Sunday, May 20, 2007

Silicon Valley Real Estate, Still too Darn Hot

One of my favorite topics to write about in the last couple of months has been the real estate bubble and its aftermath. See, for example, my post titled A Subprime Bail-Out? Hell, No! which created a lot of interest and started a long line of comments.

Personally, I think we are far from seeing a bottom in the real estate market.

Apparently, Frugal at My 1st Million (one of my favorite PF blogs), shares my views. On Friday he wrote about the continuing efforts to bail-out subprime borrowers and lenders. I really don't get why politicians feel that they have to mess around with the market. I said it before, and I will say it again: people must be allowed to bear the consequences of their idiocy, or else the markets will forever mis-price risk. If every time my investments head south someone bails me out, I am essentially taking very little risk, and so am encouraged to make more risky investments.

Also, see Frugal's interesting post titled California Foreclosure Up and Up in which he forecasts the bottom for the real-estate market will not happen until 2009 - 2010.

I have no idea when the bottom for the real estate market will occur, but I can say that based on my discussions with a friend who is in the process of buying a house in Silicon Valley, the bubble is not even beginning to unwind in this area. Bidding wars are still breaking out over every house on the market, and even complete tear-downs are going for well above asking price. Is that a permanent state of the Silicon Valley real estate market or will the downturn eventually reach us as well?

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