It’s all about perspective. Sure, the 23 year old first year out of undergrad banker can only afford a $500,000 place, which is 200K below the median, but what is the median buying age? I would venture to guess somewhere between 28-32 for first time home buyers in SF. So, this 23 year old is 5-9 years younger than the median age.

You do realize that by the time this 23 year old finance person is 26, s/he will probably be making around $200,000-$250,000 right? And let’s say he/she meets another 26-27 year old making $80-100K, that’s 300K+ already at 27-28. You don’t think these people can afford to buy a million dollar place together? SURE THEY CAN! It’s not like they stop working at 27! Their biggest earnings power comes in their 30′s and 40′s!

Dave (13:19:54) :

Let me follow this up with an additional comment. Let’s take this fictitious investment banker who makes somewhere in the neighborhood of $10,000 per month. If you go to bankrate.com and plug in that income level into their mortgage calculator, do you know how much house that person can afford (using traditional calculations)? Assuming $100k downpayment, the recommended price is: $567,016. So if investment bankers with big sacks of downpayment cash can barely afford a place that’s 200k below median, how do you justify prices at their current level? Because it’s going to keep on appreciating at 20% a year, right? Because some dummy is going to pay me more next year. There will always be a greater fool, I suppose…

E.

If you’re talking good areas in SF, prices have continued to go up this year and +$1,000/sqft asking prices are now oh so common.

First of all, independent of what the median price is doing, the market is definitely softer. Volume is off by 20% since last summer, 11% in San Francisco. Volume is the lowest in 12 years. The buyers are evaporating before our eyes as easy financing starts to go away. (It’s currently only tightened for subprime borrowers, killing that market entirely.)

While we all like to believe our “investments” are safe here in SF, you cannot have prices drop dramatically in the East Bay and the Peninsula without that having some impact on demand here. Ultimately we are all in the same market because at “some” price, those properties become reasonable alternatives.

I know for a fact that prices are softer than they were three years ago when I bought my house. I regularly see single family homes in Bernal for under $700k. Those didn’t exist two years ago. I’m not saying that the sky is falling but it would be nice for all of us (homeowners and realtors alike) to be a little more realistic about the market. A $5m home selling for $100k over asking tells us nothing.

But after coming to appreciate the SF market and the underlying dynamics I now believe that the city of San Francisco will not experience these types of decreases. The caliber of buyer is much higher here and the ability of current owners to sustain a prolonged down market is better here than elsewhere. I do believe that certain outer districts that have boomed could see some downside (Noe, Bernal, Sunset/Richmond); and I strongly believe that sales activity could cool off dramatically if the overall real estate market tanks.

As a result, I do not see housing in SF as a good investment. And unfortunately, when the rent vs buy metrics are so out of alignment as they are here in SF, you can’t really accept the general axiom that you buy a house to ‘live in’. You are putting up to much leverage on something that is not likely to experience significant gains, and presents enough of a risk (and known transaction costs) that you have to make a good decision.

It’s one thing if you are rolling equity from another property, but if you’re a first time buyer or highly leveraging yourself into a property and counting on a positive return that you might question the need to buy now.

Eddy

[Editor's note:: For those that missed it, here is a very cool NYTimes interactive Graph that you may use to calculate whether you think it is better to rent or buy.]