The Marginal Buyer Holds The Pin That Pops Every Asset Bubble
More about the danger zone below.
This is a nice primer on why the marginal buyer is the price maker, and volatility maker. In my estimation, the housing price point where the market enters the danger zone is when the average home price exceeds the average worker's income by 4.5 times. Below this the market can function, above this it becomes unbalanced, and dangerous, prone to high volatility, and sudden, unexpected corrections.
Vancouver is going through one right now.
Vancouver Housing Market Implodes: Average Home Price Plunges 20% In 1 Month - "The Market Is Devastated"
The San Francisco bay area is well situated for a market implosion.
These situations are very uncommon in less regulated markets, and very common in highly regulated markets, particularly in markets with growth and service boundaries, zoning, and other building regulations.
Demographic and Economic Challenges: The 9th Annual Demographia International Housing Affordability Survey | Newgeography.com
Maintaining access to developable land is the key to avoiding this disaster.
Any city with a housing affordability multiple above 4.5 is in serious risk for volatility driven market collapse. At this point it becomes a when, not an if.