Bet on California Home Price Appreciation | LinkedIn
The naysayers are wrong. California naysayers like to point out that:
- California’s state and local governments are among the most financially distressed in the country
- California’s regulatory environment pushes more and more companies out every year
- California’s income taxes, already insanely high, just went up significantly with the passage of Proposition 30, and will cause more people to leave
While the three bullets above are all very valid points, California’s housing market is much stronger than most think. California has the biggest demand/supply imbalance in the country:
- Demand is strong and new home supply is low: California is adding more than four jobs for every home built (see chart below)
- There are very few homes for sale (see second chart below)
- Monthly housing costs as a percentage of income are near the lowest they have been in 30+ years
Other naysayers, many of whom comment on my posts on linkedin, point out that:
- Prices will not go up due to artificially low mortgage rates
- Inventory will spike due to foreclosures, investors who will dump the homes they bought, and real homeowners finally putting their homes on the market
- The U.S. balance sheet is a calamitous disaster waiting to happen
I find these last arguments to be somewhat ludicrous.
- If rates are going to go up, why not lock in a 30 year fixed rate mortgage now if you have the income and intend to live in one area for a long time?
- If rates go up due to high inflation, won’t the replacement cost of building a home go up too, pushing the nominal cost of real estate higher (see home prices in the early 1980s as an example)?
- Ask anyone involved in the foreclosure process if they think distressed sales will spike, driving prices down. They don’t have the infrastructure to make this happen, even if they were mandated to do it.
- If investors and homeowners are putting their homes on the market to profit from their investments, won’t prices be higher? If they are selling their homes because they think home prices are heading down from here, we will certainly have bigger problems than housing!
- If a U.S. financial crisis occurs (and I believe it will, but I cannot predict when), wouldn’t you want to own real estate (assuming you think you will be able to keep your job and pay your mortgage).
In summary, what happens when demand is strong, supply is low and affordability is the best in decades? Listen to the naysayers and you will miss out on one of the greatest investment opportunities in your lifetime.
P.S. to the naysayers: Please don’t respond without giving your full name and offering advice on what qualified homeowners should do instead. I know that everyone is not qualified to be a homeowner, and many prefer the flexibility of not having a mortgage. They are the minority.
Good article by John Burns!



