1) 'Marginal buyers' could explain it - but it might be something else. There is a smaller group of buyers, investors, of the inelastic type - who if they run

1) 'Marginal buyers' could explain it - but it might be something else. There is a smaller group of buyers, investors, of the inelastic type - who if they run away, will cause a market to plummet. They are the opposite of price sensitive, they're maybe from overseas snapping up property at 'above asking' because they need to get $1M out of their countries and they're looking for any kind of return that's reasonable. Consider 1% interest rates in a foreign country (or region within the country) and possibly a government who may come and confiscate wealth? This is a risky proposition for the burgeoning international middle class. And of course, the cohort of 'IPO winners' who are less elastic in their acquisitions as well. These 'inelastic buyers' (local, regional, foreign) are important because they are 'strong signals' to the market for price validation. Consider that nobody knows objectively how much a home should be valued at. Everyone is 'looking down the street' to see how some other property sold which is used as a primary reference. In a 'sea of ambiguity' then the 'inelastic/confident' buyers will anchor the prices. And if they don't care (i.e. inelastic), then then prices go up, way up. The confluence of: a) Low interest rates b) Globalism c) The 'belief' that real estate will never go down d) Lack of capital controls and tons of corruption in one regime exporting to another with a different set of rules which creates huge asymmetries (really part of #2) e) Expanding local economy. Means real estate will go insane. The numbers for SF are 4-6% [1] which is actually quite high, similar numbers for Vancouver and Toronto - and this only includes international buyers, whereas in the Valley there is obviously a cohort of IPO Winners. It also means: there will be no local culture. Almost all citizens who were born and raised in an area will be pushed out over the course of their lives so local ideas, customs, language, norms etc. go away. This is not accounted for in our economic models. Edit: FYI the newcomers in the expanding economy won't be these 'inelastic buyers' who are a small cohort and may not be residents anyhow - newcomers will be regional/national/international workers, but the side effect is the same. The Silicon Valley is not a normal community, it's more like a 'workplace residence'. 2)The issue with the traffic analogy - is that some drivers are considerably more likely to cause problems than others. 2-3 break-heavy drivers who are slow to catch up can cause a backlog. [1] https://www.sfweekly.com/news/how-much-s-f-real-estate-do-wealthy-foreign-buyers-own/ https://www.sfweekly.com/news/how-much-s-f-real-estate-do-we... [2] https://phys.org/news/2020-09-foreign-homes-impact-prices.html https://phys.org/news/2020-09-foreign-homes-impact-prices.ht...