Market still hot

People were discussing raising rates in 2010. That’s actually when I did all the research before deciding to buy, because prices weren’t going to decrease when rates went back up.

Inflation hasn’t dictated a rate increase. Wage growth has been minuscule during the time. We’re just now starting to see positive movement in wage growth. As long as rates are lagging wage growth, it will hold true. If they raise rates faster than wage growth, then it could break from history. I don’t see that happening though, because we don’t get inflation without wage growth.

We’re looking at 3-4% wage growth and 0.75% interest rate hike. 3-4% on a bay area $200k family is $6-8k/yr income growth. 0.75% higher rates is $7500/yr interest on $1M loan. They can afford the higher payments.

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Holymoly! Half a million more, no problem!! @catchmani79, do you know where you stand in that 13 offers? How could one decide what to bid without feeling you paid way over.

nope… may be top 5 or top 7.

This is kind of chicken and egg issue. Rate hike is made when inflation increases. Inflation makes up the price hike by affordability.

Economy was hit worst during 2008-9 which is next to 1929 crash. Trillions vanished during this downturn. FED artificially kept the rates low for better recovery of economy. Those low rates are common to real estate as well as businesses (overall economy).

Yes, core basic never changes, it still works.

The key premise is as pointed out by marcus335, True so long mortgage rate lags wage growth.

Not convinced of that. A lot of prices have gone up way faster than people’s salaries. Which is one reason we have a shrinking middle class.

This was one of the axioms of patrick.net … the ultimate perma-bear… did you read the discussion there?

Two issues are here.

Which is one reason we have a shrinking middle class.

In business economy, income inequality exists and continue to grow. Some government initiatives, such as taxing, may apply control, but altogether can not eradicate the income inequality between income classes.

A lot of prices have gone up way faster than people’s salaries.

Salaried class (W2) is always poor as their growth rate is getting flat after reaching a position. Business or investment grows exponentially.

If you take average salary or median pay/salary, and compare with growth of home prices, you will not get proper co-relation.

The correct way is to compare the income (not salary) growth with home price growth, you will see the correct co relation.

The difficult part is no one is going to declare the income openly and it is known to IRS and that person alone!

Example: An employee of Apple may receive 150k salary+bonus, but may hold 2M worth of accumulated shares

Business earners may charge $300/hour, all wealth accumulated in his company or investment accounts, his pay may be $60k/year. Everything he spends, car, phone…etc, written off from business accounts.

While average pay/salary remains low, Income or wealth is increased exponentially.

Additional complexity, home price growth depends on demand and supply.

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Jil gets it…Hardly anyone gets rich on w2 income…The income tax rate steals too much of it…You need to structure wealth gain through vehicles with little or no tax, like in business or real estate

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Yes, but twice as many are moving up and out as down and out. Bay Area home buyers are upper middle class and above, and the number of those people is growing as a percent of the population. Headlines only focus on the ones moving downward, since the sound bite generates a much stronger emotionally reaction that can be used for political purposes.

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I think there is a distinction between asset price inflation, like stocks and housing in key metros, versus commodity/wage inflation, the one that gets measured and reported.

Commodity/wage inflation will most likely lead to asset price inflation, but the other direction may not happen. We have a globalized capital market. Money from one part of the world like China can easily come to Bay Area to buy real estate and NY to buy stocks. The easy money that the Fed created in this cycle also helps asset price much more than commodity and wages.

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Confidence in RE Market rises according to your boy WB’s company…

Price compression is already at work. It’s the last leg of the bull market, but mid to lower neighborhoods could still enjoy major appreciation

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A few people here said awhile ago that SFH under $1M were heading to $1M. It’s happening as the higher end stalls. How long will it last?

I think it will be very simplified, but maybe buyers of SFH under 1M through maybe 1.5M are dependent on healthy job market and having 1-2 stable paychecks, while high end market territory is funded by stocks/IPOs etc.

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When affordability reaches glass ceiling, it’s natural for buyers to buy their sub-dream home. So it’s natural for high end market stalling while mid/lower market supper hot.

Now many people have thrown their housing dreams out of the window. Instead of Noe Valley, they are buying Oakalnd and Berkeley.

Reasonable people make reasonable decisions. No one is entitled to his dream home, he has to accept what market allows him to get

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Robert Shiller predicts 5 more years of stock boom
http://www.cnbc.com/2017/05/23/robert-shiller-market-could-go-up-50-percent-from-here.html

If that is true - how it impacts Bay Area economy? Labor market will keep chugging along. Inflation will continue and real estate will keep going up with inflation. Higher local cost of living will put pressure on employers payrolls. Companies will try to spread out of Bay Area. How will this self feeding cycle be sustained for 5 years?

Hmm, he says it could happen, but he isn’t forecasting it. He’s most famous for his 2 bearish calls on the tech bubble and housing bubble. If he’s not calling bubble, then there’s room to grow. He’s one of the new that has credibility in calling a bubble.

I think I did not quote article right - it says may go up 50% and I somehow read it as 5 years. let me fix that