Hey Diane:
I think you missed my point. I'm distinguishing between two groups of buyers in the Bay Area. Some but not all of the cash buyers in this area are funneling in money from overseas. The majority bringing in money from abroad are Chinese, some are from India. A smattering of others. In South Florida, another overheated market, cash buyers are largely from South America and a couple of places in Europe. The principle is the same.
Most but not all of the remaining cash buyers here are newly minted tech millionaires cashing out equity. A few lucky folks like you can thumb their noses at the lenders and step to the front of the line.
The foreign buyers depend on the free flow of money. Capital controls can stop that flow quickly. Just ask the Greeks lined up at the ATM's. Tech growth drives the other segment of the cash buyers. But things are starting to look remarkably like the late 1990's, where every idea was funded. The reasons are more complex this time, but the result will be the same. Contraction in that segment of the economy and a lot less completion to buy a place to live.
My guess is we will see a significant downturn sometime in the next five years. But that's all it is, a guess. And I agree about the long term prospects for the Bay Area. Demand for housing began to exceed supply here during WWII. Even a catastrophic earthquake will not change the desirability of the Bay Area over the long haul.
Hi, Another Reader, may I first say that I enjoy and appreciate your posts and respect your opinions? Next, I'm trying to master the multiple quote thing, but am finding it exhausting. I hope it's not too confusing, but I'm done practicing it for now. Let me just say I hope this reads as a friendly conversation (over a non-Starbucks non-coffee perhaps?).
"A few lucky folks like you can thumb their noses at the lenders and step to the front of the line."
Uh, we are all lucky in that we were born in the right place at the right time, but achieving FIRE required at least as much skill as luck. Two, we had to outbid thirteen other bidders, so we were not exactly at the front of the line. We were the last ones standing (it was still a short sale, so we did not wildly overpay. At least for the Bay Area. Ahem.)
I have chosen this comment to quote because I believe there is a larger message/lesson here. The reason we were able to buy this home* is because of years of dedicated effort to reach FIRE. We are not high wage earners, we have no trust funds, windfalls or inheritances. We saved and invested over a number of years, enjoyed life's triumphs and sorrows along the way, and finally achieved FIRE. If we can do it, anyone with determination can too. Even if that person acquired their money "overseas". The thing about "overseas" buyers is that they are 1.) Still a minority, despite what it might seem and 2.) They are from around the globe. What you describe could happen, but it would have to happen in a lot of places around the world to have a stunning impact. Greece is a comparative blip on the global financiaal radar. An event that impacted every "overseas" buyer in the Bay Area would be so catastrophic that falling real estate values would be just one of a slew of problems. And worrying about every pissibility (that's a typo, but I like it so STET) in the world is too much for my post-FIRE brain to wrap itself around.
"Demand for housing began to exceed supply here during WWII. Even a catastrophic earthquake will not change the desirability of the Bay Area over the long haul."
Actually, that's more true in the suburbs, but the demand for housing in SF has been high since the Gold Rush, if not before. With the steep hills, marshy soil, fires and earthquakes it's always been a bitch to build here. Boom and bust cycles are deeply embedded in the history of the City. The second sentence reminds me of an old gag that the best time to buy SF real estate
is right after an earthquake. Who knows where or when the next one will strike? That's part of the weird and wonderful (bicycle?) ride that is living in the Bay Area. It's certainly never boring.
*TL;DR- I've covered this before, but for clarity, I'll include that we bought this clown house after my FIL died and we figured out my MIL has Alzheimer's. We sold our right-size-for-us houses and bought one that she can safely live in with us. She's healthy as a horse otherwise, so she could be here a long time. Also, we do not live in The City (though I have before), but in the East Bay, which is comparatively more affordable, by Bay Area standards.