Bay Area California and Unobtainable Homes
There has been breaking news in California this week, as home prices have reached an all-time high in the Bay Area, as they're creeping up that high in areas like LA as well. The typical home is selling for around $200,000 more than it's worth. For instance, a home will be appraised for $700,000, and it will end up selling for $900,000. This is keeping the average person from being able to purchase property in the Bay Area, while it's attracting a much wealthier sort of resident.
For politicians in the Bay Area, like San Francisco and Oakland, they're exited about the fact that they're attracting wealthier people. However, for the people in the area with lower income, this is something else that's going to end up stinging them. One of the worst parts about such a housing market, according to some experts, is that high-end homes are selling for much more actually makes low-income communities suffer more.
It is sort of a phenomenon that happens once people start over-paying. The sort of residents who move in are very wealthy and can afford the housing, and so the sorts of businesses end up reflecting the average wealth of the community. This severely runs down the property values of low-income communities, stealing away their equity and really hurting their odds of competing economically.
For the people who can afford properties in places like the Bay Area, they're involved in a bidding war. This is what's driving the prices up to begin with. Housing is in short supply in the area, so when a few different people want the same home, they start bidding against one another and the end result drives the home price up for that particular home while also ensuring that the similar homes in the area start off appraising for more. This has sort of a snowball effect. That home that appraised for $700,000 in the earlier example will end up appraising for $900,000 after a few sell, and then the bidding wars will take the price up to over $1 million. And on and on this effect goes.
What results is an incredibly strong market for upper-scale homes, and a crashing market for low-income housing and neighborhoods. It's something that further separates the haves from the have-nots, but the wealthy in the Bay Area, and the political class, are happy enough to have these homes to live in.
A lot of people have reported that people are fleeing California in droves, which is true. But the fact is that it's the low-income people being displaced. In California, being middle-class isn't enough to afford to live in most of these areas. Wealthier people are coming in, and the California government, which talks a big game about how much they care about the under-classes, only seems to care about tax revenue from property taxes and the sorts of businesses that will be brought in.
The bottom line is that there is a mini housing boom in the state of California right now. Houses are selling for hundreds of thousands of dollars more than they're worth. If this were happening on a wide-scale margin around the state, it would be a great thing, even for the poorer communities. As it stands, however, this is something that's only happening for the top 1% of the state, and a real estate shortage with no new homes being built isn't helping matters any.
The Future of the Market is in Limbo
As for the future of the housing market in California, most economic and real estate experts expect this Bay Area boom to expand to other areas of the state. However, the downside here is that it will likely be the same sort of housing market. The best houses in the most affluent neighborhoods are selling for small fortunes, but none of the remaining properties are ever valued that high.
People who cannot afford luxury homes or the current rent levels in California are fleeing in droves, and no new people are coming in who can actually afford that level of housing. So, California is dealing with a situation where the only people coming in now to buy homes are all wealthy, and this is creating a more vivid divide between the rich and the poor, though for some reason California's political class is not being held to account for it. They're basically reaping the rewards while doing absolutely nothing to balance the scales.
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