The Bay Area among top 10 markets for 2018

To predict the top 10 US markets of 2018, Zillow recently calculated the home value and rent for the 50 largest cities in the country, along with recent income, population growth, unemployment rates, and the number of job openings. San Francisco came in fifth, seemingly solidifying the Bay Area real estate forecast for the coming year as hot, simply, and revealing unsurprising news to many. “The tech industry continues to roar, attracting thousands of new residents per year to tech-dominant markets like Seattle, Denver and the Bay Area,” said Zillow senior economist Aaron Terrazas. “The higher cost of living in these areas is offset to a large degree by well-paying tech jobs.” The success of this offsetting, however, is debatable.

Bay Area real estate forecast: still a real investor’s market

The San Francisco Bay Area is among the most expensive and least affordable places to buy a home.  Only 30% of Californians own a home, and the demand for apartment rentals is getting out of control as the population of younger people with rising incomes grows. San Francisco happens to have the highest apartment rental prices in the US.

San Francisco Bay Area Real Estate Market Cycles

Although it may be a real struggle for renters and would-be renters in San Francisco, the real estate forecast for the Bay Area spells a continually stellar opportunity for real estate investors.

The average price of an existing house is set to increase 4.2% to $561,000 this year, compared with a projected increase of 7% last year. While half of Californians could afford the average-priced house when the recovery began in 2012, only 26% will be able to afford a detached, single-family home this year. Prices are getting too high for some buyers, while the number of homes to choose from is too low, according to CAR Chief Economist Leslie Appleton-Young.

Housing affordability near nonexistent in the Bay Area

The housing affordability rate has dropped 21% in 6 years, meaning that for many, the key real estate forecast for the Bay Area is that people have to pay whatever the market demands. Homes in the San Francisco Bay Area led in selling above asking in 2016 (67%), so anyone selling a home in the Bay Area who does not consider an above asking price strategy is losing money. Any investor’s goal should be to achieve the best ROI.

The recent news about a Palo Alto commissioner Kate Vershov Downing quitting her job because it’s too expensive in Palo Alto embodies perfectly what the Bay Area real estate forecast means for many residents. Downing and her family had to relocate 40 miles away to Vera Cruz. “We rent our current home with another couple for $6,200 a month,” she wrote. “If we wanted to buy the same home and share it with children and not roommates, it would cost $2.7 million, and our monthly payment would be $12,177 a month in mortgage, taxes, and insurance. That’s $146,127 per year — an entire professional’s income before taxes.”

Housing gridlock?

The Legislative Analyst’s Office found that California’s coastal metros take about two and a half months longer to issue a building permit compared to inland communities or the typical U.S. metro,” which contributes directly to what many are calling a “housing gridlock.” According to a new UCLA Anderson Forecast, California is unlikely to be able to build enough homes in the coming years to put a dent in soaring housing prices. This holds true for the Bay Area in particular, where it would likely take the area’s major metros between 14 and 36 years to even roll back prices even modestly. “We find that to obtain a modest 10 percent reduction in price requires a little over 20 percent more housing,” says the forecast.

Real estate forecast for the Bay Area: a lesson in cycles

The Bay Area real estate forecast has been calling for booms, busts, and crashes, and then cycling back around for decades. Indeed, it’s not news that financial-market cycles have been around for centuries. So regardless of how the current real estate forecast for the Bay Area looks if examining the cycles of the past tells us anything, it’s that predictions are just that—predictions. Yet one thing is for certain: for the past 30+ years, whatever the phase of the cycle—up or down—while it is happening, people think it’s permanent.

But for now, investors, home flippers, construction developers, and small builders can find lots of ways to turn an extreme profit in the Bay Area if they play their cards right, and those with high-paying jobs can still find a place in the sun.