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On vacation here in Maine once again, I can’t resist thumbing through local real estate listings to enjoy the thought of any number of these three bedroom homes on or near a lake with an in-ground pool and new stainless appliances on 2+ acres for $95,000. Across the country, the increase in housing prices since 2012 has been 27 percent. In the Bay Area, that statistic has been more like 65 percent with the median single family home price in San Francisco now at over $1.2 million.

Robert Shiller, the guru of housing price movement, in a recent New York Times article, points out that residential housing bubbles can take place without the restraints of Efficient Market pricing because there is no mechanism for professional investors to sell short as they can in stock and bond markets. Selling short is the practice of borrowing stock from someone, selling it at presumably its high “bubble” price and later buying the stock at its future low price to return it to the original lender. The short-seller’s profit as a result of the plunging price comes from pocketing the difference between the cash received from the initial sale of borrowed stock and purchase price paid to return the stock to its rightful owner. Growing amounts of short sales create selling pressure that limits the height to which bubbles can rise.

But with residential real estate, this practice is impossible. Except for some prescient “flippers” who have decided that enough is enough, everyone else is operating on the “greater fool theory” which says that no matter how much I pay today, someone else will always pay more --- sooner or later. In a recent survey, the median expectation of future annual increases was 5 percent per year, but one quarter of the respondents, according to Shiller’s article, expected the gains to be 10 percent per year.

Maybe this time it’s different. A friend bought a condo in a San Francisco high rise and was considering buying the one next door to use as an office. Before he could make the move, a foreign national had instructed his real estate broker to “buy six and pay over the asking price.”

Increased supply is one factor that can bring down home prices. In the Bay area, this factor is limited by water and anti development attitudes, but in the face of both factors, Oakland is undergoing a major waterfront development that will involve several thousand new residential units. Meanwhile, companies like Facebook are rumored to be acquiring tracts of local industrial properties for the purpose of tearing down office buildings to create housing for their employees.

There’s always the option of moving out of the Bay Area, like to Boise if you can get a job there. The problem, however, for those who have done this is that housing is the only expense that is cheaper. Everything else costs as much and there are not as many job alternatives if the opportunity prompting the move doesn’t work out.

The bottom line for those contemplating a house purchase and who have the wherewithal to buy rather than rent, the issues boil down to the following: 1.) how long you plan to stay there, 2.) how badly do you want to own a home for psychological reasons, 3) how far do you want to commute if that is the tradeoff against a more-affordable home, 4) an analysis of the after-tax cost of owning (tax-deductible interest and taxes) compared with the rising non-deductible costs of renting, and 5.) an assessment of the house as an investment assuming the more modest long-term historical gain of about 3 percent per year in housing values. And finally, can you afford the house without becoming a slave to it.

Here in Maine, with high-end homes selling for about $250,000 max, the decision would be less challenging. And I’m told by local wags that Maine’s winters are not as cold as they feel.