To give a sense of just how quickly this has happened, its important to note that the current median price is a 32 percent jump from where its sat last year.

The phenomenon isn’t solely confined to San Francisco proper. Other Bay Area cities are experiencing similar surges in housing prices, leading the whole region to see a 22 percent increase in prices over the past twelve months.

This is great news for current homeowners thinking about cashing out and moving to the Bahamas. But for everyone else it raises two questions: 1. Where can I get one of those internet millionaire jobs I keep hearing so much about, and 2. Are we in the midst of the housing bubble?

According to a recent study by real estate brokerage house Redfin, San Francisco is one of the cities in the United States most likely to be experiencing a real estate bubble based on a host of factors ranging from the ratio of home prices to median household income, the speed at which prices are growing and the speed at which houses are sold after being listed on the market.

“The normal laws of economics don’t apply to the Bay Area,” Redfin CEO Glenn Kelman told HuffPost in April. “You could have huge unemployment numbers here and home prices would still go up because [the supply is so constrained and] there are enough people with limitless amounts of money who want to live there.”

Unlike the real estate bubble that triggered the Great Recession, the Bay Area’s newfound growth in home prices isn’t fueled by sketchy financing (“Do you have a heartbeat and signature? Here are the keys to this 12 bedroom estate!”). Instead, what’s going on is directly tied to the strength of the Bay Area’s largely tech-fueled job market, which is drawing an influx of wealthy people into areas where there isn’t enough supply to go around.

The reason for the Bay Area’s lack of supply is largely due to the aftershocks of the last bubble, which devastated the construction industry and led to far fewer houses being built to accommodate the region’s swelling population.

Some of that is starting to change–especially in San Francisco, where a construction boom is simultaneously creating new housing units after years of virtually nothing coming onto the market–but the new construction isn’t happening fast enough to stabilize demand.

While the Fed is helping to keep interest rates low, which makes buying a house considerably cheaper, the money coming into some pockets of the Bay Area is so great that it’s common for properties to stay on the market for less than a week and the majority of buyers are paying entirely with cash.

However, it’s not only internet millionaires acquiring scores of Bay Area real estate with mountains of cold, hard cash. The practice of house flipping–where an investor buys a property (often with cash), fixes it up and then sells it almost immediately to make a profit both on the renovation and the rising tide of the housing market–is back with a vengeance.

A recent analysis by RealtyTrac found the average gross profit for flipping a house in San Francisco last year was 23 percent over the original purchase price, making it one of the best markets in the country for flipping.

In February, 28 percent of all the homes sold in Santa Clara, San Mateo, Alameda and Contra Costa counties went to absentee buyers not intending on actually living on the property and nearly one third sold for cash.

“In terms of the added frustration to Mr. and Mrs. Typical Homebuyer, the investor coming in with cash is going to trump,” Coldwell Banker’s Rick Turley told the San Jose Mercury News. “Even at the next price tier, you’ve got these young wealthy millionaires buying their first home at $1.5 million, and they’re paying cash. That’s edging out the move-up buyer.”

Even so, there are many housing experts who believe what’s happening is healthy growth that’s sustainable over the long term.

“This is not a bubble,” economist Diane Swonk told ABC News. “We are regaining lost ground which is a game-changer for most households since their home is what they rely on for wealth.”

Also on HuffPost:

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• Sacramento, Calif.

  Year Over Year Increase: 42.57 percent

  Median Home Listing Price: $285,000

  Total # Of Listings: 2,962

• Santa Barbara/Santa Maria/Lompoc, Calif.

  Year Over Year Increase: 35.72 percent

  Median Home Listing Price: $699,000

  Total # Of Listings: 1,195

• San Francisco, Calif.

  Year Over Year Increase: 25.04 percent

  Median Home Listing Price: $749,000

  Total # Of Listings: 2,292

• San Jose, Calif.

  Year Over Year Increase: 23.53 percent

  Median Home Listing Price: $562,000

  Total # Of Listings: 2,035

• Phoenix, Ariz.

  Year Over Year Increase: 21.21 percent

  Median Home Listing Price: $200,000

  Total # Of Listings: 15,114

• Atlanta, Ga.

  Year Over Year Increase: 19.93 percent

  Median Home Listing Price: $179,000

  Total # Of Listings: 32,530

• Oakland, Calif.

  Year Over Year Increase: 17.22 percent

  Median Home Listing Price: $375,000

  Total # Of Listings: 1,911

• Seattle/Bellevue/Everett, Wash.

  Year Over Year Increase: 16.66 percent

  Median Home Listing Price: $349,950

  Total # Of Listings: 4,381

• Fresno, Calif.

  Year Over Year Increase: 16.28 percent

  Median Home Listing Price: $184,900

  Total # Of Listings: 1,949

• Riverside, Calif.

  Year Over Year Increase: 15.65 percent

  Median Home Listing Price: $229,000

  Total # Of Listings: 14,909

Article source: http://www.huffingtonpost.com/2013/05/29/san-francisco-median-home-price_n_3356238.html?ir=San+Francisco

Real estate returns are not rocket science.  Because they’re such a huge portion of the consumer balance sheet they tend to be tied very closely to wage growth.  Wage growth, by definition, is very closely tied to the rate of inflation.  That explains why the long-term historical return of real estate is roughly in-line with the rate of inflation.  But this survey from Zillow shows that real estate “investors” are probably still too optimistic.

