With Housing Prices out of Control, More Bay Area Residents Consider Investing in Fixer Uppers

Many major media outlets have begun sounding alarms as to California’s “housing crisis”. Home ownership in the state is at an all time low, and with rents escalating, it’s put the state in dire straits. One of the biggest problems that California faces is a sparsity of homes for the amount of individuals in search of one. Even though home ownership is at an all time low, that only considers what percentage of the population owns homes. The other major problem is, there simply aren’t enough homes on the market right now.

These factors have conspired to create a situation in which California renters find themselves facing escalating rents. This is largely due to the rising value of property created by the lack of available homes. As more prospective home buyers enter the market, they bid over a dwindling supply of houses. This creates a bidding war, which causes the value of the house to appreciate. This is seen as a market indicator at the surrounding value of property also increases. Meanwhile, rental prices do the same.

This ends up putting more stress on renters, who must now devote an increasingly large amount of their paycheck to housing costs.

This is a California Based Problem

The cost of living in California has always been higher than the rest of the US. Houses for sale in the Bay Area routinely list for over one million dollars. The median value of a California based house has grown to 250% of the national average. This is despite low interest rates. While it’s also true that Californians tend to make more than the national average, rental prices have increased faster than employee’s income.

The cost of rent stagnated after the housing bubble of 2007. During the recession rental prices barely increased. In the last few years, as property values have soared, renters are now facing some of the highest rents that they’ve ever had to face.

This situation is unique to California.

Fixer Uppers

In most areas of the country, paying off a mortgage is still cheaper than paying rent. It has created a situation where some renters, who are seeing their savings slip away, are deciding to invest in cheaper houses in less desirable areas of the city. It may not be a perfect solution, but investing money in something that is yours is still better than watching more and more of your paycheck get eaten up by housing costs.

“It’s a situation where paying the mortgage on a house that needs work is the lesser of two evils,” says one real estate analyst from the Bay Area. “You’re almost better off than paying rent.”

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