10 Reasons Why the Northern California Housing Bubble Won't Burst

Posted by — June 19, 2005

By Ed Krafchow, president of Prudential CA/NV/TX Realty

In the many years that I have observed this industry, we have never been in a more peculiar time.

Everyone is abuzz over the steadily increasing cost of the Northern California housing market, up 68% since March 2004 according to the most recent CAR (California Association of Realtors) statistics. Cable channel prognosticators, spoon-fed by pundits from the stock brokerage industry, love to manufacture news of a pending real estate bust. But, there is very little evidence of a bubble in the Northern California market. This market still suffers from a significant housing deficit and mortgage interest rates are still at 40-year historic lows. So, you figure it out—where’s the bubble when housing supply can’t meet demand and money’s as cheap as it’s been in a generation? I’m not forecasting the national market, but Northern California is my backyard. Here are 10 reasons why this market is not a bubble waiting to burst. By the way, I am not David Letterman and plan to hold onto my day job!

10. Lack of integrity in the stock market 9. We don’t have a housing boom, we have a buyer boom 8. Emerging markets and cultural diversity 7. Unique household formation 6. Cheap and cheaper money 5. Intergenerational transference 4. The Boomers 3. The intellectual capital of the Bay Area 2. Positive government influence 1. You can’t live in a stock portfolio!

While there is no Northern California bubble about to burst, I do know that real estate markets are seasonal and cyclical. The CAR Housing Affordability Index fell six points to just 19% of the state’s households compared to a year ago, and the median number of days it took to sell a single-family home was 31 days in March 2005, compared with 25 days for the same period last year. So, while those stats may not signal a cyclical change, they may indicate that a subtle shift is occurring in the market. Stay tuned and good sailing.

This article appears in the June issue of RISMedia Real Estate magazine and rismedia.com.

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