Of Condemned Houses and Asset Shortages

Don’t look now, but the SF Bay Area housing market is on fire. A few weeks ago, a burned out house in San Jose sold for $800k and made national headlines. Now my town Fremont is making the news with a CONDEMNED home that sold for $1.23M.

Condemned house sells for $1.2 million in Fremont

There are logical explanations such as high rents and low rates support such prices and/or the buyers of the two aforementioned properties can tear them down and build a new structure with instant equity. Of course, that equity relies on today’s rates and/or prevailing prices. I’ll make no predictions on the direction of prices, but I will say that the supply and demand of assets often influences prices a lot more than economic fundamentals. This goes for nearly all assets from real estate to equities to fixed-income to cryptocurrencies and so on. For my fellow Bay Area folks, do please try to ignore the various narratives and ex-post rationalizations for why our real estate prices are hyperbolic; we simply have an extreme imbalance of supply and demand resulting from years of underbuilding. This is what an asset shortage looks like. Yes, “asset shortage” typically refer to “safe haven” assets like Treasuries, but when you live in a region where South and East Asian immigrants are the marginal buyer, real estate in a decent school district fits the bill.

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