Is there any reason to buy in San Francisco in the next 1-2 years if you don't have to?

Asked by Kenneth Berger, 94110 Thu Sep 27, 2007

Looks like experts are saying that US real estate is expected to fall for at least the next 1-2 years. I have the opportunity to buy a great place now, but I have trouble seeing why I wouldn't just wait for the market to bottom out--even if I'm planning to hold for the long-ish term.

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Carlos Carba…, Both Buyer And Seller, San Francisco, CA
Sun Apr 5, 2009
Hi Kenneth-
Do you see a pattern here? All of the real estate professionals are going to tell you now is the time to buy. They were all saying the same thing 6 mos ago. That's OK. Their job is to help the market move houses regardless of the economic conditions and that is an integral part of the housing market.

I would advise talking to buyers and, more importantly, sellers to gauge what is going on in the neighborhoods you are interested in. The real estate pros on this site all know that prices are going to continue to decline in the near term in SF on average (and yes there are a few select areas excepted from that) but most of them aren't going to proactively talk about that because they know that it just helps potential buyers (like me) do what most of us are doing:

watching, waiting, looking to see how much farther down it goes
1 vote
Joe, Home Buyer, 94102
Tue Apr 7, 2009
Good point Kenneth, I didn't realize that most of these comments are over 2 years old.

Anyone who intends to keep their property long enough need not worry about fluctuations from year to year. Provided you can afford your payments and never have to move or divest, I sincerely believe timing doesn't matter much.

I think your 1-2 year recovery plan is a bit optimistic, however, given that i do not believe the foreclosure rate is going to let up anytime soon. The attached graph illustrates that we are currently between the subprime and option arm mortgage "waves". While I agree things look to be stabilizing now, I feel it would be foolish to act in opposition to information like this.
0 votes
Kenneth Berg…, , 94110
Tue Apr 7, 2009
These answers are amusing to see since I bought about two months after I asked this question in 2007. I got a sweet deal and love the place so I have no regrets--it's still hard to find high end finishes (Mission loft, concrete floors, countertops) for under $500K in SF. I might have trouble selling at my buying price right now, but I'm not that far off so I expect I'll be back in the black within a year or two. Just thought I'd provide an update...
0 votes
Peter Brunton, , San Francisco, CA
Mon Apr 6, 2009
Hi Kenneth,

Well, it very well might be true that the market has another 5-10% to drop. We have started to see moderate stabilization, but no none can really predict the future in housing and whether we will ever see significant price appreciation again.

However, those same financial experts who agree that we are 1-2 years away from a bottom also predict that long term we are looking at significant inflation levels which should in turn lead to higher interest rates.

If you have a 700k loan now at 5% interest then you are paying a monthly mortgage of $3757. If you have a lower loan amount of 650k because of price depreciation, but are paying 6% interest then your monthly payment is $3857.

This combined with the fact that there are federal and state tax breaks for buying show that this could very well be one of the best times ever to buy.
0 votes
Sylvia Barry,…, Agent, Marin, CA
Thu Sep 27, 2007
Yes, the bay area, especially San Francisco and a few selected towns are in a micro housing market. They have always been and they will always be in that kind of market - hold it's own. Especially in the places considered a good location, where I don't know if the price will ever drop. Very basic - supply and demand. S.F. is just such a desirable place to live, coupling with great job market, housing just won't go down much in S.F.

If you wait for a couple of years, you will be paying the rent (for a house, $3000/month easily), that's $72,000 out of pocket for two years, and no tax deduction. How much will the house you are interested in buying have to drop to meet that?

Numbers can be interpreted in many years. One good example is the foreclosure rate in Marin. The headline is that foreclosure rate doubled in Marin from last year. The reality is we used to have 102 foreclosure a week, now it's 2-3 foreclosure a week. 100% but only one more house So, the effect from foreclosure will not be as much. ..

I would not wait if I can afford it. Just make sure you buy the best house your money can buy in the best location. You will also be able to put money into the house to fix or decorate it the way YOU wanted to and see the value appreciates due to both the outside influence and the efforts you have put in.

0 votes
Mike Simonsen, , Mountain View, CA
Thu Sep 27, 2007
Hi Kenneth - why would you ever "have to" buy? No one knows what'll happen in the next 1-2 years, not even the "experts" (maybe especially not the experts!).

I can tell you that in the short term, there aren't a lot of catalysts that'll drive prices higher quickly, so you have the opportunity to wait till you find the perfect place. But it sounds like you might have found that place already.

So if you have the right place for you, and it's a place you can afford, are you really going to try to "time the market"? Maybe in a few years, the market has dropped, but your favorite place is gone? What then? Will you be happier?
0 votes
Rob Moffatt, Agent, San Francisco, CA
Thu Sep 27, 2007

By definition, we are in a Buyers market now. Will it be a better Buyers market in six months or a year? It quite possibly could be. Keep in mind, there are quite a few buyers out there waiting for that perfect moment to get back into the market. When the crowd has decided the right time has come you will find yourself competing for, and possibly losing that great home you really wanted.

As a buyer now you can have comfort in knowing you are buying at a time when the buyers have the upper hand. My advice is get out there, shop around, a grab that dream home you have always wanted! Then when the market has definitively bottomed out and the buyer crowd is competing to be the highest bidder, you can sit back and enjoy that fact that you've already got yours.
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0 votes
Jed Lane, Agent, Petaluma, CA
Thu Sep 27, 2007
If you have the means to buy now you should buy now. Interest rates are good, remember that interest rates can have a large impact on your purchasing power and they could go up significantly. If they go down you can refinance but if they go up you’re stuck. Tax advantages and the fact that San Francisco is one of the few places in America that is recognized as “bubble proof” (Todd Sanai, Wharton School of Economics)show that if you are going to buy and hold don’t hesitate.
Talk with your Realtor and discuss what you want to buy. If you plan on selling in the next five years I believe that a single family home will show a better appreciation then condos because of the increase in inventory in condos that is going to happen over that time period.
If you want me to send you the article I referenced let me know. I have it as a pdf on my desktop.
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0 votes
Mary Fenton, , San Francisco, CA
Thu Sep 27, 2007
Hi Kenneth. The first thing you have to realize is that San Francisco is a very unique market. Although prices have dropped nationally, they haven't in San Francisco. Some neighborhoods in SF have seen slight price decreases, but the more desirable neighborhoods have continued to appreciate. It is true that we will continue to see the effects of the credit crunch for some time now, but I believe it only means a slighly softer in market in SF as opposed to prices dropping. Especially if you are considering to hold on to your property for the long term, I wouldn't wait.
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