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People shout "bubble" every time they hear about a price increase these days. Education getting more expensive? Education bubble! Actual "bubbles" are ALWAYS dr

People shout "bubble" every time they hear about a price increase these days. Education getting more expensive? Education bubble! Actual "bubbles" are ALWAYS driven by speculation - people buying assets they have no intention of using but instead quickly flipping to a bigger fool / another speculator. The mid-2000's housing bubble, the 1980 gold bubble, the dot-com stocks, the dutch tulip craze all had this in common. Misuses of the term "bubble" do not. I could be mistaken but I have not seen evidence that the SF housing market is driven up by speculators. The mid-2000's housing bubble was characterized by rising prices and rising supply. The SF area housing supply is artificially and stupidly constrained by highly restrictive popular regulations in the bay area. There is no reason to believe that it will suddenly collapse, because people actually need these homes and not because they're making trying to flip it to a bigger fool. Nor can they build new ones (which would undermine the price floor). Even if all those regulations were to suddenly go away all at once (wouldn't that be nice?) what you would probably see is gradual price normalizing over many years and you would probably still ultimately end up with a price level above normal. In a bubble the price collapses all at once from speculators all trying to dump the asset that they didn't even have any use for otherwise, but the people who had been buying the asset before were other speculators who are now also trying to sell, so you see a sudden market collapse. Speculators know this so even the expectation of a market downturn can trigger the collapse. If people actually need the homes they aren't going to try to sell them the moment they see or expect the market to soften, precluding a such a momentary collapse.

greenyoda 13y ago
Wikipedia defines a real estate bubble like this: "A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It can be identified through rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline."[1] The rapid price increases might be caused by speculators, but they could also be caused by the availability of easy money, as was the major factor in the recent U.S. housing bubble (bankers handing out mortgages to people who were poor credit risks). There was rampant speculation in a few markets (e.g., Florida), but the majority of people bought houses with the intention of living in them, not flipping them. The market collapsed when it became obvious that a lot of these mortgages would be foreclosed, and the easy money dried up overnight. In the case of San Francisco, the rising market is also being fueled by a huge influx of money: the money coming from rising tech salaries. And I think the key issue in this market is sustainability: if housing prices rise faster than salaries, the number of people who can afford housing would decline, demand would drop, and thus prices. And if salaries rise sharply to meet the rising housing costs, the companies who pay these salaries will have strong incentives to start moving out of the area; if that happens, the demand for housing would also decline. No matter how high housing prices go, a company can't afford to pay an employee more than the net earnings the employee produces, so there's a real limit on how high salaries can go. [1] https://en.wikipedia.org/wiki/Real_estate_bubble https://en.wikipedia.org/wiki/Real_estate_bubble

greenyoda 13y ago

Wikipedia defines a real estate bubble like this: "A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It can be identified through rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline."[1] The rapid price increases might be caused by speculators, but they could also be caused by the availability of easy money, as was the major factor in the recent U.S. housing bubble (bankers handing out mortgages to people who were poor credit risks). There was rampant speculation in a few markets (e.g., Florida), but the majority of people bought houses with the intention of living in them, not flipping them. The market collapsed when it became obvious that a lot of these mortgages would be foreclosed, and the easy money dried up overnight. In the case of San Francisco, the rising market is also being fueled by a huge influx of money: the money coming from rising tech salaries. And I think the key issue in this market is sustainability: if housing prices rise faster than salaries, the number of people who can afford housing would decline, demand would drop, and thus prices. And if salaries rise sharply to meet the rising housing costs, the companies who pay these salaries will have strong incentives to start moving out of the area; if that happens, the demand for housing would also decline. No matter how high housing prices go, a company can't afford to pay an employee more than the net earnings the employee produces, so there's a real limit on how high salaries can go. [1] https://en.wikipedia.org/wiki/Real_estate_bubble https://en.wikipedia.org/wiki/Real_estate_bubble