What’s Ahead for San Francisco Real Estate. What a balanced market means for buyers and sellers. by Garey De Martini. June 2020. The March 16 shelter

Should I leave the Bay Area? I make a mid-six figure income and can afford an average house in an average neighborhood in the Bay Area. That said, would it be wiser for me to relocate to a locale where the cost of living to income ratio is better?

I’ve asked myself this question many times.   I find the current answers lacking so I’m adding my $0.02.

In your question, you only talk about the financial aspects of the question.  The more important aspect is “Do you like living here?”  There’s no doubt that you pay a premium to live in the Bay Area so is that premium worth it you?

A lot of the answers say your earnings potential here makes up the housing costs but this is false especially if you value living in a large fancy house in one of the better communities as odds are that’s out of reach for you here as it is for most professionals.  (I’m assuming mid six-figures is $150k not $500k).  If you relocate to another area (like Austin), you get that fancy house in a good neighborhood today.   The downside for living in the Bay Area is that even as “high” (by national standards) earning professional, most will live a lifestyle that when it comes to housing that is below what middle class people in most of the county get.

As for whether you’d earn less elsewhere, I’d ignore everything people say on Quora and go look at some actual data on Glassdoor.  I find for bigger companies the Glassdoor averages are quite accurate.  You’ll get a good idea of what to expect comp wise in the other areas.   This data also gives an answer to the question to about whether your earning potential makes up for the higher cost of living as you can look at the level you want to get to in your career and see what the pay differential is across regions for that level.

The other piece to keep is mind is that the Bay Area goes through boom and bust cycles.  We are in boom cycle.  A limitation of the human brain which is compounded by American culture is that people believe any trend that goes on for 2 years will last forever and is an invariant law of the universe.   As such, most people believe the current hot real estate market will continue forever here.  The long term trend is been up  but boom and bust cycles have been going on here for decades and it’s almost certain that in the next 10 years, there will be a period where housing prices dip.

Again, looking at actual data useful:

Case-Shiller San Francisco Index
S&P/Case-Shiller San Francisco Home Price Index

The San Francisco index is regional index including Alameda, Contra Costa, Marin, San Francisco, San Mateo counties.

Most people would be surprised to see that current prices are below the 2007 peak.  This is partially due to outlying areas seeing bigger declines and is not the case in places like Palo Alto.

However, in many more central cities in the area it took till 2014 for prices to surpass their 2007 peak.  And it wasn’t till 2015 that many properties exceeded their 2007 peaks adjusted for inflation.

If you decide to stay, the other question is should you buy now?  The 2008-2010 drop was abnormally large (and so was the run up from 2003-2007) but history indicates that there will another bust cycle where prices fall and the market is less competitive.

There’s two ways to look at the timing question.  One is that if you have a long expected holding period, you will come out ahead no matter what (especially if you don’t inflation adjust which most humans forget to do).  The second is that if you buy a down cycle, you can get a better house than you can buying near a peak, assuming you stay employed during the bust cycle.

I’ll come back to the question I started, “Do you like living here?”    Here you get sunshine, a very wide set of professional opportunities especially if you want to be part of a start-up, and California’s natural beauty.   You also get extremely high housing prices, every worsening traffic congestion and the feeling of being on a treadmill to afford your lifestyle.  Everyone is going to weight these factors differently.   Since you mention kids, the other question I’d ask you: “Do you want to raise your kids here?”   That consideration is likely the most important one.