Housing Bubble?

The question that has replaced “Where are the mortgage rates?” from my friends is now “Is the housing bubble going to collapse like the stock market?” My first reaction is: if I knew would I be doing what I’m doing? More than likely if I did I would have been named in the Forbes 400 richest people, and I’m not. So here is my best guess. Yes, there is going to be devaluation in the real estate market- just not in Santa Cruz County, or probably not in the Bay area, either. Why are we different? Our little county is pretty well built out, either by available land or existing infrastructure- the water, sewer, streets, etc. Much of the rest of the country doesn’t have this problem. In other States there is still a large supply of buildable land at relatively low cost. Just like the housing boom in the early 80s, builders do what they do best- they build. In the 80s in States like Arizona, housing tracts were being started daily. In the 80s supply soon surged past demand once these tracts were completed and there were no new buyers needing, or wanting, to buy. When there were no sales for their developments these builders defaulted on their loans, the banks foreclosed on the properties (which they couldn’t sell either) and this led to the Savings and Loan collapse.

Whether the lenders have learned from this recent history, I don’t know. However, in California there are 200,000 new housing units being built each year. Unfortunately there are 250,000 new households entering the State each year. Our State isn’t keeping up with demand so the housing prices continue to rise. Now look at our county, not only do we have relatively little room to grow, but the demand for what is here continues to get greater each year. After all, if you were one of those 250,000 new households, would you rather live in the central valley or Santa Cruz?

I don’t expect to see this double digit appreciation of our houses continue, though. After all, starting wages for most of the workforce isn’t enough to buy that starter house of over half a million dollars. If the first time buyers can’t get in, then the move-up chain doesn’t get started either.

However, until I’m on the Forbes list, when you read this consider the source.