City living has so many pluses: fun neighborhood shopping, theater, music, abundant restaurants, and much more. Most people want to live in a “walk-to” neighborhood, where they can stroll down the street for brunch, meet a friend for a glass of wine, or walk the dog. However, these great amenities come with a price, especially in San Francisco.
Recently Leslie Apple-ton Young, chief economist for the California Association of Realtors, spoke to the agents of Hill & Co. Real Estate. She had many interesting statistics and facts to share, but one that stood out most was the widening gap between wage growth and home prices.
Nationally, between the second quarter of 2012 and second quarter 2014, home prices rose 17 percent, but wages only rose 1.3 percent. Prices rose most in markets attracting cash and international buyers — markets such as San Francisco. Most economists suggest that the housing markets with the largest “disconnects” between wages and home prices will reach a plateau in 2015, while wages catch up.
San Francisco is home to many Millennials (people aged 18–34). Most of the tech industry is comprised of people from this group. What do they think about home buying? In a recent nationwide survey, 44 percent said they did not think they could afford to buy a home. One can imagine the percentage would be even higher here in San Francisco, where the home ownership rate for this age group is down.
Though it is clear that home ownership is one of the most effective ways to build wealth, what can a Millennial do? San Francisco rents are high, as we know, making it even harder for Millennials to save for a down payment. This is where their Baby Boomer parents come in. Sixty-seven percent of their parents will use savings to help their children buy a home. Seventy-five percent of the Millennial home buyers surveyed said their parents’ help made it possible for them to buy. I have clients who fit right into this model. Parents know what I’ve already suggested: home ownership is the most effective way to build wealth. They know that helping their kids with the purchase of a home will do more than just put a roof over their heads.
Support from parents is playing an important role in the housing recovery. Without parental help, the pool of Millennial home buyers would be even smaller. It is expected that the desire to own a home for this group will pick up once they begin to form their own families.
Here are some other considerations: First-time buyers who are having a difficult time finding a home that meets their wish list should consider buying something that might not be on that list just to get started building equity and to take advantage of value appreciation. If you’re a first-time buyer and you can’t find something that you want to live in, you might consider buying an investment property. Or you might consider buying a duplex together with others, which could expand the number of properties you could potentially buy. If it’s a TIC building, when both units are owner-occupied, you could potentially convert to condominiums and add even more value to your net worth.
In addition to parents, there are other sources for assistance. If you are having trouble with your loan, you can contact the California Association of Realtors helpline at (213) 739-8383. It has helped save many loans and assisted in getting transactions completed. You can also get down payment assistance; visit downpayment.car.org to view the assistance programs.
My hope is that Millennials and others will purchase a home or investment property to begin building their wealth. There is no doubt that San Francisco real estate is expensive, but historically the returns have been generally spectacular.