If you are looking for a bust of a balloon....DON"T!

 I recently spoke to a few buyers.  They had the attitude that we will see a bust in real estate for a sundry of reasons.  Yes, people are moving out of state and the area.  Yes, the rental market is collapsing.  Yes, prices of being cut, some drastic and some minor.  Others opine that the Democrat sweep with raise taxes, destroy high tech. Still other like to look back at the Financial Crisis of 2006 and think this is the model of the near future crash like 2006/07.

So sorry to disappoint you.  I agree that there are a number of factors that can weigh on the real estate market.  They a not deal busters.  The key is interest rates.  They are  just too low and the Fed is willing to fund capital into the system.  Congress too is willing to send checks and fiscal support to the American Public  That does not seem to me to be the making of a collapse or bubble busting.  

Near term I do believe you have seen the drive upward in prices have ceased and the trend is come off the top, but no new high.  No bust and collapse but simply and decline in prices 10% or so but with liquidity and buyer acceptance.  We can expect to see prices bouncing along with a small trend down by mere fractions.  The equity values have too many head winds to stop an out right advance.  The biggest issue as I see it is the rental market.  Renters, have been from my experience, predominately Facebook, Google and Start up employees.  They were a mixture of HB-1 from India and Asia and recent US graduates looking for the life of San Francisco and the wealth creation of Silicon Valley.  They drove up rental prices.  Their first destination was Valencia Street and the Latin district of San Francisco.  Rents were dirt cheap and the night life fun and full of excitement.  The rents increased and many of the low income people replaced ended up on tents surrounding the area.  Then the renters jumped at East Menlo Park.  Prices of homes were cheap, $700,000 or so with walking distance to Facebook  Other looked along the Cal Train route to find affordable housing and sooner or later low priced homes.  The perks of many were Uber or Lyft cards.  They jumped on Cal Train and took Uber or Lyft to work.  Some used bikes to get to work after a Cal Train ride.  Just like college, but what a salary!  Not long for a Facebook person to take down $250,000 a year, buy an old house fix it up and turn around a neighborhood.

I recall an interstate truck driver in East Menlo saying he wants me to handle a sale because he can't park his truck on his front grass.  Sell it, and he's moving to a rental he owns in East Palo Alto.  Soon that changed.  Police regulation increased with supplements from Facebook and neighborhoods took on a new face and life.

As prices increased the HB-1 crowd had a different attitude of home ownership.  They were returning to India and starting their own start up and buying homes for their parents and family members with what was just a down payment on a home here.

All Good things come to an End!  The pandemic changed everything.  Work from home became the vogue.  Facebook saw 50% or more in the future working at home.  Google and Twitter followed suit.  Apple joined the crowd.  The Startups were bought out, failed or moved, to those that stayed expenses were cut to survive for those that hung on, the Uber and Lyft tickets ended.  Now the exodus began.

The Virus now chills the California Landlord's Pricing power.  Who needs Rent Control and legal action?  it usually is on the ballot at the top and prices really never see those highs again.  The CPI indicates the hits to the economy and the rental market follows suit. 11.4% unemployment does not mean high rents.  Renters unable to work, move to where they can work and where living costs are low.  The rental class is the mobile class that affects and directs our local economy the most.  $5000 a month and no pets, becomes $5000 a month pets accepted, then $4500 per month and pets, next is $4250 per month pets and landscaping.  Where to next Landlord?  The apartments start out with one month free rent, then two and next three.  The law of supply and demand dictated by a mobile economy with out roots.

Within this group are the barely making it.  The school teacher, police, and fire fighter.  The municipal staff at the low end of the pay scale.  What will hit this area is the forced sale of homes due to the cost of living and layoffs due to Virus fighting mandates.  

The tourist industry is on the brink.  

Two Silicon Valley Hotels have defaulted on their mortgage.  Bed and Breakfast's fail.  Air B&B's once a great cash flow that too many leveraged on, is now the knife at their throat.  This is the Canary in the Coal Mine!  A debt default means the mortgage that have been pieced together as investments called "Collateralized Debt Obligations" in bond portfolios are discounted and investors who bought them lose value.  This is the same thing that caused the crisis of 2006-07. if not in investments the Banks now have non performing loans and their ability to lend deminishes.

All this means sooner or later low end houses begin to flood the market.  That is our potential market unless we see relief.  That pain for us is pleasure for those outside the area.  Tahoe homes are picked up and in shortage.  Homes in the foothills and Sacramento area go to multiple offers.  As a result the over all statistic is one prices in california are going up.  Take the statistics apart to get the real picture.

Still the high end home hold.  Prices go off 10% and sell.  Days are the market remain low, indicating a sellers market.  Renters who were waiting for the market rise to stop are now shopping.  Their jobs are not dependent on work at home, their positions do not allow them to live elsewhere.  

Prices have been weak but the market has been resilient in Menlo Park, Palo Alto, Woodside, Atherton and Portola Valley.  Parts of Redwood City too have been resilient.  

Zillow has been forecasting 6% home price appreciation for the next 12 months.  This is a big change from the flat to slightly negative of a few months ago.

Renters who have saved, repaired their credit rating if they lost a home in 2006-07 can now look to find their home with low interest rates and amenable sellers.  This looking to move up, take the lower price at sale with the benefit of a lower price at purchase.  

Retiring and moving still have high prices.  Remember there is no bell at market bottoms and tops.  A profit is better than a lost.  Don't choke on your ego.