I think this correction is good too, in the long run - but the reality is the prices haven't gone down all that much Simcha. There are just less houses on the market which are keeping the prices steady especially among the homes costing over $1 million.
Although it may seem like the sky is falling on the real estate market with a 12.5% drop certain areas are getting hit worse than others and I'd say the prices haven't changed any in the desirable places to live in the region - regardless, if you put it in perspective, -12.5% is quite a small blip considering real estate values in the Bay Area have almost tripled (increased 300%) since the 80's here.
It is hard to foresee home prices dropping drastically since home prices are linked to wage rates. And I don't see a major downturn in the tech or pharmaceutical industry in the Bay Area. If anything it is expanding, along with an infrastructure and culture to foster new innovative industries and growth.
It's hard to see but it's happening and it will continue until at least 2010 here. The data support this if you know what to look for.
What I do seeing is the elimination of the middle class in the area, especially in places like San Francisco or Los Gatos where it is no longer possible to buy a house and live earning less than $130K per year (annual income needed to afford a median priced home). So in order to be considered middle class now you need to make between $150K and $220K to purchase an average house and afford all your expenses. You are priced out of the market unless you are one of the highly overpaid professionals who make more than 5 times the average salary of the region.
It is the Manhattanization of the region where only the wealthy can even consider living here. The real middle class that remains only can do so because they bought their homes before their home values increased 300% since the 80's. Most wouldn't be able to move and live here now with the incomes they make. Only one in ten homeowners now have the income to qualify for a loan for their house. So many middle class folks, young people, and those struggling financially have left the area for places like Phoenix, Las Vegas, Sacramento, Portland, Seattle, Reno to buy a house and make ends meet.
Yes, the elimination of the middle class is almost complete here. The problem with this is that no economic region can make it without the workers in the middle class. Someone has to actually do the work that others in the high tech 130k+ class won't do. You know, there need to be cooks, waiters, parking attendants, fire fighters, police officers, social workers, teachers, gardners, librarians, cashiers, etc. in order to service that techie 130k+ class otherwise the region's economy will collapse.
So, what we have is the working poor and the highly paid techie class here. There is very little in-between. I'm clearly in the working poor class here in the BA. It's disgusting. However, even back in Chicago I'd be working poor. The rich don't believe in paying workers a decent living wage or salary for an honest day's work anymore. They don't realize that they are destroying the economy that made them rich in the first place. If you have no consumer/workers to buy your services and goods, you have no income. No income, no profit. I don't care how high-tech the economy gets. You will always need consumers and workers.
So all the real estate values are skewed and the market is primarily for these wealthy folks who make over $130K or more a year annually. And suprisingly there are plenty of folks here that do earn that which keeps the real estate prices artificially high and unrealistic for most people even living here - it is the perfect example of the growing income disparity between the rich and poor, the haves and the have nots and the erosion of a middle class. No where is it more pronounced than in San Francisco these days walking in the Filmore or Union Street. Hell, even rents are exorbantly high - $1300-$1800 for a one bedroom place not in a ghetto. How does a middle income person even afford that?
Well, I pay $875 for a one bedroom in a nice neighborhood in Oakland. Of course, I've lived in the same building for over 5 years and we have rent control in Oakland. And, I do see that here in the East Bay that you can get nice one bedrooms for $950-$1100 in non-ghetto areas. Rents are actually starting to go down because people are leaving the area because of the jobs leaving and the prices being too high to sustain a decent lifestyle. So even as people start to foreclose on houses in the area, many of these people are leaving permenantly. Thus, there is downward pressure on rents and real estate prices.
It is happening here too. Look at Florida. That's what we have in store for us here in the BA.