I can see why these assumptions are attractive, but they are not quite what drops out of macroeconomic analysis.

Fundamental Upward Pressure of Prices

Wage growth, per se, shouldn’t drive housing prices. What we might expect is that wage growth drives rents and rents drive housing prices.

The wage-rent relationship, however, is not an iron law.

Matt Yglesias and Ryan Avent are famous for pointing out that rents – and hence housing prices – could be much lower in coastal cities if residents would abandon restrictive zoning laws. For example, Dallas and Philadelphia have roughly the same median household income, but home prices in Philly are much higher than in Dallas.

In general, if a fundamental driver – regulation, technology, preference – causes rents to eat up a higher portion of folks pay checks then rents and home prices will be higher.

To some extent the national rise in home prices is due to both technology and preferences driving more people to want to live in high rent areas like the Northeast Corridor.

Those same forces are leading some people to want to live in Houston, Austin and Raleigh-Durham, but because of looser regulation that simply translates into booming housing supply and a booming population rather than higher prices.

In addition, the relationship between rent and housing prices depends on interest rates – both the real portion and expected inflation. A house is like a utility company. Instead of providing power services, it provides shelter services and keeps you from having to pay rent.

Many finance folks are familiar with the rule-of-thumb that utilities tend to trade like bonds. Higher interest rates lead to lower bond and utility stock prices. Lower interest rates lead to higher bond and utility stock prices.

This is because – like a house – you are receiving a fixed stream of services over a long period of time.

Though this framing is kinda technical, most of these factors can be summed up in a really straightforward comparison: monthly rent vs. monthly mortgage payment for similar homes.

When the market is balanced the monthly mortgage payment should be slightly higher than the rental payment because 1) Mortgages get a tax break and 2) Traditional rate mortgages offer you the stability of a fixed payment.

Adjustable rate mortgages  (ARM) need to produce a payment close to or even below rent to be a good buy. That’s because you lose the security of a fixed payment and depending on the terms of the ARM you may actually be facing more payment volatility than with renting.

Trulia crunches the numbers and it looks like under their baseline assumptions its cheaper to buy than to rent in every one of the top 100 metropolitan areas in the United States.

In traditional hotspots like the San Francisco Bay area, New York City and Orange County, CA, the discount is low. Still this is a recipe for fundamentals house price appreciation.

Bubble Territory

If housing prices merely stabilized into a sustainable equilibrium with rents then the future probably wouldn’t be too dramatic. We would see a rapid shoot-up in home prices now, followed by a long period of little to no price growth as the Fed raised interest rates.

Rents would still be going up and monthly mortgage payments would rise with them to maintain equilbrium. However, mortgages payments would be rising because interest rates were rising, not because home prices were rising.

Eventually, the Fed would stop raising rates and home prices would start to drift higher and eventually home price growth would converge to rent growth.

Article source: http://www.forbes.com/sites/modeledbehavior/2013/03/25/the-housing-bubble-is-back/

Time to get a vacation house?

With the high temps and clear skies seen over most of the Bay Area the last several days, everyone is seen out and about enjoying the abundant sunshine and the great outdoors. It’s weather like this that make many people contemplate the idea of getting a second home, something that allows them to get away from the day to day of the Bay Area and get some fresher air high up in the mountains, down in the valleys of the wine country or along the coast and near a beach.

http://myislandbungalow.com/house.html

Looking for a beach house?

If you’ve been finding yourself heading out of town to the same place every weekend, whether it’s Tahoe, Sonoma or Santa Cruz, it may be a good time to consider making that leap into an investment in a vacation home. Like the primary residential real estate market, CNNMoney reported that the median price of vacation homes has been falling, based on a news release by the National Association of Realtors last month.

The median price of a vacation home was $150,000 in 2010, down 11.2% from a year earlier, the National Association of Realtors reported Wednesday. In contrast, the national median for primary residences fell only 4.5% in 2010, according to NAR.

While it may be hard to find a vacation home somewhat near the Bay Area close to the national median of $150,000, it may be easier if you head farther out. The average second home owner lives about 375 miles from their primary home, which is just shy of the distance from San Francisco to LA.

The typical vacation-home buyer in 2010 was 49 years old, had a median household income of $99,500 and purchased a property that was a median distance of 375 miles from his or her primary residence; 31 percent of vacation homes were within 100 miles and 41 percent were more than 500 miles.

http://homesinestes.com/distressed/

Wanting a mountain getaway?

One consideration for those on the vacation home fence is the possibility of using the second home as the primary residence sometime in the future, such as the retirement years. The NAR report mentions that 34 percent of second home owners plan to use their property as a primary home at some point in the future. In the meantime, there’s also the possibility of getting some help on the mortgage from rental income. Then again, it doesn’t appear that many of those who are in the position to afford a second home need any assistance with the monthly bill. More than a third of second home purchases – 36 percent to be exact – are purchased with all cash.

Are you considering a second home? Where and what’s going to get you to dive in?

Posted By: Jenny Pisillo (Email) | April 04 2011 at 02:10 PM

Listed Under: Second homes

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Article source: http://www.sfgate.com/cgi-bin/blogs/ontheblock/detail?entry_id=86319&tsp=1