Write a two page essay about bubble baths

A Random Walk Down Walk Street ;discusses a number of different bubbles, including the Tulip Bulb craze, the South Sea Bubble and the 1983 Tech IPO craze. ; Newport Beach, San Francisco and Palo Alto residential home prices have hit record highs. ; Are these at “bubble” prices or not? ; Explain your rationale in two pages. ; If there is a bubble, what do you think will cause the party to end?

Hint:

1. ; You may want to examine the work of Robert Shiller, including the Case-Shiller Home Price Index. ;

2. ; Do you think that the ability for home buyers to borrow at cheap interest rates affects home prices? ; Remember the two metrics which lenders use to make a home loan? Loan to value and debt service coverage ration. How would an increase in borrowing costs impact the debt service coverage ratio of a home buyer? ;

3. ; What other factors restrict supply ;of home inventory in the Bay Area? ; (i.e. restrictive land use policies). ;

4. ; Is there a correlative bubble of stock prices for publicly-traded Bay Area stocks which are driving up Bay Area home prices?

5. ; What is the impact of foreign, all-cash buyers in the Bay Area real estate single family residential market? ;

6. ; Do you think that institutional buyers coming in to the single family residential home ownership market is having an impact? ; (i.e., Blackstone, American Homes 4 Rent, Waypoint (converting sfr home inventory ;from private equity to Starwood Waypoint Residential Trust, a REIT, etc.)

7. ; Do you think that a serious earthquake in the Bay Area could impact home prices? ; What percentage of single family homes are covered by earthquake insurance? ; If FEMA stepped in, what kind of assistance would it offer?