OAKLAND, CALIF. – On one hand, Richard Hom knows better. Yes, this is California, where starter homes tend to have executive prices. And yes, interest rates unseen since the days of FDR have stirred homebuyers into a frenzy.
Even so, there's some part of Mr. Hom that refuses to let go of the idea that a single man who makes $90,000 a year should be able to afford a condominium. At least for now, though, it's just a dream. "I just can't afford it," he shrugs after a six-month search.
As a house-hunter in San Francisco - where the median home price tops $615,000 - Hom is at the extreme edge of a nationwide trend that's most acute in California. In the rush to purchase a home before interest rate rise, buyers are bidding up properties beyond reason - increasingly leaving even middle-class families on the outside and placing the housing market on shaky economic footing.
The rise in home prices "is higher than is justified" by economic factors, says Cynthia Kroll, a regional economist at the Fisher Center for Real Estate and Urban Economics at the University of California in Berkeley. "I would not be surprised if we see a correction."
For the American economy, which has relied on housing figures as its only consistently good news in recent years, it's a potential cause for concern. For Hom and buyers like him, though, it might not be such a bad thing. The bids he's put in bids on condominiums have routinely been above the asking price. In every instance, though, he never came close to signing a contract. Usually, he's been one of as many as 10 bidders, and he has refused to inflate the price beyond what he feels is the value of the property.
"It's frustrating," says Hom, a clinical scientist for a Bay Area biotech firm. "I'm seeing units go up 10 to 15 percent because of bidding wars."
This month, six of the nine Bay Area counties set new records for their highest median home prices in history, and two of the other three were no more than $7,000 off their all-time high, according to housing analyst DataQuick. In Los Angeles, meanwhile, only 20 percent of residents can afford the median home price. Fresno recently clocked in as the metro area with the fastest-rising home prices in the US.
Admittedly, such spikes not uncommon in California, where an unheated outhouse can get multiple bids during good times, it seems. What befuddles analysts, though, is that these are not good times. Here and nationwide, the housing market has defied the gravity of a host of poor economic indicators. In Santa Mateo County - the region hardest hit by the dotcom bust - home prices rose 9.5 percent in the past year.
The low interest rates play some role, as do mortgage lenders, who have increasingly made more complicated and risky loans to get buyers into homes. Underlying these, however, is the simple matter of supply and demand, and while the same economic forces are at work from Boston to Seattle, nowhere are they so pronounced as California.