I have this sense that home prices all over the US are being artificially inflated. That said, if you figure 4% interest on $1 million, that works out to about $3333 per month. Q: Are there enough people in the Bay Area who are willing to spend ~$3333/month to live in a home currently priced at $1M in order to support that price level? A: Yes, I think so. (Granted, $1M would be quite low for a house near where I live in Mountain View, but maybe the numbers don't seem so crazy?)