Never bet against BA housing.
Good analysis from Quora
As a lifelong Bay Area resident, employed in the tech industry since the 90s and a homeowner of a couple properties, I’ll provide my somewhat non-objective take here:
- The dot com bubble and implosion in the early 2000s didn’t impact the rise in real estate values in the Bay Area. While there was a noticeable outflow of folks who moved elsewhere, housing values did not go down.
- Housing values did go down during the Great Recession, most notably in “bedroom communities” (e.g. Vallejo, Fairfield, Pittsburg/Antioch and Tracy) a decent drive from the “urban core”.
- Prices in more desirable areas of the urban core (e.g. Palo Alto, wealthier areas of San Francisco, etc.) did also go down, but not as significantly as the rest of the nation.
- The amount of buildable space within the urban core, which was already limited to begin with, only decreases as time moves on.
- Tech has become an integral aspect of most everyone’s daily life for the majority of the residents of this planet.
The last point is the most important one IMO. I used to hear folks locally talking about how we’ve been in another tech bubble for way too long, and when the inevitable implosion occurs, housing values will go down similar to what happened in the Great Recession. When that happens, they’ll be ready this time around to buy properties for a fraction of their current values. My first response is to ask them this….“in 2001 after the dot com implosion, did you have a smartphone?”
Of course the answer is no. So the follow on question I then ask is “do you currently check your Facebook/Instagram/Twitter/online banking/Amazon/email accounts/news feeds/message forums on a regular basis throughout the day?” Usually by now, the light comes on in their eyes that life in 2018 and beyond is markedly different than life was in 2001 (dot com implosion) and 2007–2009 (Great Recession).
The next question I ask is “do you think companies in the Bay Area reporting net profits in the billions of dollars annually, such as Apple/Google/Facebook/Oracle to name a few, are going to wither away and die like the negative earnings dot com companies of the early 2000s?” Of course the universal answer is “no”. Following that up, I ask if they feel that well paid folks like software developers and IT engineers/admins are going to be laid off en masse, and the remaining folks will get paid in the 5 figures for annual salary instead of the decent six figure salaries that they currently receive. The answer is inevitably a “no” or “highly unlikely”.
I then ask if they believe that every economic downturn is as significant as the ones prior. For those who do feel that the next downturn will mirror the last one, I ask them how many times we’ve had a Great Depression and a Great Recession. While the mantra of “past performance is no guarantee of future results” is trotted out for predictions of potential positive upticks, I would argue on the flip side that history has shown that significant economic contractions are not as frequent as people believe them to be. It simply hasn’t been a bubble bursting every time there’s a downturn. IMO there have been “balloons”, which can pop or can also leak and lose air (both slowly and rapidly). Usually, people agree that’s been the case historically.
For the folks who still feel that the next downturn will represent a buying opportunity from a real estate perspective, I ask them at what point will they try to “time the market” (i.e. what percentage off of current values will prompt them to buy). The far majority of respondents have said “hmmm, that’s a good question, I haven’t thought of that”. There have been responses falling into the 30% to 60% range off of current highs. That prompts me to ask “do you think you’re the only smart person who is planning to buy Bay Area real estate whenever prices go down?” I then point out that besides the considerable numbers of individuals who have enough personal wealth to convert a portion of their investment portfolios to cash to be players in the real estate market, there are numerous nosebleed net worth individuals as well as huge institutional funds both domestically and globally that are also ready to swoop in should prices in the Bay Area decline by a certain percentage (my guess is no more than 25% off of current levels would trigger an influx of investor demand).
Tech is the industry most intertwined within every other industry of note on this planet, and unless you think that we’re going back to paper and moving away from automation, tech will continue to be an embedded part of billions of people’s professional and personal lives. The Bay Area is still the center of the tech universe. Combine that with a temperate climate, easy access to various types of nature pursuits (hiking, skiing, boating, fishing, surfing, golf, etc), plenty of cultural activities, top-notch educational institutions and a relatively open mindset to people from a variety of backgrounds, and you have a metropolitan area that will always be a dream destination for people globally to aspire to move to. Short of a calamitous natural disaster (ahem……earthquake) or a global pandemic (ahem….zombies), the demand to reside in the SF Bay Area will the far majority of the time be higher than the supply of affordable housing to accommodate