I think demand will continue for a long time to come.
If you buy now, your property probably isn't going to tank (unless it's just ridiculously overvalued for what it is, and some houses in SF certainly fall into that category). SF will be a hot market for a long time to come, thanks to its constrained inventory. But housing might not appreciate significantly over a 5-odd year horizon. Which is fine, fwiw, because one shouldn't be buying housing as an investment in the first place, much less as a short-term investment. Buy income-generating rental properties, with significantly better tax incentives to boot, if that's the goal. Buy a house because you want a place to live. If it happens to appreciate in real terms, and not just in theory, that's gravy. But over the long run, it's unlikely to do so, especially when you factor in all your maintenance, holding, and transaction costs.
Yes, it's funny that so much of the mainstream discussion around housing in the Bay Area focuses on the wealth created in the tech industry when much of the eye-popping housing activity has actually been driven by foreign buyers.
When it comes to the prices these buyers are willing to pay, it's incredibly important to understand their motivations. Many of these foreign buyers are not buying houses in the United States as "investments" in the traditional sense. Instead, they are using houses as stores of wealth because they are acutely aware that their capital/assets are at risk in their home countries. In other words, a house in San Francisco may be more secure than a bank vault in, say, China, as far as wealth preservation is concerned.
American buyers competing for assets that have appreciated rapidly in value in recent years due to foreign demand, and who may be far more sensitive to the potential for gain or loss, should at least understand this.
But wouldn't a bank vault in America be an even better choice than a house in SF? Why aren't these wealthy Chinese people making more liquid investments once they've moved their money abroad?
http://www.forbes.com/sites/erincarlyle/2013/12/20/ken-deleo...
http://www.forbes.com/sites/realspin/2013/10/28/in-china-the...
1. Negative real interest rates.
2. It's easier to protect your identity/privacy. Notably, real estate agents and title insurers are exempt from having to file Suspicious Activity Reports with the Treasury Department.
When you buy a home the information on the title is public knowledge. Sure, you could create a holding corporation, but the officers of a company are also public information.
Also, real estate agents and title insurers don't handle cash at all. If you buy a house from me in cash, I'll kindly ask you to deposit it and send me a check. When the buyer goes to a bank with cash or other suspicious sources of money, the banks will fill out a SAR.
Another angle, the house may be owned in another person's name, then the illiquidity is an advantage. The other person who you trust, may still be tempted to use tiny bits of large chunk of cash if its sitting in a bank account. Meanwhile selling a house is a pretty big deal.
The reason for not keeping the house in your name are possibly related to avoid the local government's oversight into your assets, etc.
Can you provide data or cite a source to substantiate that claim? I live in SF and the data I've seen suggests it's < 2% (by property count, not dollar volume)
http://www.paragon-re.com/Home_Buyer_Seller_Dynamics_in_San_...
Articles that claim that Chinese are buying a significant portion of homes tend to conflate immigrants / people of Asian descent with foreign investors, and then complain about new wealth in China.
Yes, I too have heard the anecdotal/unsubstantiated claims that many all cash offers are Chinese. It may well be true, but all I've ever heard was conjecture.
But over-asking has nothing to do with all-cash. We bid on several homes, all of them, including our final winning bid, were 20-30% over asking. That is normal in this market where the RE agents have decided we need to play this charade of low pricing instead of pricing accurately to the market.
While I agree that a house is not a good short term investment, I disagree with the notion that this is a market out of steam. I've seen nothing to suggest that.