Sunday, August 30, 2009

San Francisco Bay Area Population Growth Forecast to 2035

Remember my posting about California population? According to US Census Bureau, as of July 1st, 2008, California is the most populated state with 36 million people. Half of Californians reside in the Greater Los Angeles Area (5 counties which are Los Angeles, Orange, San Bernardino, Riverside and Ventura), and 20% reside in San Francisco Bay Area (9 counties, which are Marin, Napa, Solano, Sonoma, Alameda, Contra Costa, San Francisco, San Mateo, Santa Clara).

California Population July 1, 2008
That means around 7 million people are living in the Bay Area. Association of Bay Area Governments (ABAG) just released a projection, by 2035 over 9 million people will live in the Bay Area. That is two millions more than today!

San Francisco Bay Area Population Projection to 2035
San Francisco Bay Area Growth Projection to 2035
Some of the issues that ABAG are trying to address are housing, jobs, transportation, energy costs and reducing carbon dioxide emissions. Complete forecast can be read here.

One classic question remains, where are we going to house these two million people? Among two scenarios presented by ABAG, under Focused Future scenario, the amount of greenfield development will be reduced. Instead, growth will be redistributed near area with high concentration of jobs and transit.

Should we keep building housing or should we let the natural selection apply (lack of affordable housing will force people to move out of the bay area)?

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Tuesday, August 25, 2009

Transit Oriented Rental Properties

Investors who are seriously looking to invest in rental property, should understand well the difference between a tenant’s perspective and a homeowner’s perspective. Tenant is looking for convenience, while homeowner is looking for a nice and peaceful place to settle down or to raise a family. Tenant often prefers a place close to grocery, public transportation or easy access to major highways. Homeowner doesn't mind to buy a house in far away location in exchange for a bigger space for his/her family within the price range that s/he can afford.

A property close enough to public transportation, will make a good rental property, as long as not too close that it will be too noisy for the resident. An interesting area to watch out is President Obama’s administration’s proposal of $8 billion federal stimulus money to build high-speed rail (HSR) system in ten designated high-speed rail corridors across country.
Even though this plan has invited controversy from multiples parties, I would like to keep my eyes on properties located around the proposed high-speed rail lines. Of course the price has to make sense, which means the property has to be able to generate acceptable cash-on-cash return, so in case there is any change with Obama’s plan, you won’t be screwed.

Where are the ten corridors for proposed high-speed rail?
• Pacific Northwest
• California
• South Central
• Chicago Hub Network
• Northern New England
• Empire
• Keystone
• Southeast
• Gulf Coast
• Florida

See the map below for more detail.

High-Speed Rail Map
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Sunday, August 23, 2009

Should You Invest in California or outside California? Part 6

“Florida? Probably not. The hurricane comes every year.” Some investors shy away from hurricane-prone area like Florida or Texas, but they forget that they life in an earthquake-prone area, California. While tornado and hurricane can be expensive to insured, they are still insurable risk. Earthquake, in my opinion, is almost an uninsurable risk, especially the big ones that attacked San Francisco in 1906 and Loma Prieta in 1989.

But how about the earthquake insurance? Earthquake insurance costs a lot of money, with not much coverage. California residents have the option to get earthquake insurance through California Earthquake Authority (CEA). Insurance companies that belong to CEA offer standard earthquake insurance policy with 15% deductible. Earthquake insurance is also available outside CEA. There is premium calculator available at CEA website. Imagine the next big earthquake is coming, even if you have an earthquake insurance coverage, if insurance companies receive too many claims, do you think they will remain solvent?

An alternative to buying earthquake insurance is to retrofit the property. The money paid for insurance premium overtime, may be well spent on the project retrofitting the property. Some lenders opt for borrower taking precaution steps rather than buying earthquake insurance. The structure should be tied to the foundation, water heater should be secured to the wall and cripple walls should be braced with plywood.

Investors, if you think Florida or Texas or Oklahoma are risky, think again! Diversify your asset geographically!

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Thursday, August 13, 2009

Should You Invest in California or outside California? Part 5

If California were a country, it would be the eighth largest economy in the world. Look at the two tables below.

