A few of us at work have been having a debate about housing prices. Are they going to keep going up? Is it a bubble
that's going to disastrously pop?
No question, prices in California are crazy
. And more and more people are getting interest-only loans and HELOCs(Home Equity Line of Credit) so that they owe more on their house than what it's worth.
But I can't discount the fact that our house, purchased 2 years ago (and yes, with an interest-only loan) for around 370K is now appraised at $550K. This is for an 800 square foot house, mind you. So I can't really feel that we made a mistake. Plus, we like living there.
Anyway, the debate at work has been between three of us. The deal is, we check the trajectory of housing prices once a quarter or so. Whoever is wrong has to buy everyone else lunch. One guy, Gerry, is currently renting, and has been saying for at least 2 years that the housing market is going to crash (the same two years in which our house appreciated 180K). He has some good points, and I have to admit, he makes me worry a little. But, he bought lunch this time.
The other guy, Adam, owns a house and a condo which he rents out, and he is convinced the market will keep going up. I'm kind of in the middle. I can see the warning signs: rising interest rates, rising debt, riskier loans. But then I think:
- The job market is improving
- There is a freeze on building in almost all of the open land in the Bay Area, so demand is likely to continue to outstrip supply
- The weather, the surroundings, and the culture here is great, and that's not going to change
- Quoting a commenter at VodkaPundit:
Yeah, I saw them building more land off the west coast of the U.S. here, creating more places for houses here in sky high places like San Fran and San Diego. Plus I expect the flood of people coming over the border to stop any day now.
More supply and less demand should push prices back down.
So we'll see who's right in the long run. Meanwhile, I'll be enjoying my equity. And my free lunches.