Fantastic real estate investment opportunities are available in the San Francisco Bay Area.

The declining U.S. housing market with the resulting foreclosures have resulted in a large inventory of bank owned properties in the greater San Francisco Bay Area. These properties represent the type of investment properties that foreign investors have been hoping for.

The U.S. real estate market is one of the most sought after investment opportunities for international buyers. Today’s bargain prices in the San Francisco Bay Area is resulting in more and more foreign investment activity in the Bay Area housing market.

One Realtor in the East Bay community of San Ramon recently announced she had a Chinese investor arriving in a couple of weeks that was interested in buying up to 100 homes in Antioch and Brentwood, CA.

It seems every street in Antioch and Brentwood has at least one home for sale on it. In some of the neighborhoods we have been through, you find 4 or five homes for sale on some streets. Many of these properties are vacant and bank owned.

The situation is far from over. You can find continuing signs of more homes going into the foreclosure process. Lawns are dying and home maintenance is suffering.

Homes that sold for $800K+ a few years ago are now being priced in the $300K range. Rents are rising and this is increasing the potential for positive cash flow investment properties in the East Bay Area – something very hard to accomplish with the high property values in California.

Some golf course homes in Brentwood, Ca. are listed at prices that reflect almost no appreciation for the past several years. These are great buys for waiting for golf enthusiasts. Our recent tour through Antioch and Brentwood, confirmed our belief that these communities offer great retirement opportunities for baby boomers in San Ramon, Danville and other I-680 corridor communities.

We wrote about: Now is the Time to Buy that Retirement Home

Antioch and Brentwood represent a perfect buying opportunity for young couples looking for their first home. Housing this affordable is hard to come by in the Bay Area. The housing market will recover and when it does, the same affordable housing dynamics will push property values in Antioch and Brentwood back up.

When BART extends into Antioch, this will bring more upward pressure to home prices in the area. Population increase in the area is expected to be in excess of 40,000 in the next 20 years.

When the bottle-neck on Highway 4 in Antioch is removed, another positive factor for home value increase will be in place.

All-in-all Antioch and Brentwood currently offer some of the best real estate values for buyers and investors in the Greater San Francisco Bay Area.

Renting vs. Owning Your Home

As the housing market continues to evolve in today’s economic climate, we are noticing three important pieces of information:

• Home values are coming down
• Interest rates are dropping
• Rental costs are increasing.

As I would have argued even during the “peak” of the housing market that owning is better than renting, that argument is even more definitive these days.

As a renter, you have the rental cost itself. You may also have additional utility costs such as PG&E, water, and telephones. But if you owned a home, you would have similar utility costs associated with the home, so I will leave those off the table for our comparisons.

So here is the question, is it better to rent a place for $1,500 per month, or buy a place for $325,000? Your rental amount will have annual increases based on cost-of-living adjustments, so let’s call that 3% per year. Your purchase option will have many variables, so I will need to state some assumptions. As much as the lender would like to see a 20% down payment, not everyone has that much available. So to be really conservative, I will assume just a 5% down payment.

Using today’s market rates of 5.965% APR and an even higher second loan rate, I estimate a total housing cost (including mortgage principal, interest, taxes, and insurance) of approximately $2,250 per month. That is an increase in monthly expenditures of $750. However, some of that increase will be re-captured in taxable benefits (mortgage interest is tax deductible, rental cost is not). Also, part of that increase payment is going towards the principle of the loan, which is building the equity in your home.

Lastly, if I assume some annual appreciation of your home, I won’t even use the 10%+ that we have seen historically. Instead, I will use just 5% average annual appreciation.

So how does it compare? Just over a 10-year period, your rental cost will amount to about $206,350. You will have built NO equity (except that of your landlord). In the same period, the equity in the home that you owned would have grown to over $270,000. Obviously, the home purchase wins in that case.

But then you say “but I had to pay an extra $750 per month on the home ownership option”. Fine, let me add the value of a $750 per month contribution to an investment account to the renting option. Therefore, both sides are now paying out exactly the same dollar amount each month. Additionally, I will take the amount of the down payment and add that to the renters opening investment account. By using an average return on his/her investment of 5% per year (an aggressive number), that investment account could grow to over $143,000 in ten years.

But even then, a renter putting aside the extra amount he would have paid towards the increase cost to own a home is still better off owning a home. In this particular analysis, the renter may have wasted $206,350 on rent, but may have built up an investment portfolio of $143,000. The homeowner, however, has seen the equity in his home grow to over $270,000. Once again, a clear winner. There are a few reasons while the two scenarios differ greatly, which will take too long on this article to discuss. But they are caused by leverage, appreciation rates, tax benefits, to name a few.

Perhaps it’s time to start building your equity, not your landlords.

We are offering a complimentary copy of Your First Home to first-time buyers that book an appointment with us. 

