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Lack of supply sends rents and housing prices soaring

Uploaded: Apr 28, 2015

A banner headline recently proclaimed "Job growth fuels home prices."
Other headlines have reported soaring prices for rentals in many Bay Area communities.
The good news, if you work in the tech sector, is there are plenty of opportunities for highly gainful employment. If you are not employed in that sector, it may be a very different picture when you look for a place to live and try to make ends meet.
The jobs headline in the Tri-Valley Times led a story that reported the red-hot market for homes and the climbing housing prices. The article reported 7,500 new jobs in San Francisco and the East Bay for the month of March.
The challenge in this over-heated housing season is maintaining perspective and remembering what the market was like from 2008-2011 when prices plummeted as companies shed jobs rapidly.
For the CEO of the California Association of Realtors, there's a different message. The
Sacramento Business Times reported on comments made by Joe Singer who said the state is in danger of the losing the current generation of potential homebuyers. Ben van der Meer's reported that Singer said reports showed that the affordability issue, the rate of homeownership and the relatively low production of new housing could send the millennial generation to other states looking for housing they can afford.
Singer said that 175,000 units are needed statewide to keep up with household formation and builders are not able to keep pace.
The story went on to report, ""This is something we did to ourselves," Singer said. Because many existing homeowners favor slow-growth policies, and because of the state's legal and business environment, homebuilders haven't had much reason to ramp up production, he said.
"What we needed was price stabilization in real estate," he said, referring to the soaring and then plunging prices of the last decade. "What we got was less production."
The law of supply and demand truly applies when it comes to real estate. I know many people beyond retirement age that still live in the same single-family home in which they raised their kids. The deep recession, lack of housing options and Proposition 13 have combined to encourage folks to stay put. Couple that with more homeowners deciding not to move up to larger homes and there's a shortage of re-sale homes, particularly in desirable communities such as Pleasanton.
It's notable that Ponderosa Home's active adult community at Ironwood was a very successful project through the teeth of the recession because it filled a gap in the market and encouraged older folks to move.
Homebuilders now have a few projects under construction and there a few major apartment complexes also being built. What's daunting is both the price for the new homes and the expected rental rates $2k or more and the incomes required to pay either the mortgage or the monthly rents.


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