Inner Circle

It was hard to miss the article on the front page of today's Chron. Bad news for sellers of SF real estate (and good news for buyers, of course).
Those of you who read our snail mail newsletter may recall the piece I mused about the two models of a boom and bust market. We called the second model "The Pebble in the Pond." Here's what we wrote:
"This requires some visualization. Imagine tossing a stone into a pool of still water. The rings or ripples created by the stone get larger as they get farther away from the point of impact. In this model, the point where the stone meets the water represents San Francisco and Marin (or New York, Boston, Seattle, or any other market that’s performing better than average). The concentric rings are the outlying communities. The smaller rings are, perhaps, Albany, San Carlos, or Petaluma. Larger rings represent Tracy, Morgan Hill, or Santa Rosa. Do you have the picture in your mind? Okay, here’s where the real estate part comes in.

According to this theory, when the market starts booming, the first signs of strength will be in the regional center (i.e. San Francisco and Southern Marin). As buyers get priced out of these markets, they will look to the next concentric ring, or the next, or the next, and so on. In time, the boom market affects the whole region. Then the bust comes…

But the bust follows the reverse pattern. The outermost rings will feel it first. Just as we’ve seen now, outlying communities (especially those that thrived on new construction) see property values fall and foreclosures rise. Slowly, the chill moves to the smaller, inner rings and soon all but the markets in the middle are feeling the cold. And, brace yourself, those of us at the center are the last to experience the bust. But we will feel it. Possibly even as the outer rings are starting to stabilize. If this model is “correct”, we may be tricked into thinking that we’ve avoided the bust altogether, but it’s only a matter of time. And our time may be here soon."

Or it may be here now.