How Close to the Top? - SF Bay Area Housing Affordability Analysis - (w/ Charts & Graphs!) by me

82 Replies

Executive Summary:

Because of the real estate I own, and prospective potential purchases, I wanted to know more about where we are in the real estate cycle in the SF Bay Area. Inspired by great students and researchers of historical data like Bruce Norris, Shawn O’Toole, and @Minh Le , I decided to dig into the Housing Affordability Index (HAI) in the Bay Area a bit more. So I downloaded the data and got to work! I found some interesting observations in my analysis, so I dissected it some more, made some charts and tables, and here it is for your informational pleasure.. Feel free to share it. A summary of my observations:

  1. 1) We have marched the majority of the way back from the most affordable housing in 2011 towards the least affordable housing watermark in 2005 – 2007. In fact, most Bay Area Counties are more than 70% of the way back to peak unaffordability! Should they ever get that unaffordable again anyway?
  2. 2) Historical lows and highs in the HAI appear to be good predictors of a market correction. And we’re getting closer..
  3. 3) The difference, or “spread” between HAI’s in lower-end and higher-end counties decreases (convergence) as the market gets hotter. This statistic is also decreasing today towards 2003-2004 levels.
  4. 4) This spread between lower-end and higher-end county HAI’s may be another good, new predictor of market corrections.
  5. 5) Alameda and Marin counties are closest to being unaffordable, while Sonoma, Contra Costa, & even SF are relative deals.

    Disclaimer: This data is believed to be accurate, but may not be, and should not be relied upon. Do your own due diligence on any matter concerning your decisions.
  6. Chart 1: Historical HAI in Bay Area Counties; Data Set 1991 Q1 - 2014 Q3.
  7. Notice how close we're getting towards historical unaffordability. And see how unaffordability across counties converges during a "hot" market, and diverges during a "crisis" market.
  8. ----------------------------------------
  9. I started with wanting to know where each Bay Area county’s HAI is today, relative to its historical highs and lows. In addition, I wanted to see how far the HAI’s have come from their most affordable during the bottom of the crisis towards their least affordable during the peak of the last boom.
  10. Well.. We’re most of the way there! – we’ve retraced more than 70% of our way to being as unaffordable as 2005-2007, from the most affordable in 2011, in the majority of Bay Area counties. And should it ever really get to being as unaffordable as it was back then!? There’s a lot of info in the table below. So let’s dig into the details a little more..
  11. --------------------------------------------
  12. Alameda, Marin, San Mateo, & Santa Cruz counties are closest to their least affordable watermark. Alameda County is the most significantly under its median HAI of 27%, at 19% today. Alameda unaffordability has also climbed 76% of the way back towards its least affordable, from its most affordable. Marin is similar, at 15% HAI today, and having marched 77% of the way back from peak unaffordability.
    Sonoma has the strongest value indicators, exactly at its median HAI. At 29%, it is 22 percentage points (ppts) from its all-time low of 7%. On the other hand, it was also the most volatile, and probably “overshot” most significantly during the boom. So it could correct significantly sooner than the 7% low HAI, which was the lowest of any Bay Area county at any time.
    Similarly, Contra Costa County has better relative value indicators, only having climbed 62% of the way from its most affordable towards its least affordable ever. At a current HAI of 19%, it is still 11 percentage points from its peak unaffordability of 8%.

Chart 2: High, Median, Current, and Low Historical Affordability Across Bay Area

See how far we've come back from peak affordability towards peak unaffordability? All counties are more unaffordable than their historical median, except for Sonoma, right at its median. Should they ever get to peak unaffordability again?

Surprisingly to me, Santa Clara County had mixed indicators, only marching up 70% of the way to historical unaffordability from the most affordable watermark. Currently at 21% HAI, it is the most affordable besides Sonoma County of the 8 counties here. It also has 10 percentage points to go before hitting its historical low of 11% HAI.

And perhaps the biggest surprise of all, San Francisco! Despite constant complaints about it being one of the most expensive places in the US, it has only climbed to 67% of its historical unaffordability, just below the middle of the pack. The HAI is only 2 ppts below the median, and has 7 ppts to go before hitting the min. It also has the lowest range of HAI, so these ppts to the worst represent more relative movement in SF.

