Part Two: Factors that underpin the San Francisco market

When last we met, we began to discuss the Paragon report titled 10 Factors Behind San Francisco’s Real Estate Market. Let’s continue to look at these factors, shall we?

 

  • High rents. It’s sometimes the smarter move to buy a home in San Francisco – given the multiple tax benefits, low interest rates, equity accrual and future appreciation – if your alternative is paying a ridiculous amount of rent without any of these benefits.
  • Low interest rates. In the decade between 1996 and 2006, 30-year fixed-rate loans averaged a 6.3 percent rate. As of year-end 2015, that figure was running about 4 percent. That’s a 37 percent reduction in the cost of financing, which makes a major difference in affordability as well as the ongoing costs associated with housing. According to recent Fed indications, many are expecting rates to rise in the future.
  • Renting rather than selling. These high rents and low rates have convinced some owners who would otherwise sell to rent out their homes, which is enhanced by the option to rent to tourists through AirBnB. Paragon has also heard from some owners that they are afraid to sell now, lest they or their children never again be able to afford to buy. Inventory is negatively affected by this since there are fewer listings coming on-market.
  • The work-there, live-here factor. This relatively recent development entails reverse commutes – people working or taking new jobs in Silicon Valley high-tech and bio tech, but insisting on living in the city. Witness the Google bus phenomenon for further examples of this.

 

We’ll conclude our look at these factors next time.18