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Is Now a Good Time to Buy a San Francisco Home?


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When is the Time to Buy a Home in San Francisco?

All our Bay Area real estate market analyses can be found here: Paragon Reports

Typically, the purchase of a new home is one of the largest financial transactions and investments of one’s life. Whatever home you purchase should work for you now, fulfilling your basic housing requirements at an affordable monthly cost. We also recommend that you keep a reasonable financial reserve, because challenging situations do come up unexpectedly in life.

Ideally, purchasing a home goes beyond the basics and even beyond being an investment: it is a home you love, a place of warmth, refuge and security for you and your loved ones, someplace you look forward to getting back to at the end of a long day, someplace that is yours.

Historically, though it is very difficult to predict cycles, San Francisco real estate has proven to be an excellent investment over the longer term. This is due to the advantages of leverage (the ability to finance much of the purchase); the potential tax benefits of home ownership; economic, demographic and geographic conditions in the city (there are limited options for increasing the amount of housing in our 7X7 mile city); and long-term appreciation trends. Real estate is also usually considered one of the best hedges against inflation.

And if one doesn’t “refinance out” increasing home equity (over-encumbering the property with debt), home ownership - as you pay down the principal balance on your mortgage month by month - typically acts as a “forced” savings account that can help build very significant household wealth (even before any home-price appreciation is built in). In addition, the $250,000/$500,000 tax exemption on home appreciation capital gains can supercharge the financial return when you do sell - the specifics of which should be discussed with your accountant or tax attorney.

However, let's be honest: If one has to sell during a downturn, the result can certainly be painful and involve considerable financial loss. Still, it is worth noting that the 2008 crash in housing prices was as bad as it was due to people buying homes they could not afford in the first place or refinancing money out of their homes, sometimes over and over again, to levels of debt impossible to service at fully amortized loan rates, often convinced by predatory lending pitches featuring hidden loan fees, misrepresented "teaser rates," and claims that real estate never goes down in value.

Here are some questions to ask as you consider buying a home:

  • How long do you plan to own the home you wish to purchase? Buying and selling in the short term always entails more risk, while longer-term ownership (5+ years) usually allows one to ride out a downturn, if one occurs. Looking at any 10 year period over the past 40+ years, it is hard to find one in which substantial appreciation did not occur in San Francisco.


  • Are current interest rates advantageous for buyers? Lower interest rates make an enormous difference in the ongoing costs of homeownership (and your return on investment). With a long-term fixed rate, you are guaranteed that jumps in interest rates will not affect your monthly mortgage payment.


  • It’s also worth noting that with a fixed rate mortgage, one’s housing costs stay relatively stable for the entire period of the loan, while rents typically increase, sometimes very significantly, over time. As the years pass, this can add substantially to the benefit of buying. Especially if interest rates are low, and inflation rates climb.


  • How does the cost of home ownership, with existing tax benefits, compare to renting? Link to NYT Rent vs. Buy Calculator

    Note: Because of the recent changes to federal income tax law, it is strongly recommended that you discuss your specific financial circumstances and plans with your accountant or financial planner.


  • How does owning compare in the calculation of building your financial assets over time? Especially as compared to rental costs which build no assets or equity. From a NYT article, Homeownership & Wealth Creation: “Renting can make sense as a lifestyle choice or because of income constraints. As a means to building wealth, however, there is no practical substitute for homeownership.” Link to NYT Editorial


  • How important is it to you to own the home you live in, with all that implies—security, control, pride of ownership, the ability to make changes and improvements according to your own tastes and needs? How important is it to you to have control over your housing costs? As a renter, all these issues are subject to economic changes (such as inflation), decisions by others (your landlord), and limitations on your freedom of action vis a vis the property you occupy.


  • It is not our intent to convince you to do anything: The home-buying decision is a complex and important one, and any investment has both potential risks and rewards, which only you can weigh according to your life plans, financial circumstances, timeline, and your own projection of future economic trends. You should definitely consult your accountant, financial adviser or tax attorney for a more detailed analysis of the above factors and how they may apply to you.

    Please note that tax law is subject to change at any time. What has happened in past real estate cycles is not necessarily a predictor of what will happen in the future.

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