Is the Bay Area losing a bit of its luster for real estate investors?
Stretching along the peninsula southwest of San Francisco Bay, Silicon Valley is the epicenter of the technology universe. And like moths to a flame, the best and brightest are attracted to the area to be a part of the leading edge companies headquartered there.
Lately, though, it seems that some of these techies are changing course and flocking to new “innovative” U.S. cities. For real estate investors, this is a trend well worth noting… because where the workers go, the real estate industry follows.
“After years of being overrun by new residents drawn by a red-hot economy, the number of people moving out has begun to catch up with the number moving in, new census data show,” reports the San Francisco Chronicle.
Is the uptick in people bolting from the bay area a trend, or merely a passing phase? And what are the key drivers behind this regional restlessness?
Firstly, the bay area has an oversupply of skilled works for the number of jobs available. Competition for high-paying employment is stiff for even uber-qualified individuals. At the beginning of April, the resume site Indeed reported that nearly 40 percent of Bay Area tech workers on its site were looking for a job elsewhere. In short, workers are turning to other, more attractive innovation hubs, where the competition is perhaps not as rough.
Others say the Bay area has become unlivable, meaning overcrowded and too much traffic… and has even seen a loss of culture. There is a sense that the city once heavily characterized by artists and eclectic communities has been altered by the tech takeover, and is now filled with homogeneous “tech bots.”
But the most obvious hot button issue is the rising cost of living in and around Silicon Valley. The median house price in the area hovers around the $1 million mark.
This driver is perhaps the biggest reason for the exodus— the inability of most people to purchase a home, put down roots and enjoy a balanced lifestyle. The bottom line is that San Francisco is a city full of renters, with too few able to buy property. With the most recent tech boom, many are losing hope when it comes to home buying.
“The key here is being able to afford to live in the Bay Area,” says Hans Johnson, a senior fellow at the Public Policy Institute of California. “Jobs and housing are really the primary criteria driving people’s decisions. It’s kind of a balancing act between the two. If jobs predominate, people are moving in. If housing predominates, you have less people moving in.”
James Billington, International Business Times, clearly outlines the issues: “Despite having a high number of tech giants in situ, the cost of living, high house prices and increasingly problematic traffic has caused some to seek new pastures.”
Bottom line? For many folks, the trade off just isn’t worthwhile anymore; they want to be financially secure, not living paycheck to paycheck.
As of June 2017, the top ten cities that have gained the most workers are:
- Seattle, Washington
- Denver, Colorado
- Austin, Texas
- Portland, Oregon
- Charlotte, North Carolina
- Tampa-St. Petersburg, Florida
- West Palm Beach, Florida
- Nashville, Tennessee
- Las Vegas, Nevada
- Dallas-Ft. Worth, Texas
And the top three cities that the San Francisco Bay area has lost the most workers to are Seattle, Washington, Portland, Oregon, and Austin, Texas—in that order.
One of Seattle’s biggest draws is more affordable housing. For starters, the dollar stretches further in Seattle, where the median home price in the metro area is $414,000 versus $834,000 in the City by the Bay, according to Zillow.
The allure of Seattle comes down to simple math: Workers there have the most money left over after paying for housing. According to Ashley Stewart of the Silicon Valley Business Journal, “A tech worker on average in Seattle keeps nearly 55 percent of his or her paycheck, or $5,500, after paying rent. Bay Area tech workers generally make more but have only 35 percent, or nearly $4,000, left over after paying rent.”
Sliced and diced another way, Stewart says, “Seattle technology workers who own homes have an average of 59 percent, or nearly $6,000, of their paycheck left over each month after making a mortgage payment. By contrast, Bay Area tech workers have an average of 37 percent, or about $4,200, left over.”
At the end of the day, the real question for real estate investors is, “Is this trend a blip on the radar, or a sign of things to come?” There is little doubt that Silicon Valley is still the undisputed home of technology. For proof, just take a look at Apple’s new circular-shaped headquarters, “Apple Park.” And plans are underway for Google to bolster its GooglePlex Headquarters.
And, while the U.S. Census indicates that roughly 80,000 people are fleeing the San Francisco-Oakland-Hayward area annually, 100,000 new residents are coming in annually to replace them.
After reflecting on your financial goals, the question is whether the Bay Area is a smart investment location for you. When you need an expert perspective, HomeUnion is there to help
Our Solutions Managers are available to lend you insight and information every step of the way. We put big data at your fingertips, along with local real estate experts, and the key research you need to invest in line with your individual goals.
Schedule a consultation with HomeUnion to learn more.