I don’t think so. there is a LOT of pent up demand here, based on my limited data set of people I know in the East Bay (school friends, etc), it might cool, but there are plenty of older Millenians who are NOT in tech who are looking to get in and slowly saving, etc
You are right that there is a lot of pent up demand, which always will backstop the Bay Area RE market. Hence, I predict that RE prices will flatline (by which I mean stay within the range of +/- 5%) over the next 3-4 years, rather than outright decline
Demand from whom assuming population does not grow beyond 40M?
An asset appreciates or depreciates based on its utility and remaining useful life. What else do you have in mind to value an asset?
Added Later: And since dollar is a common unit to measure value, the nominal price of an asset changes if the dollar itself appreciates or depreciates. So, important point to consider is what is an asset valued relative to?
Perfect. Let’s say asset appreciation is based on its utility and remaining useful life. The idea that somehow real estate appreciation these past few years is borrowing against future appreciation makes no sense – even if you think recent appreciation is untethered from these characteristics or reality in general.
In other words, you can’t make straight line appreciation predictions based on these simple attributes.
Let me simplify the story. One can fly a plane (against gravity ) only till there is fuel on the plane. Once the plane runs out of fuel, plane will crash unless pilot brings plane safely to the ground. Debt works like gravity. FED can only do so much and so long to keep deflation away. Deflation cures debts and deficits. At some point of time ability of FED to inflate will give up and prices will crash. I have said this several times. Deflation is a natural phenomenon - it is result of product and process innovation - a good thing. Denying deflation is denying innovation. That is why I am not so sanguine where the prices of anything will be in 5 years from now. I feel FED has lost the script and just wandering aimlessly. Left and Democrats hate deflation for some reason. But economy does not care about ones emotions.
Thanks for simplifying. Much appreciated.
So has there been any value creation over the last 60 years that is in your view legitimate (i.e. reasons beyond just the Fed printing money)?
How many deflationary periods have we had over the last 100 years? I’m genuinely curious.
You are asking wrong question. 1. Printing money does not create value.
2. You create value by doing more for less. A good example of deflation is price of dial up modem that is not longer useful because of more useful tech is available. So price of dial up modem is $0.
Or Wireless telephony that is a value add.
The last home price deflation I remember happened in 2008. Prices crashed as much as by 40% in several bay area RE markets.
Too bad I was just in college then. Graduated 2011 and bought my first investment in 2012.
You missed the time, and I did not have money to buy. Some Homes are almost 4-5 times the price at the bottom 2009.
I bought my first home in 2007, just before the great crash of 2008. I did not have much money for a down payment, since I have never been among the fortunate tech elite showered with stock options by their employers. So, I cleaned out my savings bank account and bought by paying $40k down, which was a huge amount of money for me back then. My first mortgage was above 6% interest rate.
When the Great Recession happened in 2008-9, my home equity went negative. I had no liquid savings - was just living paycheck to paycheck hoping my job would survive. My employer went bankrupt, but somehow I managed to jump to a small 20 person startup a month before the bankruptcy - taking a 10% pay cut. Basically, just enough to sustain my mortgage payment. For next 2 years, did not have enough to even contribute to 401k, just HODLd with no guarantee that the home’s value would ever go up.
Slowly things picked back up by 2012 or so and then home price rise really gathered speed.
I sold that first house a few years later for 80% profit, and immediately bought a nicer place by using only the profits from the sale as down payment. I took out all the principal that I had paid off and set it aside in a brokerage account so that I would not again face the situation of being cash poor without liquidity. Also switched jobs with a raise that enabled me to contribute to 401k again.
The 2nd house (my current primary res) has now appreciated a further 50%. As a result, I now have 7 figure home equity, in which my own contribution from pay checks is less than 10%, rest 90% is from appreciation.
I have stayed with the same employer for over a decade now - still not getting any stock and only token annual raises, but at least it has been a stable and interesting job.
The result is that in past 10 years, my net worth has increased by 10x (1000%), whereas my salary has only increased by 33%.
So, the upshot is that W2 wage earners like me have not benefitted from the Fed fueled boom of the past decade, UNLESS they invested in stocks and RE and held onto the same.
Just maxing out your IRAs and 401ks every year can do wonders for your net worth over time. Not hanera or wujin level wealth but you’ll be more than comfortable 
Sweet. You are talking about productivity. Agree that productivity plays a major factor in value creation.
What factors dictate value in real estate in your mind?
You nailed it. And those who were not in a position to invest actually saw there wealth and savings being transferred to others. That is one of the main reason of middle class squeeze. The FED created boom is on the backs of poor and middle class people. That is one reason also why you see so much of homelessness and distress.
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Location and demand for neighborhood (schools, culture, jobs etc).
Maybe you are right. Certainly in high cost places like Bay Area, those who do not invest will fall behind. Companies essentially set salaries to be just high enough to cover the basic cost of living - rent, food, clothing, kids daycare. And from there on, salary increments get indexed to the official rate of inflation (which is only for a basket of goods snd services, not assets). So, salaries are designed to just keep the worker solvent, but not get ahead.
Assets tend to appreciate at a much higher rate than salaries. The Fed certainly has something to do with this - when their monetary policies become looser or more accommodative, then the assets like stocks and RE appreciate first before the printed money makes its way down to the common salaried worker - it’s designed to be trickle down. The rich investor class gets their turn to drink from the Fed’s punch bowl before the middle class and poor do. But in the end, everyone gets a little bit.
The Fed’s action after the pandemic struck saved the day for the poor and middle class - who would otherwise not have anything left. But it did not make them better off, just kept them solvent (on life support, you could say). But the investor class clearly became richer.
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It does not have to be like this. Once you have earned your income and saved a part of it. It is reasonable to expect that it will not be stolen from, and that too from someone who is expected to protect it.
True, maxing out 401k for past 10 years during this long bull market has surely done wonders for net worth of many folks - essentially this is a tax efficient DCA strategy for the common man. Of course, to be in top 1%, one has to be a professional top notch investor like @hanera or @wuqijun - ordinary folks do not have the temperament or skills of these masters.
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Only max for past 10 years? Slacking!
I remember setting my contributions to 100% when I was cashier at Whole Foods. Too bad I only made ~$10/hr and worked 30 hours a week from 2007-2011. Buy the dip!
For sure I maxed out once I started working full time!
Don’t wait to buy RE buy, RE and wait…Corollary never sell