Affordable housing is seen as one of the key challenges in keeping the Bay Area economy competitive with other international business regions.

Bay Area residents must allocate a significantly higher portion of their income to housing than elsewhere in the United States (26 percent vs. 19 percent) and the multiple of home price to income (10:1) is twice as high as the national average (5:1) according to the biannual Bay Area Economic Profile.

The report also says that the education of schoolchildren from kindergarten through high school lags behind other international locations.

Another factor soon to impact the Bay Area economy and local housing is retiring boomers in the next 15 years. A significant percentage of the population will be retiring and if things don’t change with housing, many of these retirees won’t be able to downsize within the region due to tax consequences and the high price of new housing. Many residents feel trapped in their home of 30 years where the mortgage is paid off and property taxes so low they don’t require and extra income to afford them.

Affordable housing, which is already a concern for first-time buyers and people relocating from outside the Bay Area, is going to increase in political significance.

In Spite of these Concerns… East Bay Communities continue to thrive…

Fortune Small Business magazine says Danville is in the top 100 places to live and launch a small business. The town's "many small companies" and "wealthy and well-educated population" earned it the No. 69 spot on a first-time 100 Best Places list compiled by the magazine for its April issue.

The article also cited Danville's growing number of home-based businesses and its close proximity to Chevron and other large corporate offices in neighboring San Ramon.

And in the continuing saga of the government doing too little too late…

The Housing Relief Bill passed the Senate today, but hold your applause. It appears that the final draft has economists in agreement that it does too little for the homeowners in trouble and are skeptical that it do much to ease the wrenching crisis in the housing market and the wave of foreclosures spreading across the country.

While supporters said the measure would boost demand for housing, help people refinance adjustable-rate mortgages and help communities beset with abandoned homes, many economists cautioned that the measure's benefits would be modest — and would help banks and homebuilders while doing hardly anything for people facing foreclosure.

"Basically, you're giving money to builders that overbuilt and banks that issued bad loans," said Dean Baker, co-director of the Center for Economic and Policy Research. "It's giving money to the villains in this story."

Kerry Wells, a teacher at Windermere Ranch Middle School, recently won two 100 year passes at the Santa Cruz, CA boardwalk.

Wells netted the passes as part of the boardwalk's centennial celebration contest, boardwalk officials said. She and her 12-year-old son will receive two free passes to the boardwalk every year for the next 100 years.

The passes are not transferable but can be passed along to heirs. So, her son will be able to take his child and perhaps that son will be able to take his child – if the boardwalk is around in 2107! 

I wonder what the value of those passes will be in a hundred years – or if San Ramon and California will have solved the affordable housing issues by then or if housing will be subject to a lottery drawing – Wells won the passes in a random drawing of over 11,000 entries.

Have First-Time Buyers Missed the Boat?

I'm hearing more and more reports about first-time buyer deals falling apart due to the tighter restrictions on loan qualifications. Buyers that could have qualified and purchased a home 2 months or even one month ago are now learning that they have a long way to go before being able to qualfy for a loan.

One recent example involved two mortgage brokers reaching out to about half  a dozen insitutions each. NO DEAL! A mortgage broker friend of mine reported that for the second time in her career, she was unable to fund a loan for a client.

Back in January and February before the supprime meltdown began, we were encouraging buyers to make their move. Prices had fallen, interest rates were good and there was a lot of inventory that had been sitting on the market. All of this had buyers sitting in a pretty good position and the more lenient lending guidelines of the salad-days were still in effect.

In addition to the tighter loan qualifications, first-time buyers face the mounting obstacle, in California, of affordable housing as we noted a few days ago in our Real Estate Industry News section with this item:

Bad News for First-Time Buyers - From the California Building Industry Association:

“California needs new homes in all price ranges, and given the ever-rising fees and constraints on housing, it’s all but impossible to meet the need in the entry-level market, where the need’s the greatest,” Rivinius warned. “Given California’s constant population growth of some 500,000 people a year, the state needs between 220,000 and 240,000 new homes and apartments every year just to keep pace. Unfortunately, we haven’t hit that level since the late 1980s, and unless major reforms are enacted at the state level to allow increased production, it does not appear that we will reach it anytime soon.”

More and more first-time buyers are going to be hearing the phrase No Deal. Real estate agents and mortgage brokers are going to be putting in more time and effort to wind up with No Deal. 

The old addage - You snooze, you lose - could apply here for some, but for most first-time buyers, it's a case of having had to wait for all the pieces of the puzzle to come together. Unfortunately, during the wait a very important piece of the puzzle changed dramatically.

The Harper Team works with many first-time buyers and we remain committed to do so. If you are thinking of buying your first home, don't wait until you think the time is right - start the process much, much earlier with education and information. Talk to an agent and a mortgage broker to find out where you are, where the market is, and where the industry is.