Posted by Rich-CA on May 09, 2008 at 13:29:22:
In Reply to: 289,000 for a 2/1 WOW CHEAP! posted by Kenneth Hocking on May 09, 2008 at 10:11:38:
A 2/1, approx 960 sq ft, asking price $89k. Located in the Richmond flatlands. Bring flak vest and AK-47.
The 289k is NOT in my neighborhood nor any of the neighborhoods near us. Its in what we term the blue collar part of town. Since our area is the lowest income in the County, well.
The issue about SFR is that their prices are not driven by investor requirements. They are driven by owner occupants who do not think in terms of rent vs buy the way we do. That is the focus of my point here. When you have two distinct markets essentially competing for the same product, they tend to push each others prices higher. There is no way you can get a house here that will get you 0.75%, let alone 1%. There are some offsets. Property tax is lower, insurance costs (excluding earthquake) are lower (but then the primary value is in the land not the building, and as long as it does not slide into the ocean, the land usually does not need much replacing).
But we are talking about housing prices, not investing.
The salary issue is different. A very large percentage of venture capitalists work out of the SF Bay area. The venture they fund create competition for skills, which keep salaries up. The companies that try to obtain people at lower salaries either get (1) newbies out of school with no experience or (2) dinosaurs looking for an easy gig. I spent 2 decades as a hiring manager in the tech field and I can safely say that the only places in the US that ever competed with us in terms of high salaries for tech types were: NYC and Chicago. Chicago is now firmly behind us. A lot of the offshoring businesses are handled by proxies here in the SF area - whether its in India or China. A couple of reasons for that.
First, SF has the highest population of ethnic Chinese outside of Asia. Its a natural conduit for the kinds of businesses where work or product is being created in China. After all, you not only have to speak the language, you have to really understand the culture (my wife is from Hong Kong, so I know what I speak of on this). Additionally, we boast the largest Sikh temple outside of India in my own town. Many 1st generation immigrants from India here. Makes a natural fit for companies doing business with India. Especially since the laws and customs in India are even more fragmented and bewildering than China (worked for a guy who later went on to handle H-1B nurses from India).
Its the unique skill sets both in terms of the technical and in terms of the cultural that help keep this place ticking. Now if you try to attract that same talent elsewhere in the US, some will go, but I have had numerous friends return to the area because there were few to non who spoke their native language, people kept staring at them (its natural if you see someone who looks different than you to look longer that you would for anyone else - besides this is what they have told me), and the culture is alien.
In any case, I digress. Desire to live in a place IS reflected in the price you have to pay to get an SFR. And in an area where most SFR rentals are properties the owner could not or would not sell when they moved, the amount of influence of investors on prices of SFR is negligible. So when talking about the SF Bay area, SFR pricing is based on the market from owner occupants, not on investment criteria.
BTW: the apartment complex cap rate is around 4%. I can do better with an ING Direct CD. A little higher with no vacancies and lower with a 10% vacancy rate. For the life of me I cannot understand why they keep building the things. Same is true of all those empty office buildings in SF (actually, the new ones fill up pretty quickly - its the old ones that suffer).