If you’re in the market for a house or condo, first the bad news: real estate prices in the Bay Area are climbing,  as much as 16 percent over last year in some areas.

Real estate signs in front of homes for sale March 23, 2010 in San Francisco. Justin Sullivan/Getty
Photo by Justin Sullivan/Getty Images

“We did have a brief window of opportunity—or now it seems brief, it actually lasted quite awhile—during the housing downturn where we had, for the first time in years something approaching reasonable affordability in the Bay Area,” said Carolyn Said, economics and real estate reporter for the San Francisco Chronicle, on KQED Public Radio’s Forum show. “First-time home buyers could find a home in the $300,000 price range. [That home wasn’t] necessarily in San Francisco, but in Alameda and Contra Costa counties, and without even going way out to the outer edges of the counties.”

And homes prices in San Francisco dipped as well.

Affordability was “the highest we have seen in 25 years in 2010, early 2011,” said Rick Turley, president of Coldwell Banker for the San Francisco Bay Area.

This Golden Age of Affordability may have come to an end, at least for now. But here’s the good news: If you didn’t buy a home in the past few years, you only sort of missed the boat.

Low Interest Rates

An advantageous part of the affordability equation is still applicable in the form of historically low interest rates, according to Said. “[Rates] are still right around 3.5 percent, which is just amazing when you think of it,” she said.

“That’s a positive for people looking to buy a house. Their buying power is really more because their effective monthly payment is still going to be less, even if they’re paying a little more [for the property].”

In addition to low interest rates, there’s some other good news for would-be home buyers. The Federal Housing Administration still offers loans requiring relatively small down payments.

FHA Loans

“In order to have home ownership, you need to have a down payment, which people starting out in their careers often don’t have,” said Said. She said FHA loan are available with a “3.5 percent down payment if you have decent enough credit, and of course it helps to have a stable income.” A down payment of less than 20 percent requires the purchase of mortgage insurance, but even with that added cost, the low percentage required up front should make the initial plunge more affordable.


It’s also important to remember that the Bay Area is a diverse region, and with that diversity comes price range.

“We tend to roll things up as the ‘Bay Area’ in general, but we’re probably 30 micro-markets,” said Turley.

You may have missed your window of opportunity to own a house in San Francisco and Palo Alto proper, but there are still relatively affordable places in the Bay Area.

“More affordable neighborhoods are in Oakland, eastern Contra Costa County, and other parts of the East Bay, as well as in some San Jose neighborhoods,” said Jed Kolko, chief economist for Trulia, an online real estate company.

These places might not have the cachet of the Marina district, but they still offer many of the benefits of living in the Bay Area: good weather,  a decent job market and proximity to outdoor recreation.

And even if you have to pay a bit more to enter the market, chances are you still will get a decent return on your investment.

Still Time to Make a Good Investment

“Historically, since World War II, housing has appreciated … maybe half a percent or a percent ahead of inflation,” said Said. “And that is normal for our country. If you look at [the value of your house] going up 3.5 percent a year over the next 20 years that’s still a substantial appreciation.”

True, that’s not a doubling in value that earlier California generations enjoyed. But Said said that “given what’s been happening in Silicon Valley, with the tremendous demand for housing and the tremendous amount of money that is out there for people working at high-tech companies, the housing in Silicon Valley is not following normal economic paths. It is fueled by all this tech money and from that perspective, it’s perfectly possible that your house will run way up there.”

Finding a Place in the Bay Area Was Never Easy

If you should find yourself put on the spot about why you didn’t jump while prices were lower, you can always blame a lack of credit.

“One of the reasons why people haven’t been able to take advantage of the relatively lower prices and low mortgage rates during the past couple of years is that mortgage credit has been very tight,” said Kolko. “Banks have been reluctant to lend to people who don’t have high credit scores.” The new mortgage rules announced Thursday might encourage banks to be more willing to lend to borrowers who meet income and credit guidelines, he said, so that credit could become easier for some people to obtain.

And remember, San Francisco is a world-class city. Affordability here is a relative term.

“It’s as if God wanted the Bay Area to be expensive,” said Kolko. Not only does the region’s relatively mild weather attract people, but because the region is “hemmed in by the ocean on one side, the bay and the mountains on the other, there’s very little available land to build. The Bay Area’s not like places in Texas or other parts of the South where you can spread out in all directions.”

