San Francisco housing market near bubble risk according to UBS report. Majority of Bay Area renters plan to leave.
The San Francisco housing market is the most overvalued market in the United States. People over inflate the market because tech is sexy and cool and many are chasing the next Google, Amazon, or Facebook. Everyone wants to strike it rich with as little work as possible. And what better way to do that than in real estate? In San Francisco the typical crap shack will cost you $1.2 to $1.5 million. The response from many housing cheerleaders is the typical logic you see in manias – hey, someone paid for it! You also get similar stories from the tulip bubble, dotcom bubble, and other bubbles where the justification for higher prices is simply that some other sucker paid for it at that level. And there is now signs that we may be in a rental bubble in the Bay Area. 83 percent of renters surveyed in the Bay Area said they plan on leaving. Tie that in with the UBS Global Real Estate Index showing that San Francisco is dangerously close to bubble territory and you have indicators that something is rotten in SF.
Riding the tech wave
Some people understand the business cycle and the waves that ripple through our economy. The housing market and economy has been booming since 2009. People forget that recessions happen. And now that we have added millions of renter households with higher rents, what happens when that next correction hits? While you can sit in a home and let it flow into foreclosure like many did during the housing crisis, there is a smaller window for renters should cash flow issues occur.
It is rather clear that San Francisco real estate is in a bubble. Even conservative UBS is showing that prices are inflated:
But our neighbors to the north in Canada are taking it to another level with their housing bubble. It is nutty how obsessed people are with real estate in the Bay Area. People are drinking the Kool-Aid by the gallons. For those that own, you have a confirmation bias occurring and who could blame them? If you owned a piece of crap house and suddenly Zillow gives you a $1.5 million Zestimate why wouldn’t you believe it? I suppose you should never ask a barber if you need a haircut.
Renters clearly think something is wrong since many are voicing their displeasure and have plans on leaving:
So why are many staying? Jobs. The Bay Area has high paying jobs and people like the wages and will accept living like sardines for that salary bump. People need to take into serious consideration cost of living when they move to an area. What use is a high salary if you are chained to a cubicle pumping out lines of code, leave work to get stuck in mind numbing traffic, and only to arrive to a toaster sized box to knock out? I’ve known people moving to places like New York earning good wages only to realize they have entered into a trap – those wages can only buy you so much real estate in certain markets. You want a big McMansion then you need to broaden your horizons or increase your paycheck. That all works well as long as the system is humming. And what is keeping the system humming right now? Apps that can deliver a Big Mac to your house while you binge out on 20 seasons of random shows? We are in a market of saturation and people need to think outside the box.
The Bay Area is great in terms of generating the next big thing. People are focused on tech and there is something alluring about putting together some great code, packaging it into an app, and suddenly becoming a wealthy individual which allows you to buy things in the real world. Things like real estate.
Prices are sizzling in San Francisco:
So get that down payment ready for your $1.5 million hole in the wall in San Francisco.Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information