I recently read an article about how the home market is creating a generation of renters.  Here in San Francisco there have always been a high proportion of renters. 

Apparently 33.6% of households are renters and that there are a total of 38 million household renters in the United States according to the Associated Press.  As more an more people are going bankrupt, facing foreclosures and facing unemployment, more and more people are turning to renting.  This is driving up the price of rentals in many cities throughout the United States.  I know here in San Francisco the supply for rental units in Pacific Heights and Presidio Heights is particularly limited with extremely low vacancy rates.

There is also a younger generation of people who no longer view home ownership as something desirable.  They have seen family and friends' home values deteriorate and are more and more turning to rentals.  The Associated Press' article stated that according to Moody's Analytics it is cheaper to rent in about 72 percent of the biggest metro areas than to carry a mortgage.

I came across an interesting Blog article this past weekend.  Basically it references several other articles and carts.  It can be summarized as follows:

• The latest Case-Shiller data shows that housing prices in the 20 City and 10 City composite measures are down by 32 percent from their 2006 peak and nominally the worst drop since the Great Depression.
• Household income is too low to support prices even at today’s new lower levels.
• The Housing Market is in a double dipping
• Housing prices were artificially kept higher through tax credits and the Fed intervention which made home buying cheaper by placing an artificial floor.  This has resulted in a non transparent  housing market where prices are no longer based on traditional supply and demand factors.
• There is also an estimated 7 million in shadow inventory basically properties that banks are holding back on selling as they would flood the market driving prices down.
• Moody's in 2009 feels that 2006 prices will probably not be reached again until 2020 or later.
• Prices are increasing driving down the amount of disposable income available to pay for housing resulting in lower housing prices
• Many of the actions currently taken by the Fed and Banks with regard to housing prices has been done to keep bank balance sheets artificially high.

To summarize the housing market prices are falling and will continue to fall in the near term as incentives for housing by the Fed are cut, more inventory is put on the market by banks and as people's disposable income available for housing decreases.

There was an interesting article in the New York Times a couple of weeks ago about Renting v. Buying.  What they did was they took the Sales Price of a home and divided it by the annual rent that someone would pay.  If the ratio came out to be less than 15, they concluded it was a good time to buy.  If the ratio came out over 20 they concluded it was a good time to rent.  If the ratio was somewhere in between it was debatable. 

Anyway this article seemed kind of fascinating so I thought I would share it.  It also pointed out that most of the Silicon Valley and the East Bay most property ratios are above 30 making it a better time to rent then buy. 

Although no formula I have found is perfect other than actually crunching through all the numbers ones self according to ones exact financial situation.  I did find this interesting and a good for ball parking if you are making the rent to own decision. 

In addition at a recent meeting of the INCOME PROPERTY MARKETING GROUP we discussed rents and for the Northern part of the city (where a lot of people want to live) the rents have gone up significantly and there are much less vacancies available.  If you are looking to buy often times the costs are 3X or greater in mortgage payments than rent.

According to the Wall Street Journal "Home values posted the largest decline in the first quarter since late 2008, prompting many economists to push back their estimates of when the housing market will hit a bottom."

During the first quarter according to data from Zillow, home values fell 3% in the first quarter from the previous quarter and 1.1% in March from the prior month.  The primary reasons for this were the oversupply of inventory and the large amount of foreclosed properties. Fannie Mae and Freddie Mac during the first quarter sold more than 94,000 foreclosed homes during the first quarter.  This represents a 23% increase over the previous quarter.

There had been appreciation of property values here in San Francisco, Los Angeles, and San Diego, but recently they have declined again resulting in a double dip. 

I recently attended a lecture from Carole Rodoni, who  is a highly regarded speaker author and advisor in the Bay Area Real Estate Industry.  She always has some great points and I always learn something new from her presentations.  One of the major points she emphasized was that the San Francisco housing market has a lot going for it:

1) Silicon Valley is Booming again and there has been a lot of job growth in companies such as Zynga, Facebook, and Google
2) There is a large number of people looking to live in the Bay Area and there is only a limited amount of land available
3) There are a lot of great universities such as Stanford and UC Berkeley where academics, researches, and alumni launch start up companies
4) Napa Valley and the wine region
5) Geography with bay views, hiking and outdoor activities which people like