And there are other limits on building…

Regulations on building are particularly strict in the Bay Area,” said Kolko. “That makes it even more difficult to build new housing, both in the Bay Area and in much of California, and that adds to the high cost.”

So if you didn’t get around to buying a house when prices were low — take solace in the fact that prices weren’t ever that low.

If You’re in the Market For a Home in the Bay Area, Yes You Missed the Boat…But There’s Still Hope 11 January,2013Amanda Stupi

  • CP

    Taking a long view .. these “historically low mortgage rates”, courtesy of the Fed, mean home prices are artificially kept (much) higher than home prices should be. When America’s Financial Reckoning floods in upon all of us, and interest rates double to 7%, perhaps more (these rates are closer to normal levels), the value of those homes will have to drop substantially because the new buyers at that time, given highest payment they can afford, will simply have to pay a lower total price for the same house in order to pay a lot more total interest over the life of the loan. People today who downpay 15% might see all that equity wiped out a few years due to this effect. Really, the time to buy is when interest rates are high, and home prices corresponding lower: in future years, as rates falls, one can usually refi into lower rates, and enjoy the rise in the home prices if one must then sell and move elsewhere due to a job change, but one can never manipulate the market to inflate the home price itself. Most folks only live in their homes 7 or 8 years. So I advise we plan on that reality, not the fantasy that “this is the only home I’ll ever own”.

      • CP

        Sorry I looked over the article, there are distinct phases evident in the graph, and a lot of missing information. In 1945-1982 the relationship held true, an era of unprecedented expansion in homes, personal property, incomes, productivity, emergence of “home mortgage deduction”, and an era that had inflationary pressures and high inflation from about mid-1970s to 1982. During that time – especially in the final 7 or so years – inflation strongly drove up home prices, gold prices (in general, many “landed assets”) and interest rates as well. After 1982 the debt boom and cheap capital drove up the asset prices even faster, but rates fell steadily in the graph. In the current post-credit-boom environment there is downward pressure on most risk assets save for those kept higher (for the time being) by Fed Reserve-driven low interest rates (currently, home prices, and the stock market). Why downward? We are in an era of deflationary pressures (downward pressure on wages and prices due to the debt bust and also continued open international competition in merchandise trade). Going forward, the anticipated market discipline will increase rates on govt, increasingly a riskier borrower (we already now see tighter credit on companies and esp. individuals); this will force up long rates, but likely depress job and wage growth, meaning (even) fewer stable jobs at good wages. The typical buyer will not see wage growth, whether real or inflationary, sufficient to pay more, later, for the same house, however the mortgage is divided (interest or principal). And I maintain a maximum affordable payment has always driven most Buyer’s decisions at the margin, and now there is nothing to support the upward creep of home prices when Buyer X sells Home 1 and “trades-up” later to Home 2. Put differently, a rapid rise in long rates will translate into asset price declines (esp. high leverage assets), further hits to wages and job stability, and a relationship of rising rates and falling home prices. If the US experiences an economic renaissance (a historic one) the prior assumptions could crumble, but I don’t see coming.

  • listener

    The article says that if a home appreciates by 3.5% per year for 20 years “that’s not a doubling in value.” That is technically true, but it is awfully close to a doubling — with compounding, annual appreciation of 3.5% for 20 years adds up to a 99% increase in value.

  • dana

    What Ever. My credit score is 798, I make over 100k and have 20%+ down. I have lost out on more houses than I can even count ~10+ the past year to all cash offers. Cash is king. The corrupt part about Bay Area Real Estate is that even if you are the highest bidder, you won’t get a home if anyone offers cash – no matter how much out bid them. If you work hard and you have good credit and you want a house in the 300K range and you don’t have cash forget it. Then it flips and the same agent that sold it to the cash offer sells it representing the buyer and the seller of the flip. And that flip gets sold to people moving here from overseas that are also paying all cash. And to make it even more miserable, many of the larger apartment buildings in Oakland getting bought up in the same way are turned into Condos and sold a 3rd time! It’s nearly impossible to even find a rental in a semi-safe area of Oakland. The Bay Area will become miserable to many sooner than later.

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