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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: mishedlo who wrote (43638)10/25/2005 5:22:12 PM
From: GraceZRead Replies (1) of 306849
 
I'm not making any kind of predictions about where prices will go in the near future, just about what has driven them over the last 25 years. There has been a consistent gap between the population growth/ household formation and new housing units. There would have to be a significant change in local policies in regards to allowing higher density housing or a large exodus of population to eliminate this gap in CA. New housing supply only seems to break through the local barriers to building when prices have had a sustained rise like we've seen in the last few years. The same thing happens in my area which also has serious anti-growth policies. When prices were normal nobody found it worthwhile to jump through the hurdles to get a project through. At higher prices they all go through.

You have to remember that the homies aren't necessarily in the biz of building houses as much as they are in the business of banking land at low prices and selling it later for a higher price. It took them 10-15 years of holding (around here) to profit from the land options they acquired back in the early 1990s but they got very decent returns, far better than they would have gotten if they had tried to build houses on their land back when the prices they could charge for them were still "reasonable". These restrictive policies that drive up land prices ahead of inflation work decidedly in their favor over time.
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