Ask HN: Buying house in SF Bay Area Now or is this another bubble?

According to my magic 8 ball...

Reply hazy try again

Hard to say, timing the market is hard. There are reasons it could continue to go up (if the economy continues to improve, limited housing stock, lots of high income tech workers). There are reasons it could go down / level off (it is a bubble, interest rates rise, fundamentals as to what middle income people can afford).

As someone who is looking to buy in a couple years, my take on it is:

a: housing prices cannot rise exponentially forever, there has to be some relationship between the price and people's ability to pay.

b: if interest rates do go up a lot, then prices should come back down again, especially if it starts raising people's ARMs a lot. This would make the loan have a higher interest rate though, so it favors having a big down payment.

c: Maybe I don't care about timing the market, it seems hard to do anyway. When I find something I can afford, I'll be holding onto it for decades, so how much I could sell the house for later on ought not to be a factor. Price is not the same thing as value.

This has most of the signs for another bubble, including people talking about why this time is different.

However, we aren't yet seeing the massive amount of money-losing IPOs.

So, when in doubt, trust Uncle Steve http://steveblank.com/2011/06/17/are-you-you-the-fool-at-the...

What timescale? Over 50 years, I'm almost certain this is a bubble, and houses in the Bay Area of 2070 will be like houses in Detroit now. Over 5 years, who can say? I wouldn't be surprised if the Bay Area's average income (and hence house prices) only keeps on going up over the near-term; a number of companies here are still in the early stages of their growth curves.

Why do you want to buy a house/condo?

(I learned some of these from trading on the stock markets; not fun)

a) Take a survey. If most people feel it's a bubble, Buy : the bubble is just starting. This is a momentum trade.

b) Take a survey. If people have started feeling that "this is a new paradigm, things will ALWAYS go up, didn't you get the memo", with a particular zombie-like proselytizing look in their eyes, Sell. It must be "obvious" to them. For example, the exact High in Apple was hit when the article about this lady who put all her savings in Apple "because Apple only goes up, right?" was published.

c) Collect transaction data. Learn to identify Euphoria by jointly considering both price and volume patterns. Sell if Euphoric Highs have been hit.

d) The keep-it-simple approach : Buy if you want a home and the mortgage is not much more (or even lower) than the rent you would pay and you believe that you have a good chance of paying it off (no ideas of doing startups without a salary, for example!)

I would recommend doing more research. Read BogleHeads.Org (it's like HN for financial news). Good luck!

Even in my lifetime (bay area native), there have been several collapses in the housing market in this area, about one each decade. There is no question the prices will eventually go down, and I think a lot of the optimism is from people who have recently come from places like india and china where they have not personally experienced a collapse in housing prices, and where they have not been through the roller coaster in this market yet.

My take is to not look at housing as investment, but a utility; don't overstretch yourself, don't buy with the expectation of any price appreciation, and do a serious analysis as to whether, given your circumstances, you should buy or rent. For me, the calculus was biased by the fact that this has been my home all my life, my extended family is here, and my work is here. I know I will be here long term. For others, it's not so cut and dried.