Table 1: Summary Data & "% of the way to peak unaffordability"

You'll notice from Charts 1 and 2, and looking at the top right corner of Table 1 that "higher-end" and "lower-end" counties tend to converge in unaffordability during a hot market. In fact, almost surprisingly so. This correlation tends to hold true over cycles also. I have various theories I've written, but I'd like to hear others' opinions first..

So here's a chart measuring the difference between the least affordable and most affordable HAI among Bay Area counties (convergence), as a potential indicator of risk building in the system - especially if most counties are approaching low historical affordability...


Look Below at Chart 3.

If you’re thinking, “What the hell is J talking about in this xmas-colored chart?! Convergence? Who cares?” Stay with me for a second. This could be expanded to inland areas vs. coastal, Class A vs. Class C, etc. The idea is about how frothy markets “bid up” lesser-quality assets, they converge, then everything blows up and they deviate significantly again (then buy!). I see it as sort of an “overbought/oversold” indicator. You can see this convergence as all Bay Area Counties become utterly affordable approaching 2005 and 2007, and back in 2000. How close does that convergence appear to be taking place today? Getting closer!

Chart 3 - High / Low HAI Spread - 8 Bay Area Counties

I think that if the Spread is getting into the danger zone, especially as HAI’s march closer towards their record unaffordability, there are potentially big risks building in real estate. As of 9/30/14, the Spread is at 14 ppts, after bouncing from 7-16 ppts since the beginning of 2013, within the warning zone of 15 ppts, and crossing into the danger zone of 10 ppts briefly. It has not yet approached the “RUN!” zone of 5 ppts.. yet.. But again, should it every approach the 2005-2007 levels again..? How close are we? (See red question mark below)

We’re back towards 2003/2004 High / Low Spread, but took a brief dip towards 2006-2007 levels. Lower-end and higher-end counties are converging in unaffordability towards what they did in the prior boom years. Couple that with the fact that most Bay Area Counties have marched more than 70% of the way back to the least affordable HAI in history, and we have a couple strong indicators that risk is building and we’re close to the top.

How close are we to reversion / disaster?

With the understanding that prices should probably not get as unaffordable as they did in the last boom – because it was driven by so much nonsense financing – should we ever get to such little affordability as we did in the last boom, especially from 2005-2007?

So how much less should the HAI be stretched in this upward cycle, relative to the last? Only 80% of the prior distance from peak to trough of HAI from the 2006 cycle? 70%? 90% of it?

Will we need looser lending to maintain current price levels, or any additional gains?

How will the interest rate impact on affordability be offset, if not by lower prices, or looser lending?

Can the market still increase without the benefit of continually lower rates to improve affordability, as happened in prior cycles?

Should the HAI spread between low-end and high-end counties ever go as low as it did during the last boom? (In other words, should low-end areas become just as unaffordable as high-end areas in the future, again?)

Knowing these things, what are you going to do? Does it impact your strategy? Does it impact your outlook?

For myself, I’m re-thinking some of my plans, and staying cautious. There are signs we’re approaching new record unaffordability. And that can impact the whole market..

What do you think?

Medium logoJ. Martin, SF Bay Summit | | 510‑863‑1190 |

J. M.

 Very interesting analysis.  Like you said I am surprised at both San Francisco and Santa Clara counties.  I am following  multi family in Santa Clara market  and am surprised to see the HAI where it is. 

We started investing only last year and would really like to buy one more property soon but have been cautious because of where we are in the cycle.

We are worried that if the interest rates go up to 5%  or higher we may be in trouble. The Multi families we are looking at are trading around 4 to 5% cap so not sure how they can stay at that prices.

You have put in a lot of work into this :). Thanks for sharing. Will be following this thread to see what more experienced investors in the area have to say.

I think its absolutely clear that we are approaching the peak of this real estate cycle. are we at the peak? how much is there left? we can only know after the fact, but i would say that right now i see 2 options. 1- long term buy and hold for cash flow if you are liquid enough to get there on the rental side, ie- having a very small or zero mortgage by coming in all cash or nearly all cash 2- buying distressed properties that need lots of labor to bring them to market value, and even if the market is sliding, make sure your purchase price is so amazing that you can weather a declining market situation.

