We all want to be smart. And when it comes to buying real estate, we have more than just pride at stake. One of the most frequently asked questions I get asked from home buyers is “is this home a good investment?”. Like most everything in life, the short answer is “it depends”. Now I am not a politician, so I am not evading the question. A better answer is “it depends on several things”. In my opinion, these are the 6 critical factors that determine the stability, and therefore the long term appreciation, of a given real estate market:
Quality of Schools. Communities with top rated schools will always draw potential buyers with kids, helping maintain a steady demand for homes in that community. This is especially true for buyers with school age children. And if a community has poorly rated schools, they will likely see a migration out of buyers with kids as the kids approach school age. Check mark for the communities of the Tri-Valley region, which all enjoy high quality schools.
Community/amenities/lifestyle. The community and lifestyle components are important draws for potential buyers. Parks, open space, shopping, theatres, restaurants, and quaint little downtown districts all add desirability to certain communities. Buyers often comment that they like the “vibe” of local communities like Pleasanton, Livermore, and Danville because of their historic downtown districts.
Commute Access. How easy it is for local residents to commute to major job centers is another factor. Since relatively few residents have the good fortune to work locally or work from home, the ease of commuting becomes important for buyers. Given the increase in traffic in the Bay Area, this is becoming a more important issue, and deteriorating commute times can start to impact demand for housing in some communities. BART has been a strong factor in the demand for housing in Pleasanton and Dublin in particular.
Local Jobs. Abundant, high paying local jobs stimulate demand for housing. It is related to commute access, as more high paying local jobs make the community more desirable to live in. Very few people will choose to commute if there are good housing options close to their job. Thanks to job centers in Pleasanton, Dublin, San Ramon, and Walnut Creek, there are many high paying local jobs that keep demand in our area stable.
Availability of Land. In general, areas with abundant land available for future residential growth tend to see less appreciation. This is because any uptick in demand can and often will see an immediate increase in supply, keeping home prices in moderation. Conversely, cities with restrictive growth policies or minimum land available for residential development will often experience more appreciation if there is strong demand to live there. San Ramon and Dublin have seen rapid growth in the last decade, while Pleasanton, Livermore, and Danville have restrictive growth policies and barriers to supply.
Diversity of the Local Economy. Areas with a diversified local economy tend to be more stable than areas dependent on one or two main industries. The oil industry in Houston or North Dakota, for example, makes up a large base of employment in those regions. Any downturn in that base industry can have a negative impact on the housing market, and create less stability. Fortunately, the Bay Area is blessed with a well diversified economic engine. While it is highly tech oriented, there are many other components to our economy that gives it a measure of strength and stability.
These are all factors that help determine how stable a given market is, and how much appreciation can be expected in the long run. Keep in mind that even if the home you buy never appreciates, it can still be a great investment. Nothing compares to owning your own domain, especially when the government subsidizes your cost via mortgage interest deductions.