RankStateGross State Product (US$ billions)
3New York1,103.0
8New Jersey465.5
9North Carolina399.4

RankCountryGross Domestic Product (US$ billions)
1United States13,841.4
5United Kingdom2,770.2

Source: The US Conference of Mayors, 2007

That statement was valid at least until 2007. How about now, after financial meltdown and eroding property values? True, the Golden State is going broke and experiencing budget deficits. But so do other 47 states. How bad are the budget shortfalls? Here are ten states with the largest budget gaps:

StateFY2010 before budget adoption
(US$ billions)
FY2010 mid year gap
(US$ billions)
FY2010 Total
(US$ billions)
FY2010 Total – % of Budget
New York$17.90$2.1$20.0036.10%
New Jersey$8.800$8.8029.90%
North Carolina$4.600$4.6021.90%

Source: Center on Budget and Policy Priorities

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Wednesday, August 12, 2009

Should You Invest in California or outside California? Part 4

Demand, supply and appreciation have been analyzed. Now look at the income portion, or the rents.

San Jose-Sunnyvale-Santa Clara$961$1,113$1,338$1,924$2,118$450.0K
San Francisco-Oakland-Fremont$1,078$1,325$1,658$2,213$2,339$402.0K
San Diego-Carlsbad-San Marcos$1,024$1,168$1,418$2,067$2,493$323.2K
Los Angeles-Long Beach-Santa Ana$904$1,090$1,361$1,828$2,199$303.5K
Riverside-San Bernardino-Ontario$867$954$1,125$1,583$1,846$172.5K

TEXAS0-BR1-BR2-BR3-BR4-BRMedian Price
Austin-Round Rock$658$749$912$1,228$1,398$182.3K
Dallas-Fort Worth-Arlington$670$746$905$1,201$1,455$135.7K
Houston-Sugar Land-Baytown$642$714$866$1,154$1,451$138.5K
San Antonio$577$642$792$1,022$1,241$148.3K

FLORIDA0-BR1-BR2-BR3-BR4-BRMedian Price
Miami-Fort Lauderdale-Pompano Beach$842$953$1,156$1,479$1,728$206.0K
Tampa-St. Petersburg-Clearwater$705$782$946$1,199$1,447$135.3K

ARIZONA0-BR1-BR2-BR3-BR4-BRMedian Price

NEVADA0-BR1-BR2-BR3-BR4-BRMedian Price
Las Vegas-Paradise$731$861$1,013$1,408$1,695$155.3K

GEORGIA0-BR1-BR2-BR3-BR4-BRMedian Price
Atlanta-Sandy Springs-Marietta$729$789$878$1,069$1,166$115.6K

Source: HUD 2009 Fair Market Rents, NAR 1st Quarter 2009 Median Price

So, which area would you pick to invest? Feel free to drop a comment.

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Wednesday, August 5, 2009

Should You Invest in California or outside California? Part 3

Let’s compare the property value and appreciation between California and states outside California.

Home Price Index AZ CA FL NV
Home Price Index NY UT
Home Price Index GA NC TX

Here, I put nine states into three groups:
1) Group 1: California, Arizona, Florida and Nevada. These are states with high population growth. Properties here have potential of high appreciation. Speculators love these states.
2) Group 2: New York, Utah. States with modest growth. The characteristics are between Group 1 and Group 3.
3) Group 3: Georgia, North Carolina, Texas. Property values in these states are more stable, it goes up slowly, and are more resistant to the up and down of the economy. Conservative investors will look for cash flow here.

The next graphs will show you annual growth rates, 5-year growth rates and 10-year growth rates for the three groups.

Annual Growth AZ CA FL NV
Annual Growth NY UT
Annual Growth GA NC TX

Look at the annual growth rates graphs above. While real estate in California, Florida, Nevada and Arizona are able to yield more than 20% annual appreciation, during troubled economy, properties are also possible to shrink in value up to 20% annually. On the other side, real estate in Texas, North Carolina and Georgia, will not increase as much in value during the boom, they also will not drop in value as much as the hot states.

Timing is very critical for speculators in states located in Group 1. You are either extremely lucky and make instant fortune, or you are screwed if you are wrong. For investors looking for cash flow, properties in Group 3 will always be an opportunity and timing is not as critical here.

5-Year Growth AZ CA FL NV
5-Year Growth NY UT
5-Year Growth GA NC TX
10-Year_Growth AZ CA FL NV
10-Year Growth NY UT
10-Year Growth GA NC TX
Look at the 5-year & 10-year growth rates graphs above. Properties in Group 1 reached the peak in late 2006. If you bought property during the peak, you may have to wait for a long time for the value to get back to previous peak. The history taught us that California reached the peak in late 1990, and it took 8 years to go back to the value in late 1990.

Properties located in more stable states in Group 3 have more predictable growth rates. There was energy crisis and banks failure in Texas during 1980s. According to one of FDIC economist, in 1988 and 1989, failed banks in Texas comprised over 80% of total US failed-bank assets. However, it seems that Texas has learned its lesson well.

The source of data is Freddie Mac’s repeat-transactions house price index for existing homes.

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