I wonder how inflation plays into this. Technically affordability should factor this in (right?) but if four different quantitate easings have pushed massive floods of money into the market, forcing inflation over time, then prices could rise without raising the genuine asset value. Would that cause the same cataclysmic correction? Only if incomes are not rising to match them. This is why I like you using the HAI, but I do wonder how up to date their income measurements are (hence the impact of inflation).

Thanks for taking the time to do/share this detailed analysis @J. Martin . Wish I could make it down to the SF Meetup this week to yack with you about it in person. I had a great time last month. As for your conclusions from the data, seems like sound thinking to me, but I'm pretty new to this game. Hopefully some long timers will jump in with some thoughts/reactions. I wonder what the implications are for up my way, 2 hours north of SF, 1 hour north of Santa Rosa. Off hand I'm thinking we tend to have a delayed reaction up here, so maybe a longer window, but on the other hand I would guess we are slower to rise, but maybe fall just as fast. 

Anyhow, thanks for sharing your analysis. Interesting stuff.

Medium epp logo 1Orion Walker MBA, Eagle Peak Properties


So let’s do a little more analysis. Again, with the idea that we should probably never get to the same level of unaffordability as the last crisis, unless we have loose lending preparing us for another big boom/bust cycle, how much less? Just for “shits and giggles,” let’s posit that the market should only run 80% of the way back from the most affordable to the least affordable it has ever been. For the math folks out there, I took 20% of the range in HAI for each county, then added those percentage points of HAI to the min HAI for the county to come up with “80% of the retracement from the most affordable to the least affordable.” That then became the "new" min HAI for the county - the place it shouldn't get past without loose lending and silly borrowers.

If we use that metric, then we are already very close to the top! Within just 1-3 percentage points of HAI in most counties!

We're almost 80% of the way back to peak unaffordability in most counties!

As you can see, Alameda and Marin Counties are only 1 percentage point from 80% of its way to peak unaffordability! And that was in Q3 of 2014! Alameda is probably already below the 18% HAI! How is it going to consistently go higher without looser lending? San Mateo County and Santa Cruz are only 2 percentage points from this 80% watermark. SF  & Santa Clara is 3, Contra Costa 5, and Sonoma still has a ways at 13 percentage point difference.

@Radhika M. , What do you guys think?

How far do you think towards 2005-2007 unaffordability we should get? 80% of the way from the range of most affordable to least affordable, historically? More? Less?

What do you think about using a spread between HAI in high-end and low end areas (anywhere) as a gauge of how hot the market is (how much markets converge), in addition to traditional indicators?

I was surprised to see how close to record historical unaffordability it actually is right now here. Are you surprised at all? What are you doing now? Any Changes?

And what statistics are you looking at?

Medium logoJ. Martin, SF Bay Summit | | 510‑863‑1190 |

When the data is pushing historical extremes, I tend to take note.

As we have talked about in the past my biggest concern for the bay area and other Tech areas is that if Tech stocks have a correction, the real estate market could change virtually in an instant, as opposed to the long dragged out market cycle that real estate investors usually have to work with.

Who knows what will happen.  There is no guarantee that tech stocks will go up or down, but I do know that this bull market has gone on longer than most without a significant correction.

I just feel that there are other good options which are less exposed. I personally would take profits and move into other areas or vehicles with more upside potential.  I got out a bit early last cycle. In hindsight I gave up a bit of profits, but its better to get out early than late. I didn't make much money during the worst years, but I didn't loose.  

Take what I think with a grain of salt, J. M., but since you asked...  

I'm not one to opine that we are in the face of an impending correction, I think it's probably too soon for that. I do think that we will likely see prices plateau for a while before rising again, and the plateau might last a while. I remember prices hardly budging from 1992 to 1996, we could see something like that again.  

The issue is that prices push the limit against incomes at which point you have to see income growth in order to see price growth. This was the situation in 2003 also, but instead of incomes putting a ceiling on prices, "creative" lending structures were implemented to allow the ceiling to be penetrated without the income growth.  It remains to be seen if lender's memories are short and they repeat the mistake, but I doubt they will...they still have remnants of the crash on their books as a reminder.

I see a calming cycle but not a calamity. Those who are waiting for prices to crash before buying real estate may never get their day.

