The Bay Area Boom
Continues to Amaze

Question: Amid the dot-com and high-technology crunch and commercial vacancy rates near 30% in some places, some homes in the San Francisco Bay Area still draw multiple offers above the asking price, and shacks can sell for $500,000. Is price appreciation in the region's residential real-estate market justified?

-- Gary, Oakland, Calif.

Gary: The problem with the San Francisco Bay Area, and California in general, is that there is a shortage of useable land in the most desirable areas. Short supply and strong demand always lead to higher prices. Even so, some people say prices are simply too high -- and unsustainable.

Concern is heightened because of the fallout from the crash of the dot-com companies in the area. In addition, California's overall unemployment rate remains well above 6%. But other segments of the Bay Area economy are booming, including portions of the high-tech sector. As far as I know, there isn't any large-scale building of new homes anywhere in San Francisco or on most of the peninsula. (There is some in the East Bay.) This has led some people to buy homes as far away as Stockton and commute hours each way to work.

While no one has a crystal ball, I don't see prices for homes in the Bay Area falling dramatically in the near term. Of course, if the economy should suddenly collapse, or something unexpected -- such as a terrorist attack -- were to occur, all bets are off.

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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