the cash (nice safe cash, not ephemeral equity) I save by renting in the bank each month (which I do), I come out ahead. It still only makes sense to buy if you think prices are going to go up significantly soon. I don’t see that happening, so I’m happy to wait.
And although I have rent control, I would still come out ahead in the rent vs buy analysis if my place were at market rent. It’d rent for 3000-3300 in this market; a similar flat would cost at least 900k-1 mil in this “down” market. At those numbers, buying doesn’t pencil out.
Scurvy – you’re right. I have indeed seen nothing more than the bull market as a Realtor. But I grew up in San Francisco and watched my parents kick themselves over and over for not buying real estate when it was on the downslope. They had an opportunity to buy a home – an Edwardian in the Inner Sunset that sold for $180K in 1981 that is worth well over $1.2M today. The market hadn’t even tanked at that point and in fact was still falling. They were waiting for the right time to buy, and then they kept waiting LONG past when the market hit bottom and then started on its way back up. They didn’t end up buying ever, but both ended up remarrying spouses that owned real estate.
Regrets? My parents certainly had them – because they had the opportunity to buy at a fair price, and chose not to – but as priced started going up again, they were priced out of the market. Had it not been for their respective new spouses, neither would have owned a home in SF to this day.
JD – Your story is different. If you were to find one of those rent vs. buy calculators online – the calculators would tell you to stay put. An aquaintance in a similar situation that lived in a 5BR Victorian flat for over 30 years and pays about $600 a month to this day has bought and paid off a vacation house in Northern California while renting. In fact, the property taxes alone on a place would be more than her rent (and would be close to your rent).
JD – rental control was not meant for people like your acquaintance in the victorian 5-br. in fact, people like this helps make the rental market suck as it is and help rightwing nuts hate liberal legislation.
oops, comment was meant to Luba – sorry ’bout that….
I rent in the Sunset and plan on buying here. I rode my bike through the neighborhood (outer sunset) on Sunday and hit 5 open houses. I saw exactly 3 other people. A year or two ago you couldn’t make your way through a Sunday open house for the crowds.
Personally I believe it will get worse before it gets better and while I think you are right, there are real opportunities out there, a year from now will be even better for buyers.
2005-2006 prices were predicated on suspect loan arrangements for first time buyers. With cheap credit all but gone (along with unqualified buyers), prices in SF have a way to fall.
I’m happy sitting on my “behind” for now. Catching falling knives has never been my sport.
Renter – I agree with you 100% on the rent control issue. Frankly – my aquaintance frustrates me because essentially, she is forcing a property owner to subsidize her lifestyle (which includes a vacation home on Northern California). I feel like rent control (at least in the form in which we have it here) actually artifically inflates rents to a level above where they should be. Alameda, for instance, doesn’t have rent control and you can find a 2BR apartment there for about $1200 cheaper than you can in San Francisco. While not being in the City accounts for SOME of that difference – rent control (in my humble opinion) accounts for the other portion (likely the greater portion). Would I do the same if I were in my aquaintances shoes? Nope – I would have spent my money in the City and been sitting pretty here since she bought her home in the late 1990’s and would have likely doubled her investment here in SF by now. (And no – I’m NOT saying you will double your investment in 10 years – the “boom” years brought prices up quicker than ever and in HER case, she would have made much more on an investment here in the City than up North).
And Slim – I’m wondering which open houses in Outer Sunset you went to? Were these places that were prices incorrectly to begin with? Have they been on the market for a while? I live in the Outer Sunset too (out on Great Highway) and have several clients that have purchased or want to purchase out here, and in most of the cases (actually all of the cases recently) we have faced multiple offers and have either been outbid, or have paid between $50K-100K over the asking price to get the property. I know there are places in Outer Sunset that are overpriced for what they are – and those SHOULD have (at most) a handful of people looking at them since the experienced and qualified buyers should be out looking for realistically priced properties – and not going along with a sellers delusion of what their property is worth. (And believe me, I’ve met plenty of sellers that are delusional – I just choose not to work with them, period.)
From the comments I’ve gotten – it seems like people are still waiting for the market to bottom out in San Francisco. But “experts” have been predicting the bottom of the market for years now, and it just still hasn’t come about. Certain neighborhoods have been hit – but as I’ve said, the prices in those areas reached ridiculous heights and were due for a correction. And like I’ve also said before, there aren’t really any “bargains” out there right now either – but you’re not up against 25 other buyers that are all desperate to get their hands on ANY home on the market and willing to donate a kidney to the seller to get it. You can shop a little more leisurely for a home, find the one that’s right for you, and make a reasonable offer.
Essentially, it sounds like fear is what’s keeping people from jumping into the market now. It’s a fear that if they act now, they’ll somehow lose a ridiculous amount of money on their investment. And like I said before, fear kept my parents from buying a home that would have earned them more than 600% on their investment by now!
If you are looking to buy and hope to own your home for the long term – you really can’t go wrong buying San Francisco real estate. And my guess is that the state that the market is in now will remain the state for the next few years with normal appreciation (3-6% per year) and no drastic depreciation with a few exceptions in parts of District 10 and parts of District 3.
I do like the “falling knives” analogy though. I’ll wait to see if my predictions end up getting me cut.
Paa – Sorry for the late response to your comments but I wanted to run some numbers before I commented. Ginnie Mae has a Buy vs. Rent calculator that can be used to determine whether it’s a smarter investment to buy or to rent.
So I compared renting for $3500 a month or buying a $900,000 home with 20% down (taking into account a 7% interest rate and 4% annual appreciation which is LOWER than historical appreciation in California – which is closer to 6% annually). After taking into account taxes, etc. the calculator states that:
AFTER JUST 5 YEARS you’ll actually SAVE $106,638 BUYING
AFTER 10 YEARS you’ll actually SAVE $352,466 BUYING
AFTER 30 YEARS you’ll SAVE $1,841,400 BUYING
I mean I get it – you think prices will fall, but I have been hearing the prediction that this will happen for YEARS, and while the rest of the country is crumbling around us, San Francisco real estate is still holding on, and holding on quite well.
I’m not trying to push you off the fence – believe me. I don’t want people out trying to buy houses that are scared to death that the market will crash. But my parents waited for prices to fall too – and then when they didn’t fall and instead increased, they could no longer afford to buy a home.
My advice – if you CAN afford to buy (and by that I mean have good income and a minimum of 10% for a down payment, though preferably 20% – plus money in reserves for a rainy day) I believe that there’s no time like the present because I just don’t believe that prices in the neighborhoods that are desirable will fall.
hi luba,
the gnma calculator is interesting but flawed. It doesn’t take into account what you would be doing with that down payment otherwise, and a few other factors. Give this calculator a try and let me know what you come back with.
http://spreadsheets.google.com/pub?key=pM4Gw0s2zSeCXIvKktNGLbg
Mark – I just did the calculator you suggested…. I didn’t run it under too many different scenarios, but just did the 5 year scenario and you still come out ahead – but I haven’t figured out which number is accurate.
There is the loss on renting which is $159,700.29 (meaning you LOSE $159,700.29 by remaining a renter).
The other number is $241,249.44 and the spreadsheet just says if this number is positive, owning is cheaper for you – and in this case it is.
The thing is that according to this spreadsheet – you save even more by owning than the GNMA estimate. Looks like property owners still come out ahead.
Thanks for the calculator – I like it!