With everything in the economy setting new lows, the SF bay area real
estate is growing up surprisingly. During the hey days of internet
boom, the real estate hike was justified with the stock prices. Now
most of those internet companies are bankrupted or trading at their
lows of a few pennies. Yet, the bay area real estate is HOT, sizzling
and I heard that the home prices are indeed going up. This has left me
clueless as it defies all the gravity. I would like to know the
reasons. Also, if the reasons indicate that there is a manipualtion of
this market by vested parties, I would like some pointers as well. And
above all, when does one see the real estate crash in this area and
what could trigger the same. Thanks.

Hi! Thanks for the question.
 
I have collected the following assessments on why the Bay Area real
estate market is being overpriced right now.

According to these two articles by Broderick Perkins of the Realty
Times he mentioned two underlying factors: (a and b).
a. “The area's housing market is further influenced by the contraction
of household wealth, largely due to the bust in the area's
technology-based economy.”
“When the market crashed, housing prices declined, and many new
homeowners, who found themselves with a mortgage they could no longer
afford, put their homes on the market.”

These statements are particularly trying to point out that a selective
few are trying to squeeze the real estate market especially for
high-end homes.
http://realtytimes.com/rtnews/rtcpages/20020205_bayarea.htm 

b.) “The spotty-market syndrome” – 
“A record high "luxury" home price index that doesn't fully jibe with
reports of lagging sales activity is a red flag indicating a
spotty-market that warrants close scrutiny by both buyers and sellers.
Spotty-Market syndrome or reporting is using data that does not
adequately represent the targeted population in this case the sellers
and buyers of homes in the Bay Area. “

“Home shoppers may buy into bidding wars that don't exist and pay too
much in a flat or depreciating market in a given neighborhood… could
be trickling down to mid-priced homes which aren't appreciating as
fast as even cheaper condos and townhomes.”
http://realtytimes.com/rtnews/rtcpages/20010223_bayprices.htm 

Do these two statements subscribe to your suspicion as regards to
someone or somebody trying to control the market? I think they do.

c.) Supply and demand. There is such a demand for land/housing in the
Bay Area, and this drives the price of homes up. However, there are
affordable housing options. This was taken from Advantage Homes
website. This can be located at the lower part of the web page.

http://216.239.33.100/search?q=cache:2eSmmIcxiNcC:www.bayarea.com/mld/bayarea/business/personal_finance/debt_management/mortgages/ask_expert_front.htm+%2BWhy+Bay+Area+homes+expensive&hl=en

d.) The region's economy is so much more diverse than a decade ago.
This reason is specifically a factor for the Sacramento area according
to this article.
http://www.sacbee.com/static/archive/home/realestate/2001/0520.html 

Some housing bargains in the Bay Area are mentioned this article.
Housing Bargains:
http://beta.kpix.com/news/5reports/Housing_Bargains.shtml 

As to your question as to when it would end? The second article of
Broderick Perkins which I cited said this near the end.

"Buyers and sellers are cautioned to keep tabs on sales and prices of
all homes. As spring approaches with its seasonally more active
market, a clearer picture of the spotty market should emerge -- for
better or for worse."

The article continued that small changes in the Bay Area economy will
change the balance of supply and demand bringing pressure for high-end
home prices to go down.
http://realtytimes.com/rtnews/rtcpages/20010223_bayprices.htm

I pray that right now this is the case. 

Search Terms Used:

+Why Bay Area homes expensive
spotty market

I hope this would be of help. Thanks for being a part of Google
Answers.

Regards,
Easterangel-ga

provides good insight. of course, i am still puzzled on who and how
people can so easily afford 1+ million homes in the bay area assuming
not much money is flowing from stock options?. i am also a little
puzzled that the "demand" has not waned out significantly due to fall
out of "tech" economy here!. in any case, thanks for the answer.

prices are indeed going up.  houses are still selling quickly with
multiple bids.  why?  not everyone was wiped out in the dot-com crash.
those that made it, made it, and those that didn't are already gone. 
basically, it won't crash unless there is an earthquake.

everything you need to know is in carol lloyd's Surreal Estate column
in the San Francisco Chronicle.
see here: http://www.sfgate.com/columnists/lloyd/archive/

so, how does an earthquake impact the prices given that this region is
eqrthquake prone. why is the buying herd not factoring this?. reading
through lloyd's article, there is a sense of desperation amongst
buyers (so there are still buyers at this price left:), wonder why
they don't choose other greener pastures where they do not have to
sacrifice their entire life paying huge mortgages in an uncertain and
imploding tech and job market!.) to own the realty in the bay area. is
that desperation out of a need to be in this area or pyramid formation
where you buy and get out of this in a few years selling the home for
a huge profit. a.k.a like buying internet stocks at hyped up prices
with an idea of selling them to a bigger fool at higher prices. as
long as the pyramid continues, it all looks great. didn't we see
enough of that with internet stock bubble?. if so, when does the real
estate bubble/pyramid come crashing?

I think there were plenty of people with high incomes waiting for the
housing market to adjust, prior to the bubble bursting.  Since there
continues to be a large portion of high income earners in Silicon
Valley, say >$100k/person/yr; a $200k household could easilty afford a
$1m-home.  These could be earned by a single CEO or two professionals
with that sort of total income. In the high-end districts, Los Altos
Hills, Saratoga, Woodside, this is precisely the profile of the home
owners.  There are plenty CEOs and professionals (lawyers, engineers,
managers) who make that amount of money.

I've also heard of many who've lost their $5m-homes, and have had to
'settle' for a $2m-home.

The very high-end, >$2.5m is where the real housing crisis is in
Silicon Valley.

claudietta-ga

I am baffled that the effect of low interest rates has not yet been
mentioned- people are able to afford more, so they do.  It's the
American way.

Check out Fortune's recent cover article with a pic of an SF domicile
entitled, "Is this House worth $1.2 Million?"  It sums up the
situation perfectly.
http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=209840