"Does that imply the housing prices will grow even more in 2017?"

It depends on Fed rates.

If rates start to crawl up, you could see some crazy devaluations in housing.

Rates are historically low - so low there's a lot of leverage in homes.

A 1 point change at the low end has much more difference than a 1 point change at the high end.

Slightly higher rates + a couple of nice IPO's would be good for everyone.

Not too high though :) or else VC's will have less money for startups :)

The number of new rich people created by IPOs is a minority of the aggregate demand for housing. Plenty more people are moving to the area from elsewhere.

In terms of driving housing prices up, I'd expect growth in the stock prices of the bigger companies to be a bigger deal. If Google's stock appreciates 20% (or Apple's, or Microsoft's, or a rising market helps lots of companies out 5%), that affects a much larger number of people with equity than does adding maybe 100 millionaires.

Especially if the main thing keeping a lot of people out of the market is raising a down payment, not affording the monthly mortgage. To make a down payment, you "only" need a few 100k, not millions. It's in reach for people receiving significant equity value from their employers along with strong salaries, you don't need to get boosted into the ultra-rich.

Some of it is geographic too. Apple/Google/LinkedIn impacts Mountain View, Sunnyvale and Cupertino. (Palo Alto is already through the roof) Less of an impact in the city where other dynamics are also in play.

And San francisco

"The number of new rich people created by IPOs is a minority of the aggregate demand for housing. "

1) A lot of new employees who make 1-2 millions (maybe not rich, but 'some money') means more demand on housing prices.

2) It does not take a lot to keep the bubble going. Less than 2% of the buyers, if they are 'price inelastic' (i.e. they'll pay whatever the asking price is) is enough to keep a bubble going. This happened in Vancouver - as soon as foreign buyers paused due to new taxes, prices fluxed quickly. They don't represent a large chunk of the buyers.

Basically that the median housing price is a function of the marginal propensity to purchase? Can't help but wonder how true that is.

I believe it's true because regular participants in buying/selling are all taking cues from 'what goes on around them'.

If 95% of them are looking around, and 5% are just buying 'at whatever price' - those people will drive pricing.

When 'the house down the street' sells for 10% above asking, it validates all the homes sales in that environment, and gives confidence to the regular buyers that their investment is sound.

If there is ever a hint of a plateau, all it takes is for a few price-inelastic buyers to come along and 'validate' prices. Then some buy on that basis, and the pricing cue percolates through the system.

Once those people leave the market - there's no strong validation going on - and a small whiff of lack of price movement can put a chill on things, then prices can start to fall.

Once they start to fall - it's a negative signal, wallets clam up. Without a rich buyer to restore confidence ... the spiral continues.

It'd be an interesting model :)

My uncle is a Realtor, and I built the software for his one man operation (sales funnel, analytics, etc).

If you want to see when those price inelastic momentum makers have left the market, watch the trailing 10, 30 day listing to sales price ratio. 10 day trailing gives you a hint, but it should be clear as day after 30 days when you see inventory selling consistently below asking.

That's cool. FYI - Vancouver announced a major tax on foreign purchases, which did hit the market hard.

The claim was that 'foreign buyers' were not driving up prices, but clearly they were.

And the tax didn't even imply that all foreign purchases dried up, just that some would have, and the price-point of their purchase decision would have changed somewhat.

Sort of depends but historically "exits" (whether they are by IPO or acquisition) has kept a steady supply of "well qualified buyers" in the market. But the trend lines are pretty linear.

Most don't get rich on IPOs.

Most likely. If you think its unaffordable right now, wait until Uber, Airbnb IPO's.

Hate to say it, but 2016 may have been the time to buy. (Well, other than every year before it..) The Peninsula market has been slow. I know, because I'm hoping our house appreciates in value enough to insulate us from the eventual crash :D

http://www.almanacnews.com/news/2016/12/29/atherton-no-longe...

The good ol' market timing strategy. ;)

I wish there was a way to help people understand how bad market timing is. No amount of explaining will help.

There is! :D

http://qz.com/487013/this-game-will-show-you-just-how-foolis...

It starts at a random point in the stock market over the last 10 years or so, and you get to sell once and buy once. I tried 3 or 4 times when I first found it and only beat the market once.

I did this as a Monte Carlo simulation on the Indian stock market and concluded actively managed funds and systematic investment plans are basically fleecing investors.

I subsequently only do passive index funds or buy options if I want to take a risk

Markets are very short-term, though, so you can time the market. It's just hard to time it exactly. All investors want to sell 5 minutes before the crash. It's impossible for a normal person. However, investors generally don't want to sell 5 months before the crash. On many occasions it has been widely known that something is a bubble, but people keep investing in that thing because they expect the bubble to grow a little more before it pops. If you're willing to watch the market grow for months after you've sold then I think it's possible to time the market.

This is not professional investment advice, btw. It's somewhat outside of orthodoxy. I would do my own research before trusting me.

This is simply not true. It is basically never widely known when there is a bubble, that is why there is a bubble. There are lots of false positives and false negatives.

No one has successfully timmed the market over a long period of time.