Saturday, July 2, 2016

Explaining Real Estate Prices

Rent and home prices in the Bay Area (like Palo Alto)are out of control. And more:

It's a response to the surging cost of rent. In San Francisco, the median rental price in February was $4,547, a jump of more than 10 percent from a year ago, according to Zillow, the real estate marketplace. In San Jose, an hour south, it was $3,453, a rise of 8 percent.

A supply or demand issue? An admixture of both, primarily, due to zoning laws, demand, and overall scarcity in this much-sought after region. Others predict it is a bubble that is on the verge of bursting.

Or maybe not:

  "This is not a bubble," says Chris Thornberg, an economist in Los Angeles. "The money flooding the Bay Area isn't built on speculation like the last boom. These are people with real money, with real incomes. They have enough money to live in whatever cities and neighborhoods they want, so if there's not enough high-end housing, they'll just gentrify lower-income neighborhoods."

From the early 90's all the way up until 2006, we had a home building boom in less desirable regions, but the most high-end regions there is still great scarcity. Not too long ago, it was not too uncommon to be driving down the interstate 101 California and just see swathes of development.

The construction boom is quite evident.

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