Like most models this assumes there are no black swans. If housing follows tech valuations in bay area then this question is just another way of asking are we living in tech bubble? If bubble is going to burst then hot market will suddenly become very cold.
Looking at valuations of things like Whatsapp or even AirBnB or Dropbox for that matter, I personally think we are living in giant bubble. The profit has little meaning in tech now, revenue projections are extremely optimistic and on the top of that there is huge factors applied on to it to arrive at valuations. This causes funny implications like Dropbox can buy entire chain of Cheesecake Factory with over 150 stores and still have 3/4 of its valuation intact. This would be despite of the fact that all prospective buyers have developed effective competitive products and are giving it away for free.
Another poster was downvoted but raised a very valid point: what about the "big one", the earthquake that's supposed to hit SF sometime in this decade or the next? That's one big Black Swan.
I guess insurance can be depended upon to offset that particular risk? (do try to insure with a company that reinsures somewhere that won't go broke in the event of said earthquake).
It's nearly impossible to buy earthquake insurance (affordably) in the Bay Area, because all the big insurance companies know that it's going to happen and aren't willing to expose themselves to a potentially company-destroying event. Policies are available, but the cost of insuring against them is nearly as much as insuring against everything else that your homeowner's policy covers.
Most Bay Area homeowners are depending on a combination of prayer and federal disaster-relief funds, figuring that the government will bail them out if an Act of God destroys San Francisco.
Looking at valuations of things like Whatsapp or even AirBnB or Dropbox for that matter, I personally think we are living in giant bubble. The profit has little meaning in tech now, revenue projections are extremely optimistic and on the top of that there is huge factors applied on to it to arrive at valuations. This causes funny implications like Dropbox can buy entire chain of Cheesecake Factory with over 150 stores and still have 3/4 of its valuation intact. This would be despite of the fact that all prospective buyers have developed effective competitive products and are giving it away for free.