I just had a nice little conversation with my neighbor who knows a thing or two about the financial world, grew up in San Francisco, had parents that grew up in San Francisco, is ultra conservative with most things, but extremely bullish about the San Francisco real estate market. He’s seen, and been a part of, the ups and downs in both our real estate and financial markets.
We got to talking about golf, kids, and of course, because I’m a Realtor, we talked real estate (seriously, everybody wants to talk real estate, I can’t escape it!)
[Woah! Earthquake!]
I was sayin’….we talked about the normal ups and downs, the mortgage crisis, whether I’ve been busy, and his theory that the home should not appreciate, it’s the land you need to focus on. Sounds pretty simple right, but then why does everybody focus so much on the asset that is the house (guilty as charged)?
Think for a minute about the enormous amount of over-building in places where homes didn’t need to be built. Places where there was already plenty of land (and homes) to supply the current population, and still more land to supply another 60 million people. Yet they kept building. It’s those places that are experiencing the most pain from this recent crisis. It’s places like San Francisco, Seattle, Chicago, New York City, to name a few that are experiencing much less pain. Why? The land. There isn’t any more, people still want to live in these places, and the only logical place to develop is up, but San Francisco is very strict about that. A piece of San Francisco earth is a limited commodity and they ain’t making any more.
We can talk details and numbers and all sorts of things, and we could argue that it is not that simple, but it really, truly is. Sure, our market has felt some pain, and we’ll surely feel some more, but deep down in your gut, do you really think it can/will last? And do you really think that San Francisco will see declines in the 30-40% range like so many parts of over-built America, where there is still plenty of land to go around?
Try not to let your thoughts drift to SOMA and the extraordinary over-development going on there. We could definitely see some big (short term) declines there, and my nemesis will certainly high-light those declines, but what about the rest of San Francisco?
I might not be making complete sense here, because I was not the teacher in this conversation, rather the apprentice, but certainly you get the gist…it’s the LAND stupid! N’est ce pas?