Recession proof Bay Area SFH school districts

Over the last 10 years, zero interest rates and reduced housing supply has led to indiscriminate rise in home prices. However as interest rates rise, some pockets of real estate will hold their prices while others wont. As has been noticeable in the 2008 crash, good school district SFHs retain value through recessions and price drops are minimal. The goal of this post is to illustrate why and also look at what good school district mean. Hang in there as 8+ greatschool rating doesnt mean anything and lot of shitty schools are rated 8 on greatschools based on equity scores. 

Why do good school districts go for premium ? 

• SFH
• The regular factors that go behind SFH are still at play
• Own and independent lot
• Ability to extend the home in future
• Inflation
• Raw material Inflation
• Homebuilding prices like lumber, copper, raw materials and labor increase with inflation
• Cost of building a brand new home goes up
• Tuition inflation
• Private school tuitions go up with inflation. For example : Challenger tuition fees in 2007-08 were 10k per year. In 2022, Challenger tuition is 23k per year. 
• At 2022 prices, cost of private school education for a kid is 250k and for 2 kids is 500k. 
• If you chose to go the public school route, then you pay the 500k into the mortgage which is an investment without compromising on education quality or outcome. More on the quality and outcome later. 
• As inflation rises, private school tuition will only increase from here and the SFHs with top public schools will be indexed to inflation
• This is why condos/townhomes in top school districts like Cupertino and Mission San Jose sell higher than SFHs in poor school districts
• Wage inflation
• This is applicable to all homes. Home prices rise with wage growth and inflation will lead to wage growth. 
• Supply constrained
• SFHs are lesser in supply. SFHs in good school districts are further lesser. 
• During downturns, this works to the advantage as the restricted supply still ensures there is enough demand
• During downturns, home values in these neighbourhoods generally go down last and are the first to come back up when the market improves
• This is what supply constraint looks like irrespective of school district
• During periods of inflation, prices of anything with limited supply goes up
  
  
  
  
• Upgrade demand from surrounding areas
• During sellers markets, lot of buyers get stuck in homes in poor school districts. Due to bidding wars, they dont get choice. A lot of them also have equity. For eg : somebody in Newark or Washington high school will always try to upgrade to Irvington or American high in Fremont. Somebody stuck in Leigh high/San Jose will try to upgrade to Cupertino/Mission when they realize that some kids in Leigh high also end up in community colleges. 
• Security
• Good school districts generally come with families which leads to area with better security
• Rental demand
• Homes in good school districts generally attract good strong renters reducing vacancy rate and increasing rental yield
• During rising rate environment, lot of people get priced out of the market. This leads to increased rising rental demand
• Stocks vs real estate
• During stock markets declines people panic sell and buy real estate because housing never goes to zero. Also if you are able to buy and hold the house then you are guaranteed to have that standard of living in the future, while with stocks you can be underwater for the next 10 years

What does good school district look like ?

Before answering that question, 7-8 rating on great school doesnt mean anything and doesnt mean a good school district. Great school ratings factor in equity scores by 40% which a lot of the buyers are not aware of. While whether this is the right methodology or not is a subject of another post, I like to use a different metric to evaluate good school district which is more consistent with home value retention during recessions and the actual value a buyer will derive out of the home. 

I use Berkeley admission rates and compute the 5 year, 10 year and 15 year average. 

Bay area has 13 schools which are in the top 100 US STEM schools. Out of these, Mission San Jose (Fremont), Irvington high(Fremont), Monta Vista(Cupertino) and Lynbrook(Cupertino) send 50 kids per year to Berkeley on Average. SFHs and condos in these schools tend to hold value in buyers markets because of the above reasons mentioned. 

Pleasanton and San Ramon also have amazing schools as linkedin above. But they have another factor which is distance from bay area which adversely affects them in recessions. The price drops are largest the further you move out of bay area.