After a week of faint optimistic hope that I might finally be able to afford a small house on the San Francisco peninsula, I'm now pretty sure there's no hope whatsoever. Even the tiniest fixer-uppers are going for $600,000 before all is said and done and unfortunately that's where my comfort zone says "No thanks." You might be thinking to yourself, "David, I just saw a two bedroom house in San Mateo for $480,000 last week!" To those thoughts in your head I would reply, "Yes, but did you see what the house actually sold for?" It wasn't the list price.
You've got to pay to play in the housing market right now. You've got to overpay just to get overpriced. Everyone's talking about low interest rates, but that doesn't help when you can't actually get the product your paying a low rate on. There is such fierce competition for "affordable" housing right now that every sale results in a bidding war. When there's a bidding war, the price of the house goes up. When prices go up, it gives people the impression that the market is booming. When the market is booming, people start making big money. Does this sound familiar to you, whisky fan?
One of my best friends is in the real estate game. We were talking on the phone last week and he told me that where banks were once looking to sell foreclosures quickly, in an attempt to recoup expenses, they began to notice that investors were turning around and selling those forclosures for even more profit (very much like what was happening on Ebay with the Van Winkle Bourbons). When the banks saw what these houses were going for later, they began to think to themselves, "Why the rush? Let's wait this out a bit and see what we can actually get." Whisky companies are currently thinking the exact same thing. Since banks and owners are now sitting on properties, waiting for the big sale rather than the quick one, it's diminishing the amount of available properties. With interest rates so low there are many interested buyers. We've got big demand, but low supply. Time to cash in.
The problem for me with the housing market is that people are paying these prices. $600,000 for a small shack that needs an extra $75,000 in repairs just to make it liveable? Where do I sign? As long as that's the case, I'm going to be renting. It's in every business person's best interest to have low supply in times of huge demand. Not low enough to where you have zero inventory, but just low enough that it scares people into thinking that if they don't buy now, they may never get a chance to buy again.
I call it "fear capitalism." I've been watching it for the last two years.
I was asking my friend last night, "If I don't buy now do you think I'll ever be able to afford one down the road?" I could have been talking about a house or a bottle of Port Ellen.