Bay Area .. the land of riches, the mecca of technology, the locale blessed with glorious weather & the brightest minds with the vast expanse of ocean to the west & the high ranging Sierras to the east, (supposedly nowhere else in the inhabited world the distance between sea & snow is so less), an incubator of ideas, a melting pot of cultures & the heartland of liberalism.
To this long list of sobriquets can be added yet another one, namely “the last bastion of stable Real Estate”. That statement can be quite contentious as epicenters of the real estate busts dot the landscape around the Bay Area, the state capital Sacramento, the hillside escape of Modesto & that disaster zone of Stockton to name a few . It is no secret that inland areas are bearing the brunt of the credit crisis & the unfortunate few who ventured out there to buy maybe a second or even a third investment property have been left counting their losses , but the strip of land constituting San Jose upwards into San Francisco still holds its own , on the other side of the Bay barring Fremont & a few pockets ,the sun of real estate never shone so bright to begin with as compared to on the coast , & the unfortunate Solano, Sonoma & Contra Costa counties can be classified as inland empires under siege which in boom times saw very significant appreciation .
But to just focus on Silicon Valley , if you have bought property here in the early part of the boom or during middle phase you can count yourself lucky for you are not afflicted by the nightmares homeowners in the rest of the country are experiencing . & from leading indicators it is going continue to be so. This is not to so say that Bay Area is forever immune to the vicissitudes of the housing market, but just that it better equipped to handle “down” times than most of the other parts of the country.
The first & the obvious reason is of course the local economy, the internet boom in the bay area is akin to the industrial revolution in the UK. Much like the later, the boom has empowered many to take control of the monetary destinies. More than many have cashed in & have comfortable cash cushions to not only invest but also gain throwaway disposable incomes. These silicon yuppies are not perturbed by the vagaries of interest rates or jumbo loans that others in the country think about or should think about. Thus the local real estate market in inextricably linked with the internet business , from all pointers the internet business is not in throes of recession unlike other market segments instead it still continues to still add jobs .
To use a technical term there is a “tight coupling” or correlation between the dominant industry & the region where it is based. The auto industry & their representative giants (Ford & general motors’) are facing unprecedented crisis, is it any coincidence that in some places in Detroit you can buy a house cheaper than a car? On the other end of the spectrum Google, HP,Ebay & slew of other companies are going great guns & so the fortunes of Bay Area is on the upswing .
To give a middling example Seattle home to a tech leviathans Microsoft & Amazon was (is?) one of the few markets where prices rose nominally in the middle of the credit crunch, now I would classify Seattle as not having such a great tech presence as the Bay area, but the point is obvious, have a little of progressive businesses watch the local RE do a little better.
Other factors are also at play in contributing to the resiliency of the local real estate. One of them which I think does not get a significant mention is Immigration which can be thought of as an offshoot of economic expansion. Think of Bay Area without the legions of Chinese, Indian or others from varied Diaspora who form the ranks of its IT workforce, without them surely real estate would not have exploded the way it did & the continued presence & growth of these communities further feeds the need for real estate.
Yet another reason for being bullish is that prices shot up so high that even a 10 to 15 percent of depreciation will allow owners to break even. Sure you will not be able to boast in cocktail parties about the imaginary wealth you made just by owning a home, but compare that with the plight of homeowners in Miami, as Vegas or even Southern California where an equivalent decline translates hugely to their net worth.
San Diego is a case in point , the appreciation there largely mirrored that of Bay Area, I remember it took off spectacularly in 2003 04 , but that is where it is swooning majorly & in the absence of checks & balances that Bay area has , is experiencing large scale depreciation .
There are factors like the non extreme weather, a friendly & welcoming environment that contribute in no small measure as well.
This is not to say the sun will never set on Silicon Valley Bay Area real estate. The internet economy might get a body blow, people might start emigrating because of consistently high prices & don’t forget it is also one of the most earthquake prone regions in the world. But if you pack off the Crystal ball, you can revel in the knowledge that you are safe for now & for some foreseeable future.
