Huh? You mean there is no actual housing shortage or demand/supply imbalance and it’s all just a giant conspiracy to get buyers to bid high?
Of course. The problem is where do you get this infinite amount of housing supply. Someone has to take the risk to buy the land, hire the contractors and workers, buy the materials, and hope the market does not change direction during this period. Even in the bay area it’s not straightforward to make money this way.
For a conspiracy to happen, someone needs a large amount of market power. So the conspiracy is out of the question. There is no giant conspiracy nor did I suggest one. All I said was about the fake narrative of the housing shortage.
I am curious to see why you think housing shortage is fake. Is it only because the population in California is not increasing?
This is a question you should answer for the benefit of the other readers. How can I answer something that I do not even think is real. Bay area housing is expensive. But, expensive does not mean a shortage. If you are willing to pay top dollars, hundreds of sellers will come out to sell you. Give it a try if you are in the market and then tell me if there is a shortage. If you want to pay Fresno price to buy a home in Palo Alto, I guess I will have to agree with you there is a shortage. Is that what shortage means to you?
Define what is a housing shortage, and then explain that one exists in the bay area.
In general that is true. However, SV inventory is indeed low and declining because of prop 13, and positive feedback of fast rising prices* (some1 started that vicious cycle, I suspect is out-of-state SWEs employed by FB). *Many such me are worried if sell the house, the price would continue to gallop thus missing the price appreciation. Kind of reverse FOMO. Seller remorse.
I think the implied definition of shortage is not enough houses that are priced at what many potential buyers want to pay… at various configurations for different profile. I think many people are unwilling to pay the price rather than can’t afford… only fresh grads who don’t have sugar daddy can’t.
How does it effects on the renting price?
You kind of contradict your self. You want to harvest as much appreciation as you can. I agree that there are not enough US median sized homes available in SFBA at US median home price. You cannot have both way though. You can have either appreciation or fully met supply. Not both.
Don’t understand your response at all. Meet supply is not my issue, I’m not a politician.
Appreciation in Bay area home prices comes from the limited supply of homes. That is what I was saying.
I see you might not understand the positive feedback.
Fast rising prices, potential sellers hold back houses in hope of higher prices, lead to even more limited supply, lead to even higher prices, potential sellers feel it is better to hold on further, … This positive feedback happens only when prices appreciate very fast (most market, prices don’t appreciate that fast), normally there is a point where affordability would stop the spiral. However, affordability* is not really an issue in SV. Some kind of external forces would be needed to stop the spiral. Could be economic, could be government action, etc.
*Always have rich men like @manch who buy many houses. You can do a poll here, many bloggers here have a few to 10+ houses.
Through positive feedback, you have nicely described how bubbles are created. What happens in such cases is that at some price point, additional buyers refuse to buy. At that time, two things happen. Those who are holding homes as investment will sell to lock the profit. And a dynamic price equilibrium will be created at a price where the demand and supply will be in balance. We are likely to see the second happening through free market (no government intervention required or suggested).
The problem is @manch refuses to sell too because he believes price always go up in SV and selling means he would lose the prop 13 benefit. Notice last year, price dropped but only very few sellers. Most houses are now held by strong hands like @manch. I suspect those who are selling are marginal cases or divorce or trustee sale. The usual dynamic for RE market doesn’t really work in SV.
An investor who holds on to (does not sell) a property at the peak (assuming one has a way of knowing when price is at peak of the housing cycle) for the fear of loosing prop 13 base runs risk of living through a declining market. This is the exact reason why a friend of mine does not like SFBA market as real estate investment vehicle. Outside SFBA, the price of home are not as cyclical. You gain more through rents and little through appreciation. I have explained this idea several times.
I see you still don’t get the RE market and the mentality of investors in SV.
It is possible I am not able to get the point you are trying to make.
But, not all investors think alike. There are several kinds of investing mentality. I observed the following lines of thinking (investor types) on this forum.