Medium praxis capital logo cmyk stacked 900pxBrian Burke, Praxis Capital, Inc. | | | Podcast Guest on Show #152

yes I agree with Brian . I think its too soon to call for a crash . 

Whenever in doubt I always look at this wonderful analysis by Paragon .

IT shows data from 1983-2014 for San francisco and shows the last 3 recoveries and last 3 bubbles . I do think real estate is a momentum play and it takes time for people to believe that things will go other way just as it took time for people to think real estate will start rising  .  We are still not at the point where you hear the phrase  that "real estate never goes down ". When we start hearing of that its time to SELL !!! :-)

Each of the last 3 recoveries ( other than the dot com crash one ) we have risen 100% from the bottom (as per the link chart ) . We are in 35-60% range from the bottom now in most of bay area cities which means the cycle still has legs . Since the correction was more than the last recessions 27% v/s 10% on average we may even shoot that 100% recovery this time . That does not mean it is a done deal, any major economic shock or external factors like crisis in china could derail the recovery but it could be treated something like the dot com crash of 2000 where the market slipped 10% and resumed its rally quickly unlike the typical real estate recessions .

Another interesting analysis from the chart is that the last couple of years you see maximum appreciation which has been 15-20% per year on average . 

Some good comments from the posters above. Paragon RE has the best RE analysis for San Francisco I've seen but they won't make a call on the direction of the market. 

Venture capital burn rates are at a all time high with lofty valuations for these new start ups. Dot com bust 2.0 will slow the real estate market in the bay area if it happens.

Redfin shows the majority of homes in Santa Clara and along the peninsula as Hot. Inventory is low with great demand from buyers and it doesn't appear inventory problems will dissipate for this year. A interest rate increase may slow things just a bit but I just don't see many headwinds for the near future.

Joining the meet-up later, hope you can share this there J Martin.


What do you want me to say when all of the heavy hitters already discussed about it?  I already shared everything with you off-line.  Do I need to repeat it here?  :>)

@Sid N. , great observation.  Our market tends to double in value from its bottom.  In my opinion, the term bubble has been misused so much recently.  According to the textbook, we only had one bubble in 2006.  The market was frothy at other times.  

Median home values have rebounded 80% from the bottom for the City of San Jose, and 110% for Santa Clara County as a whole according to me tracking.  One could argue that the market was over-corrected so there should be some more upside potential.

J, you're correct that the low- and high-end markets tend to converge as we get close to the top and diverge at the bottom of the housing market.  Playing the cycles can be very profitable, but only if you know what you're doing.  Otherwise, it's speculating.  

Regardless of where we are in the real estate market cycle, we should always buy when the property meets our buying criteria.  We should buy aggressively when things go on sale and be selective when deals are thin.  We should consider selling when things get stretched too far beyond our buying underwriting standards.  See how easy it is?  LOL!!!    

@Sid N.

 Thanks for sharing the Paragon link. was a very good read.

@Johnson H.

 I have also noticed how Redfin shows most houses in areas I am looking at as Hot. Lots of pent up demand in the market.

I see a lot of similarities between this Tech Boom 2.0 and the last Tech Boom 1.0.  Nasdaq hit 5,000 in March 2000.  We had a housing shortage.  Rent went through the roof.  Real estate prices went through the roof.  The biggest difference was interest rates.  it was 8% then and 3.75% now.  Also, a lot of tech companies back then weren't profitable while most tech companies now are profitable.  Company valuation wise is another discussion.  

The housing market took a small dip after 9/11/2001.  However, a lot of the tech money had already been made even though the Nasdaq took a dive to 1,200 during the recession in 2002-2003.  Property value went up again shortly after that.  Thanks to ninja loans in the mid-2000's, things went to the moon.

I suspect a lot of money in this Tech Boom 2.0 will stay in the Bay Area even after the Tech bust 2.0.  So far we have home prices going up because of 1) lack of inventory, 2) rising rents, and 3) wage inflation in tech.  I suspect we will get wage inflation in other sectors real soon.  We're in a balance recession.  The easiest way to get out of it is through inflation.  

With that said, I believe the next housing correction to be mild.  An opportunity once in a lifetime had come and gone.  Waiting will likely not going to pay-off this time around.

@J. Martin , nice analysis! I love that my fellow investors are so data driven.

