Was talking to someone yesterday regarding the frothy pricing in the LA market.
She made the reasonable observation that pricing in big city markets seems to be on a long, one way rise.
This is a version of an argument I hear a lot:
- Millennials don’t want to move to the suburbs, because they prefer city amenities (bars, etc.), so demand is stacking up
- Big cities don’t allow enough construction of for-sale and for-rent dwellings to absorb this demand
- So, pricing in big cities will continue to rise forever
There’s a lot to be said for this argument… it’s been borne out over the past 7-8 years.
That said, I get suspicious when I hear arguments that posit a change in the fundamental law that the pendulum ALWAYS swings back.
I have no way of knowing when the steam will come out of LA asset prices. But I know, in my bones, that it will.
And, when that happens, and its raining money, we’ll follow Buffett’s famous dictum and be ready with our buckets.