What Creates Value?

Some factors that tend to create value and demand in the real estate market include scarcity, population, employment, wages and vacancy levels.  On the San Francisco peninsula we have very limited space for new construction.  Most of the real estate sold in our area is pre-existing real estate.  There is very little new development, except where a tear-down has occurred.  

There is only so much “dirt”. This, combined with other factors, creates a type of scarcity that only exists in a few other areas in the country.

Population trends have a basic influence on the sale of real estate.  Since shelter is a basic human need, it is obvious that the general need for housing will grow as the population grows.  This need for housing, whether in the form of owned or rented property, is very evident in the Bay Area.

The employment and wage levels have an added impact on local real estate values.  With the unemployment level being one of the lowest in the country, employment opportunities are great in the Bay Area.  Wage levels are generally higher here because of the various types and diversity of businesses.  Many businesses are experiencing a major expansion cycle.  The long term trend appears to be generally smooth and continuous, with only minor adjustments.

Tech jobs are booming in San Francisco and on the Peninsula.  We have record levels of employment.  The Bay Area has one of the strongest job markets in the country.  Last year the Bay Area added about 125,000 jobs. All of these factors have played a big part in strengthening our real estate market. The median price for a home in San Francisco is $945,000.00; 32% higher than a year ago. Asking rent increased about 20% to $2,152.00 per month or more.  

The Bay area economy is strong and has staying power with tech, tourism, and foreign trade leading the market. 

The real estate market in most other areas is slow in adjusting to variations in supply and demand.  The real estate cycle is based on building activity.  The lag time between the demand for units and the completion of those units usually causes the real estate cycle to peak after the rest of the economy does and to take longer to recover from depressed periods than other economic sectors.  However, because of the unique combination of scarcity of land, diversified employment, a relatively high wage scale, low levels of unemployment, and an extremely strong economy in general, the demand for housing here is probably stronger than almost anywhere else in the entire nation and, perhaps, the world.

Your opportunities for great real estate investments are tremendous on the peninsula.

 Your Realtor can help guide you through the process.  The best time to invest is now.  You will be sorry tomorrow if you do not buy real estate today. 

This article was published in the San Francisco Examiner.

Articles are written by Eric Ruxton and Larry Aikins, owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.