Quick logistical question: how did you get the charts to show up on your post? I started my first forum today and had such a tough time trying to post a chart that I had to type all of the data and it only showed in columns. (not very visually pleasing...)



Originally posted by @Genise Edwards :

@J. Martin , nice analysis! I love that my fellow investors are so data driven.

Quick logistical question: how did you get the charts to show up on your post? I started my first forum today and had such a tough time trying to post a chart that I had to type all of the data and it only showed in columns. (not very visually pleasing...)



Genise, the charts that J. Martin posted are images, so it looks like he took a screenshot of the chart and posted the resulting image. I could be wrong on that ...

J. M.

Pretty impressive analysis J. The high/low spread chart is top notch. I think I am in Brian's camp moving forward. The average down payments are still in the 30% range for San Francisco proper. Yes it is going south on the affordability part so that is key too but the buyers don't seem stretched too thin yet...

This cycle has a better chance of plateau ing vs busting is my take for most of Calif. 500,000 new jobs last year did not hurt either. The circumstances with the previous cycle were so much easier to read that a possible bust was on the horizon. This cycle seems fundamentally different in many ways. 

There are some who want to bailout now after seeing what happens with a GFC. I can totally understand that. Shait can happen anytime but that maybe a once in a lifetime event. As we know now everything bounced back. Perhaps whole new levels are possible from this point. We are almost 10 years later now and the wheels did not come off as some thought.

I have been noticing cap rate compression even in central valley areas ... 4% cap rate SFH in tracy,manteca! Either market is expecting wage inflation leading to rising rent (following walmart announcement ) OR appreciation via dollar devaluation.

   I am currently reading 'currency wars' and 'death of money' by same author -- interesting stuff.

Nice analysis J. Appreciate the graphs too. Keep in mind though, that at least in the more expensive Bay Area metros, housing prices tend to decouple from affordability. We need to more carefully define affordability. Is it just based on median incomes?  If so, it doesn't take into consideration existing assets. I.e. You have move up buyers with lots of existing equity, so even if their incomes aren't through the roof, they have significant down payments when they sell their old home and trade up. You also have out of area foreign buyers, who tend to be wealthy and want to park their money in blue chip real estate, or have family/friends here to help them get into the market.

But at any rate, my vote is not for a "crash" per say like we had in 2008-09, but more of an appreciation slow down or even flattening in 1-2 years, possibly coupled to a tech slowdown and/or a significant global economic event. I think too many people are conditioned to believe that a correction has to be pronounced, but that doesn't always happen. Going sideways for a few years is a very real possibility. And could lead to buying opportunities as well :)

Hey @Jmartin,

Excellent post! And you read my mind....

I love the data, but even more important to remember is that ultimately, demand (Buyers) drive the market (and create the data points.) What precipitated the 2008 financial and foreclosure debacle was a reversal of buyer sentiment. As an agent working mostly Sellers, nuances of a slowdown in the insanity began to surface in late 2005. The market was too hot and buyers dug in to wait. The foreclosures obviously took several years to kick in, then snowball.

I am not saying we will see anything quite like that again, but see my post on twitter  today regarding vacancy of commercial space in SF. We are seeing an uptick in price reductions and fewer offers on homes. Any Sellers thinking about waiting for a peak might do well to get in the game this year. 

All the best,



@Minh Le , one of your comments above, coupled with my curiosity about the affordability impact of interest rate changes, caused me to dig in and do more analysis. You said:
“So far we have home prices going up because of 1) lack of inventory, 2) rising rents, and 3) wage inflation in tech.”

I think that interest rates have a lot to do with it too, so I busted out my extra sharp pencil to try an approach at quantifying at least the interest rate impact portion. I'll leave you to quantify the remainder of them. It would be interesting to see a rent/PITI chart over time for different areas.. Please let me know what you think.


Of the approximate $210K change in median home prices from 2008 to 2014 in the Bay, about 80% ($171K) appears to be attributable to the mortgage payment impact of interest rate reductions from 2008 to 2012, and the remaining one-third to everything else, including income changes, tech, foreign buyers, investors, etc etc AND reduced affordability (aka, buyers paying a bigger percent of their income on PITI; aka, reduced HAI).


