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By Tom Newell Talk of a Housing Bubble is Still Just Talk Sales were down in Marin by 1.8% last month. Many naysayers point to this fact and declare that the housing gold rush is over the bubble is surely about to burst. The problem is that these same folks have been predicting that the bubble would burst for the past four years. If you'd listened to them four years ago and decided to sit on the side lines until the home prices got "more sensible", you'd have missed out on home price appreciation of over 64% on average. But aren't interest rates starting to creep up and won't that stifle demand, you ask? Well, rates have risen a little (very little - you can still get a 30 year fixed rate mortgage near 6%) in the past six month. More importantly, let's go back to the basics of supply and demand. First, in Marin, as in most of the Bay Area, there is a finite supply of housing, and they aren't making any more land. On the demand side, the real driving force behind home prices is the job market, not interest rates. As far as the job market is concerned, California, in general, and the Bay Area, in specific, have shown positive job growth this past year of almost 2%. So we have a situation where a limited commodity meets a demand that is poised for growth. Does all this mean that home prices can continue to raise at 15-20% a year? Probably not. Such a rate of appreciation could never be sustained on a long-term basis. But it is not unrealistic to expect that appreciation will still continue at a more moderate pace of around 5% a year. And that's still a pretty good rate of return, especially on an investment that provides you with a roof over your head. Tom Newell is a mortgage broker with Golden Gate Mortgage, Inc. and an attorney. He can be reached at 415.847.05451 or romnewell@comcast.net and by visiting www.perfectmortgageforyou.com. |