The real estate industry is on fire throughout much of the country. For real estate industry professionals and current property owners that is a good thing. For rapidly growing ranks of folks who rent- it is not such a good thing. Rents are increasing drastically in every major metropolitan area in the country. Coastal cities like Seattle, Portland or San Francisco have seen the most dramatic rises. In San Francisco, a typical home that would have sold for roughly 650,000 at the height of the 2009 recession now sells for close to 1.5 million. Such astounding gains beg the question- is the United States in the middle of a new housing bubble?

There is little industry consensus on the state of the market and if it is a bubble. SF Bay Area real estate agent James Isholm has been in the business since 1979; he had the unfortunate task of trying to make it back when mortgage rates were in the double digits during the Carter administration. The economy was in a tailspin during the 1970s due to the Arab oil embargo and resulting economic crisis. Jerry was also around during the insanity of the 1990s and early 2000s crisis. His take on the current market shows how crazy things have gotten in some cities.

“I have seen run of the mill, less than 2000 sq foot homes sell within hours. By the time a property has been on the market, it is not uncommon to see 40 or 50 offers in certain highly impacted areas like San Jose or Los Altos. I have never seen a market better for sellers, and worse for buyers.” Others have not been convinced the market has peaked, James Swaymore, an Analyst with KJ Realty, believes that a combination of factors is driving the market, unlike the 2009 bubble. “The 08–09 housing crisis was driven by the bottom falling out from artificial demand- essentially folks were getting homes without the ability to pay- that is far from the case these days.”

He may have a point, far from being the NINJA(no income no job applicants)of the late 90s and early 2000s, today’s major metro market buyers tend to be wealthy, well educated and are thoroughly vetted by banks. The Dodd-Frank financial regulations that Congress put in place, while considered to be not far-reaching enough, did constrain mortgage lenders considerably. Lenders are now required to verify income, employment, credit history and other factors without fail. Computer-optimized advanced lending algorithms did not exist en masse during the last boom, and the ability for higher-ups and regulators to track lender and broker activities is much more detailed. So we can rule out a bubble caused by poor lending standards.



Supply constraints are an obvious contributing factor. These constraints are artificial in many metro areas like the San Francisco Bay Area. Neighborhood groups and developers are constantly at odds about new construction, especially in pricier regions of The Bay. This political fighting prevents supply from entering the market, therefore pushing home prices ever higher. Traffic loads in many major metros are reaching maddeningly intense levels. Some people make the commute from Stockton, CA, to San Jose, CA- a 6 hour round trip commute- daily. Even in car-crazy California for many residents, this is becoming too much to bear.

One reason why this may not be the sign of a bubble is the continued political dominance on NIMBY groups in many counties and cities in high-growth regions. New units take years to come online, especially with stringent environmental and labor protections that are common in the affected areas of the US. This delay may provide upward pressure for home prices to keep rising, or at least remain stable in the near future.

Foreign demand, long a driver of growth in all of these cities, may be slowing down. International visitor numbers to the United States are down sharply. Scrutiny of visas to come the United States has increased with the current administration. Time will tell if the new administration’s policies will cool down the market.

The diaspora from many of the worst-hit cities in the countries is also influencing housing prices- both inside and outside of the primary metro areas. Californians are turning up everywhere from Astoria, Oregon to Colorado Springs, Colorado. Many of the residents of these cities, and many others like them have developed a bit of an attitude about the influx of newcomers, but others see opportunity in the people joining these communities. Many of them have taken advantage of California’s top-notch higher education system and are bringing money to buy houses- cash. In many ways, the growth situation in many inland cities is driven by some of the same factors as the coast.

The question remains- are we currently in a real estate bubble? While many people want to believe that prices are going to stabilize, much of the evidence points to continued growth. Remember that even during the 2008–2009 crisis many homes in the Bay Area stabilized while the rest of the country was in freefall. It seems like that metro areas like Seattle, Portland, and Vancouver that have experienced similar rapid-fire growth will be able to weather the storm as well. The relationship between housing prices and the economy is difficult to see, and even more difficult to understand. One truism remains, as the actor Will Rogers so presciently stated: “Buy land. They ain’t making any more of the stuff.”

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