Real estate across the bay – Looking at Hayward and San Mateo. California financial bubbles springing up once again in the Bay Area. Hayward up 56 percent from last year?

I wanted to compare two cities across the bay that are showing the split in California housing.  In one select area we are seeing prices persistently high and in another area, we have seen prices come down hard.  Yet the interesting thing about the data is that it shows us that both areas are seeing wild price swings to the upside again reminiscent of the California housing bubble earlier in the last decade.  Now most of the recent boost in these areas has come from the government tax credit and pulling demand forward.  But will this last given the state of the California economy?  From looking at these two areas, it would appear that the Bay Area is seeing housing bubbles once again.  Here is a map of the areas in question:

Now to most people outside of California, this doesn’t seem like a big deal.  But ask anyone in the Bay Area about Oakland versus San Francisco or Hayward and San Mateo and you’ll get two very different stories.  And the price of housing reflects this difference:

We should spend some time analyzing the above data since it gives us good perspective with the market.  All zip codes in Hayward and San Mateo are up in price over the year.  In fact, in one Hayward zip code prices are up 56 percent!  This brings back memories of the California housing bubble.  Now part of this is also being driven by banks retooling and understanding how to squeeze people into FHA insured loans that require only 3.5 percent down.  If you combine this with the expired tax credit, many people were able to move in with nothing down.  Nothing down was part of the toxic mortgage problems in the state but also has created an incentive for strategic defaults if things go bust.

San Mateo is clearly more expensive but sales are brisk in both areas.  In fact, in the 94403 zip code prices are up 30 percent for the year with 28 sales.  This is a good set for measurement.  What does this tell us?  That housing bubbles are alive and well in both Hayward and San Mateo and with two different audiences.

For each zip code in Hayward a family would need to bring in at least $100,000 a year to purchase the lower end homes.  Yet the median income for the area is $61,000 and roughly 20% of families bring in more than $100,000 a year.  This is typical of areas in California with housing bubbles.

The results for San Mateo are similar but the data is pulled higher but not to a level that would justify current prices:

The median household income for San Mateo is over $100,000.  Two zip codes in San Mateo have prices of $662,000 and $710,000.  Let us just say we are looking to buy a $700,000 home.  A household would need to gross roughly $250,000 per year to be able to afford this house without stretching their budget.  The data shows that less than 15% of households meet this metric.

In other words, you have the same tiny sliver of people that can afford a common home in these areas.   This was very common in bubble areas across California.  The above information shows us that in Northern California home prices are once again reaching bubble levels.  This is unsupportable and will adjust.  Short of families doubling income in the next year, it is hard to see this remaining this high for a very long time.

Leave it to California to start housing bubbles again.

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