Those who think the RE prices and rents in the SFBA will keep rising forever at a rate faster than the national average.
And there are others who will believe that the prices are cyclical in SFBA. Sometimes they rise rapidly and at other times they fall to align prices with the rents that rise at the rate of the national average.
There are people like me who believe the California population is at its peak. So whatever happened in the past 50 years due to the rising population (CA population rose from 16 to 40 million) will not repeat.
There there are people who believe the home prices jump up if the start-up companies make successful IPO.
There are so many lines of thinking, but in a free and open market, the price is sum total of all the lines of thinking.
Group 1 is fairly large and have tons of resources to buy few to 10+ houses. Group 4 overlaps with Group 1 a lot, startup buys are essentially opportunistic buys. Group 1 didn’t think appreciation is linear, thinking is no difference than Group 2. Group 1 just think in very long timeframe (for all intents and purposes is forever) and ignore the obvious peaks and troughs that could happen along the way. Group 1 thinking is there won’t be a permanent peak like Detroit and Japan leading to secular declining prices, and the annualized appreciation rate remains at 6-8% p.a. Many of them have resources to withstand vacancies. Rents is minimally considered.
As more number of people become aware of real estate market dynamics, Or if they see the market is not behaving as thy predicted, the size of each group of investors will change.
Real Estate will return an average of 10% ( rent + price gain) over a long period of time. So, I agree with Group 1 if they believe they can have an annualized 6-8% gain over a very long period of time. But, that will not happen linearly. They may see periods of price decline.
Also, FED’s role is very crucial in asset pricing. It my pump more money and inflate the assets.
All smart investors should think of an exit plan before making an entry. Two things are important. What is total return (return from rent and return from price gain)? Then what is the payback period?
A payback period of infinite length (or holding a property for forever) is not a good payback period unless an investment is held for passing to the heirs. What if group 1 need to sell when the prices are low?
Anyway, Keynes said:
In the long run, we are all dead.
Worry too much what if leads to analysis paralysis.
Screw the payback period, mom and pop are not corporate. You continue to use too much textbook ideas and theories. Forget them for your sake. Corporate has a team of trained combatants, you have only a household knife. Work with what you have.
If you continue the way you are now, your future will look a lot like the present.
SFBA investor does not need to worry about real estate cycles, even though I do not like the CA lawmaker community going social attitudes.
Why manch needs to sell his properties? Having stayed here in SFBA, @manch is more than 100% right on his assumption and he is too young to sell his properties now.
@hanera you know how good SFBA is , otherwise you won’t even have CU home !
No matter how many people jealous over prop 13 or how many people hate prop 13 or how many people talk to remove prop 13 in this blog, it is not going to happen in your (and our) life term, period.
SV may drop little bit during recessionary period (just 12-18 months), but will have longer growth as long as companies like AAPL, GOOGL, FB, NFLX, TSLA and similar startups grow.
They make millionaires (now TSLA millionaires) overnight, not only employees, but also investors around these companies. Everyone needs a home, and they wield their money power when competition comes.
We have been discussing the same ever since we were are redfin forum members.
This is a very good observation. So long as buyers with deep pockets are present, the risk to significant price drop will be minimal.
It is therefore very important for the future to have a political system that encourages economic growth over redistribution.
It all depends upon the time of entry and margin of safety (like a large down payment or equity in-home ) . Someone who purchased a property just before the price drop must keep the property until the prices recover. (that could be 12-18 months as you said).
Generally, the debt (and equity) analysis requires that the investor has enough cash to service the debts through the economic downturn and periods of low or no income.
Some who has held the property for a long period of time (and has built lot of equity )will have less to worry because homes could still be sold during the price decline though with lesser profits.
Investing and speculating aside, the biggest group of the people to stabilize prices of the housing market in the Bay Area are the consumers who buy home to live and raise a family. They have generally longer time horizon and do not worry too much price variations.