From August 2008, when the conventional 30yr fixed mortgage rate was 6.48% to December 2012, when the rate was 3.35%, we experienced a quite large 313bp decrease in 30yr conventional fixed rates. In Q3 2008, the median Bay Area home price in my CAR data set was $508,722. For the 6.48% rate at the time (St Louis Fed / FRED database), PITI would have been about $3,142 w/ 20% down. At a 30% front-end housing ratio, Johnny & Sally Homebuyer would need about 3.33X that in monthly gross income, or $125,680 annualized to qualify for the standard conventional loan. As the Fed brought rates down 313bp to 3.35% by December 2012, you would only have to pay PITI of $2,369 on that exact same purchase price (and only need to make just under $100K/yr instead of $125K). Did you remember to write a thank-you letter to Bernanke?!

FOLKS COULD AFFORD $171K, or 34% more, due to rate decline

Alternatively, and maybe more importantly, how much MORE house could Johnny & Sally Homemaker afford in 2012 due to the Fed’s decrease in rates, even if they didn’t make a dollar more in income – and no other market improvements? For that same $3,142 mortgage on their $508,722 purchase price in August 2008, they could have bought a home with a purchase price of $680,000 with the low-low rates of December 2012. That’s a $171K, or 34%  in purchase price directly attributable to the decrease in mortgage rates over that period of rate declines.

Over that period, the median Bay Area price increased by 18% to $598,100. Huh!? The decline in rates implies that Johnny & Sally Homebuyer can afford a house 28% more expensive in 2012 than 2008, yet median home prices were only up 18% over that period. What’s up? Well, there were a lot of other issues with loan qualification and consumer sentiment in 2012 (end of the RE world, etc) – if you remember back that far. Which is why the Fed took rates so low, to make it as affordable as possible to provide support to the market. Then what happened..? Well, lending finally got back to more normal underwriting and credit scores and consumer sentiment improved. This allowed the 313bp decline in rates to really help push up price.


By December 2014, median SF Bay Area prices were up to $718,370. But let's remember, just from the change in interest rates from 2008 to 2012, Johnny and Sally Homebuyer could already afford an increase in price of $171K, from $508K to $680K. So the additional contributions from other factors besides interest rates make up the remainder of the about $38K increase to Q4 2014's median home price of $718K. Of the approximate $210K change in prices from 2008 to 2014, about 80% ($171K) can be attributed to the mortgage impact of rate reduction, and the remaining one-third to everything else, including income changes, tech, foreign buyers, investors etc etc AND reduced affordability (aka, buyers paying a bigger percent of their income on PITI aka reduced HAI). This is one way to measure it. There are others..


That's been a huge bonus to housing prices, on top of tech, inventory, and rents up.. Interesting that wage growth has been minimal, even as employment has dropped so low, almost to "full employment" as defined by the Fed – wherever that truly is.. This has been lucky for the Fed and everyone else, because it has allowed them to avoid raising rates, and another "taper tantrum" for the time being.. If wage growth becomes more wide-spread, doesn't that increase the odds and magnitude of the Fed's actions on rates? What's the net-net impact on affordability? (I will later calculate how much % increase in income is needed to offset 100bp of increased rates, for qualification purposes. But for each dollar in increased PITI, you need to make about an extra three dollars in income, at around a 33% front-end ratio.., right?)

Again, I think whether or not the next housing correction is mild or severe will be more dependent about how far and how long prices and unaffordability continue their march from here.. But I agree that it’s not wound up enough today to cause as big a correction as last time. I hope we don’t have another downturn now, because where are all the up-cycle gains going to come from, when ~ 80% of price increases were coming from interest rate reductions last time!?

Updated almost 3 years ago

It should be 80%, not two-thirds as stated at top. I wrote the title before I updated numbers! Sorry! Let me know if you can find anything to correct in here ;)

Medium logoJ. Martin, SF Bay Summit | | 510‑863‑1190 |

It's dangerous to compare today's market to "historical data" without factoring a number of macro-economic conditions; the most important of which is inflation. Think about it, especially when the Fed has been printing money like a drunken counterfeiter. 38% inflation since 2003 is a serious factor, one that must be considered and used to overlay historical data.

