Why are Bay Area homes so expensive and will they keep their value?

 

The top question I get asked by people from out of the area is real estate in the Bay Area so expensive and why haven't prices fallen much as a result of the tech slump.  Here are the factors that I believe will continue to support current home prices.

 

  1. The weather - As many of you know, the moderate temperatures of the Bay Area simply can not be found anywhere else in the country and that factor causes people to want to stay here or make them want to move here.
  2. Lack of new homes - Unlike other areas of the state, there is simply no where to build a significant number of new homes on the peninsula.  Thus we have a simple situation where supply can not meet demand.  Statistics have shown that the Bay Area is underhoused by 20% and that figure is unlikely to get any better anytime soon.
  3. Continued immigration - Although this trend is not as high as during the Internet boom, the Bay Area continues to be one of the top destination for new immigrants.  Typically these immigrants have specialized skills which allow them to earn a high income and buying a home is one of their first priorities.
  4. The fall of the stock market - With the uncertainty of the stock market, real estate has become the preferred investment vehicle for many wage earners. With its built in tax advanatges, many people are pouring the money they used to use put in the stock market into real estate.
  5. High construction costs - With the high demand for general contractors and spiraling workmen's compensations costs, the average cost to build a home is close to $300 a sq ft.  So to build a new 1500 sq ft home, the costs are around $450,000 and that does not include the cost of the land.  In contrast the average cost per sq ft to build a home in the rest of the country is closer to $100 per sq ft or less.  Thus no matter where you  put a new home in the Bay Area the costs start at close to $500,000.

With this all being said, I believe that home buyers who have a 4-5 year outlook on living in their home, will be very happy with the appreciation that they will see when it comes time to sell their home.

If you would like to discuss how I can help you get the best home for the best price, please contact me at 408-861-2440 or email me at brian.chew@cbnorcal.com 

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