Vineet Kannan and Aparna Jain, two software engineers in their 20s, are making a move that is increasingly popular among the Bay Area’s young professionals: They’re abandoning their apartment in Mountain View and buying a townhouse in an urban infill development in San Mateo.
And what made their move even easier: soaring rents and low mortgage rates mean their monthly mortgage payment is less than they’d pay to rent an equivalent apartment.
So on one recent morning, they were making a final inspection tour of their new, three-bedroom townhouse in the Landsdowne development at San Mateo’s Bay Meadows, a few blocks from the Caltrain they use to commute to work — Kannan to a new job at Netflix in Los Gatos and Jain at Zynga in San Francisco.
Seeing a growing number of potential buyers like Kannan and Jain, Bay Area builders are scrambling to meet the demand.
New building permits for detached homes and townhomes are up 39 percent from last year in San Francisco, San Mateo and Marin counties, 35 percent in Santa Clara and San Benito counties, and almost 19 percent in the East Bay, according to the California Homebuilding Foundation.
Permits for multifamily housing, including condos — which are particularly attractive to young, first-time buyers — are up 38 percent across the Bay Area, with San Francisco-Marin-San Mateo leading the way with an 82 percent jump over the first 10 months of 2013. However, permits in Alameda and Contra Costa counties dropped by 4.5 percent.
“Everybody is at full velocity,” said Chris Foley of Polaris Pacific, a marketing and sales company for high-density urban condo developments. “The condo market is very strong. No new condos have been delivered for five years and people want to buy condos.”
Housing experts say younger buyers like Kannan and Jain are favoring urban infill projects like Bay Meadows that are close to shopping and where they can abandon their cars and use public transit.
“We’re getting a brand new house, Whole Foods is right next to us and there’s a community garden, which is exciting for me,” Jain said.
Their three-bedroom, three-bath unit cost $845,000 six months ago. With a 20 percent down payment, the monthly mortgage is about $3,400 — a little less than the $3,540 average monthly rent for a comparable unit in San Mateo County reported by the rent-tracking company RealFacts.
“When we build out, we will have a total of about 1,000 homes and around 2,000 to 2,250 people, predominantly young couples with a couple of kids — people in the family formation mode,” said Janice Thacher, a partner with Wilson Meany, which developed Bay Meadows.
That’s also the profile of a development across the bay in Livermore, where Kevin Sun, 26, and Jennifer Songa, 27, moved into their new townhouse in Shea Homes’ Montage development purchased for $605,000 in October. They had been renting in Dublin. Sun works in information technology at a company in Pleasanton and Songa takes BART to a job in San Francisco.
“Our neighbors are moved in and they’re all pretty nice,” Songa said. “They’re all around our age and building families and we’re hoping to build a family too and that’s why we decided to buy a house. It’s a very cozy neighborhood, one of those neighborhoods where you get to know your mailman by his first name.”
Another builder, D.R. Horton, will begin selling units this month in a project near the Dublin BART station, pitched toward the younger first-time buyer.
“We have started seeing a shift,” said Stephen Smiley, a vice president for the Northern California office of Meyers Research in Danville, an advisory firm to the building industry. “Two or three years ago, everybody’s idea was that high-tech folks want to live in nicer apartment buildings and be mobile and not buy.” But “rents got so high and you have number of choices for good townhomes and locations,” and interest rates are still historically low.
A report released last week by the Urban Land Institute in San Francisco predicts that Generation Y’s impact on real estate could be the “most dominant trend for many years.”
According to the Institute’s Bay Area executive director, Elliot Stein, “The young generation seems to want a higher density urbanized environment, close to public transportation and things they can walk to right out their door. (And) not all of them can or want to live in San Francisco.”
The report, based on a survey of builders and other real estate professionals, ranks the San Francisco metro region, which includes the East Bay, first in the nation’s top 20 markets for real estate investment, development and homebuilding, and the San Jose metro area third.
“Everybody is feeling pretty confident that if they can bring a product to market, there will be a pretty strong demand,” said Paul Desmet, president of the Ryness Report, a Danville company that provides builders with reports on the housing market.
In mid-November, there were 95 developments actively selling in Alameda, Contra Costa, San Mateo and Santa Clara counties, according to the current Ryness Report, up about 20 percent from last year.
Contact Pete Carey at 408-920-5419. Follow him on Twitter.com/petecarey.