Of course other micro-economic factors must be overplayed as well. As the great economist Fredrick Hayek said "All economic activity is carried out through time. Every individual economic process occupies a certain time, and all linkages between economic processes necessarily involve longer or shorter periods of time."

Hi J. M. for the Paragon Realty link. As a data lover, I found this very interesting but wanted all their charts to go back to 80s or earlier. I want to see cycles through rising/falling interest rates and the full dot com cycle:-)

As always you have made me think. HAI might be a good indicator (data is available!) and the trend (or trend of some related factor) might be leading. Who cares about causation or correlation or if it is based on tea leaf readings if you can get a leading indicator that works :-) 

However, here are a few random points of discussion from my little engineer brain that is very poor at picking and timing and so I default to buy and hold (stock and real estate). I am afraid that I have no answers, just more questions.

(0) IMHO appreciation cannot continue at post crash rates, so there will be a "correction" of some size. The magnitude will be somewhere between zero and financial crisis size (actutally could be more if earthquake). Even "knowing" this, it is difficult for me to translate into action... even forgetting the pesky timing issue.

(1) Real estate is local, strategy is "personal"
With Inland Empire crisis fall % of 75%+ ($300k to $70k) and his many skills/resources, I can fully understand why Bruce Norris would be all out and then all in.
However, my areas did not experience -75%. Trulia market trends (post 2000 data: neighborhood, zip, sometimes can filter on Num beds) are not ideal, but they are the best that I could find. These give me my "worst case" - financial crisis market fall % which range from 65% to 20%. I will certainly think about selling the 65%. However, capital gains tax, selling costs, CA tax at ordinary rates, cost of sitting cash during poor timing and perhaps most importantly, my less than stellar buying ability make it less likely I will sell the 20%... 

Of course the -65%  property is cashflowing nicely and much better than the -20% (and also appreciating), so during the buy/sell exchange I also have to buy as well or better.
If (a) Optimize strategy is the ideal buy/sell and time correctly;

and (b) Survive strategy is to ensure I don't have to sell.

If I don't think I can execute (a) then what are my options - how to do I have cash to buy without selling??? Move to a higher cashflow to appreciation ratio market (kinda like bonds for stock/bond portfolio) or ??? 

(2) Do you think HAI models the market? 

The following is a totally unscientific poll, but I am posting as it gels with my anecdotal understanding of SF buyers (and to a lesser extent other Bay Area markets). IMHO HAI and median incomes don't seem to explain the largest percentage of SF buysers (cash, tech and possible even first home in SF???).

Perhaps an obvious cause for Bay Area RE crash is aTech 2.0 crash, less obvious but possibly more dramatic, is an earthquake. Trulia goes back to 2000 - is that sufficient to capture the dotcom effect on real estate - if so, doesn't look to be that big, but that doesn't gel with removing that 47%???
How to predict or mitigate effect of earthquake???
(3) Days on Market/Month supply of inventory as indicators. 

These both seem to be good real-time indicators of upwards pressure, but these don't go back sufficiently far to see their ability to predict. Do you expect HAI trend to be a better predictor?

Not sure I have added anything to discussion, but am happy for you to just tell me when to sell and when to buy. I'll even pay for the tool, so long as it is predictive. Telling me to sell 2005-2007 and buy 2009-2012 won't float :-)

Originally posted by :

... Of the approximate $210K change in prices from 2008 to 2014, about 80% ($171K) can be attributed to the mortgage impact of rate reduction, and the remaining one-third to everything else, including income changes, tech, foreign buyers, investors etc etc AND reduced affordability (aka, buyers paying a bigger percent of their income on PITI aka reduced HAI). This is one way to measure it. There are others..


J. M. - you seem to be quite skilled at math. But I see what looks like a mistake in arithmetic in the piece being quoted - and in another paragraph above that quote the same mistake also appeared, so you're consistent at least :) 

Anyway, 80% plus 1/3 gives more than 100% ...

I can't say whether the 80% is correct, or whether the 1/3 is correct, but I'm pretty sure one of those figures can't be correct. 

Mortgage rates definitely helped the price appreciation in CA. We will all have to look back at this thread in a couple years when rates are higher  and when we are talking about how home values are declining.

Medium houseGordon Cuffe, wholesalehomes | 916‑261‑2381 | | CA Agent # 01125228, CA Lender # 1037464

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