San Francisco real estate is operating in a bubble only understood by venture capitalist running start-ups with no net operating income yet generating millions in funding phases. Sell the sizzle and not the steak. The gold tech rush is in full swing. San Francisco real estate makes Southern California housing look like a timid and shy teenager in comparison. San Francisco County has about 850,000 residents (compared to Los Angeles and our 10,000,000 residents spread out across a massive amount of land). We do share one thing in common and that is both counties are heavily dominated by renting households. But in San Francisco renting is by far and away the most common form of living (63% of households rent). One thing that is standing out is how out of control real estate prices are in San Francisco. The latest report shows that the median home price is now selling for more than 34% from the previous bubble peak! You have to see the actual nominal numbers to see what is unfolding.
The latest Census figures show a very dismal situation for the housing market. The US homeownership rate has plunged to a 48 year low and the pipeline for future buyers is simply not materializing. We’ve noted that in places like California the big push in prices has come in the form of big investors, foreign money, and the ever present flipper brigade. Yet this trend is not only a coastal phenomenon. Contrary to stucco box sarcophagus loving boomers, the US does not revolve around Southern California. Big shock, I know. Large metro areas around the nation are following a similar path. The next generation of home buyers are priced out and many are viewing homeownership as a lofty if not impossible goal. Rents continue to rise and thanks to the big buy by large investors over the past few years, inventory has been siphoned off the market and regular families have been left in the lurch. We are quickly becoming a nation of renters.
Venice is an interesting place. I’ve always enjoyed the unique atmosphere and it can be argued that Venice was one of the leading hipster enclaves in Southern California. It was cool before it was cool to be cool. Similar to San Francisco, old homes are being sold for ridiculous amounts of money. We recently featured a home in Venice that had 0 beds going for over $1 million. That is how crazy things are getting in SoCal. But there is definitely more of a feeling of “get out at the top†versus “I’m buying to ride some more appreciation†sentiment. Venice has gotten wildly expensive. Even just a few years ago visiting friends in Venice you were entering questionable neighborhoods where it didn’t seem safe. But hey, who needs safety when you can live the life of luxury in a crap shack? Is it any wonder why there is a steady migration out of California by the middle class? Let us take a look at a home in Venice and get your thoughts on it.
I’ve talked about the reality that many native Californians have been leaving the state in droves over the past decade. Many are moving to lower cost areas much to the dismay of locals in places like Texas. The California effect has impacted many areas in the Southwest driving real estate prices higher. An interesting article popped up in my feed this week about the top 20 areas where Americans are ditching. No surprise, the Los Angeles metro area is right on the list. Reasons for people leaving the area? Ridiculous housing prices and people not wanting to live like sardines and pretend they are living the highlife. The poser crap shack buyers are somehow deluding themselves thinking that all of this is sustainable and good for the economy but all it does is recreates a favela like atmosphere. The LA/OC area is already the most expensive in the nation relative to incomes and home prices. You would think San Francisco and New York would lead the list but people in those areas actually make higher incomes overall. Let us take a look at this trend more deeply.
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