Altos Research Real Estate Insights

The official median price for San Jose on Monday May 29 is $750,000. (n this week is 1782 existing single family homes on the market.)

- a market where people get together to buy and sell securities based on an underlying commodity, or product. There are two types of players in these markets, the Hedgers and the Speculators. Despite the bad rap that Speculators often get, both are legitimate, even necessary components of the market. The Hedgers have an underlying business and use futures to eliminate the risks of outside factors (like interest rates, or foreign exchange rates, or jet fuel costs) on that business. The Speculators make their business to profit purely from the moves of the market itself. The Speculators provide liquidity for the Hedgers- there's always someone there to buy the risk I'm selling, at the right price.

It is this 'right price' that makes the predictive power of the market so compelling. You get enough people with enough detailed knowledge and vested interest and the market price quickly illustrates itself a model of efficiency. (I'm sure you've heard the predictive-accuracy stories about the Iowa markets for things like political races.)

For a long time I've thought a housing price futures market could be compelling. There's no real way to hedge you home asset value. No futures market predicting home prices moves. Well now there is...

When non-Californians express shock to me about the incredible lack of affordability in this state, one of the factors I hypothesize is how commonly the price are financed by capital gains as opposed to just mortgage. I heard a supporting stat yesterday: In 2005, 70% of California home purchase transactions were repeat buyers. That is, you don't buy a $1.8 million home in Palo Alto with $180k down and a $1.62 mil ARM.  You buy it with $500k of equity from the last home, $750k of GOOG options and a $550k mortgage. If you lock that in for 30 years at under 7%, then one of you can even likely stay home with the kids.

Food for thought.

Despite the flat second half of last year, prices for San Jose homes have had decent appreciation since the beginning of the year, leaving the median price of a single-family home up about 7% since last year at this time. Note that May 2005 was when prices hit the table-top for a solid seven months.