Check how hypothetical increase of interest rates and pay adjustments as a result of stock changes affect affordability of homes.

E.g. A family earning 550k can go for a 2.5M home @4% rate. But if the income falls to 500k and rates go to 5.5%, they can afford only 2.05M home. If income increases to 600k and rate is 5%, they can still afford 2.5M.

Rule of thumb -

1% rates cause 10% lower purchase ability.

10% pay reduction reduces purchase ability by 3% ( assuming 30% pay check goes to loan)

SP500 vs Bay area home prices - in the era of low mortgage interest rates

After ~2011, rates were <4% for the most part.

Home price trends in bay area seem to lag stock market trends by 3 months (looking at 2017-2019). See the second chart below of sp500 and case shiller SFO monthly percentage change(scaled by 4x). In 2021 the behavior changed though, because 'stonks only go up', pandemic induced buying and super low mortgage rates : 2.5-3%

Hoax: Housing supply is very low.

Total new listings per year increased in 2021! Even in the year 2020, it was similar to the prior years of 2017-19!

Charts from Redfin for San Francisco and San Jose for proof!

So many misleading statements that 'inventory' is low.

Inventory is the number of houses available for sale in a given time. Supply(New listings) is the tap of water filling the bucket. Demand (Sales) is the hole that drains the water in the bucket. Inventory is the amount of water in the bucket as a net result of supply and demand.

At present, demand is too high, so inventory is low. Not because supply is low! It seems buyers are eager to buy a home all of a sudden after 2020. Probably low interest rates and stock market gains caused the momentum.

Software engineer pay in bay area.

Median is 200k.

Net Outflow of people form Bay Area is positive even in Jan 2022.

Redfin data shows people are looking to buy homes outside Bay Area: https://www.redfin.com/news/january-2022-housing-migration-trends/

Few other things to consider, data yet to be gathered:

1. RTO after the pandemic - commute, reduced monthly savings

2. Wage growth since 2020 - not just the froth in 2021, but perpetual rise in wages to tech workers

3. International political tensions

4. A looming recession. The bond market's 10y minus 2y is getting close to 0. As of 03/04/2022, it is at 0.24

5. Big money is selling stocks and retailers are buying stock in the Feb 2022

6. 400k homes to be built in 9 bay area counties as mandated by state, which will result in more de-regulation at the minimum

After saying all this, Fed may take a crazy turn and do more QE. That will push the problem for future and we can say 'housing to the moon'.