Deal of the Century

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The other day, I went in for a haircut.  Now, hold on, I know you’re asking, “What’s a haircut got to do with real estate?”  Hey – EVERYTHING has got something to do with real estate!  As it happens, I went to the JiffyCutz or whatever it’s called right next door to my office.  I’m a busy guy, and I just couldn’t make it over to Los Altos to my normal stylist.  I got in at a good time – I only had to wait but a moment.

I like getting my haircut, it’s kind of relaxing.  Many stylists are chatty folk, and the time often just seems to fly by.  My stylist that day began by asking where I worked.  “Oh, I work at the real estate office right next door.”

“You’re a Realtor, eh?” she asked, with a bit of suspicion in her voice – like maybe I was going to try to sell her something.  So of course, I replied, “Yes, I am!  Do you want to buy a house?”  Snappy rejoinder, wasn’t it?  “No thanks,” she replied – “I’ve already got a townhouse in San Jose.  And, besides, I just can’t see paying these prices!  I’ve love to live here in Capitola, but I don’t see how these prices can be sustained.”

I get that a lot.  I hear it time and again.  The thing is, I’ve been hearing these same things for years – all my life, it seems.  It’s something I’ve thought a great deal about.  “Let me ask you this,” I said.  “How many new housing units do you think they’re going to build in Capitola in the next 20 years?”  If you don’t know Capitola, let me tell you – it isn’t very big, it’s a very desirable place to live, and it is pretty much all built-out; there is not much room left to grow.

“Well, I don’t know,” she replied.  “Not very many.”  Yes, not very many – some, surely.  But not many.

I continued:  “And in the next 20 years, how many more millions of people are going to move to California?”  She replied that she didn’t know.

The figures vary, but a conservative estimate is that in the next 20 years, California will experience a growth of 15 million people.  If there are 34 million people living here now, that’s an increase of 44%.

How many of those 15 million will be moving to Capitola?  Not many – because there’s nowhere to put them!  How many of those 15 million would love to own even a small condo in Capitola – many, many of them!  So…blow off the dust on that old law of Supply and Demand.  We’ve got a relatively fixed supply of a product – housing in Capitola – and a significant increase in demand.  Tell me, what’s going to happen to home prices in Capitola over the next 20 years?

I don’t know what’s going to happen in 2007 or 2008.  But in 2026, I can tell you that a $500K condo in Capitola will look, in retrospect, like the deal of the century.

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