Amid the daily gyrations of the stock market, the housing market appears to be an oasis of calm. To the extent that prices fluctuate, it often seems they fluctuate in one direction – upward.

This has certainly been the case for the past decade. According to the Case Shiller Home Price Index, house prices nationally bottomed in 2012 and have increased 120% since. The trend accelerated with prices rising 13% in and 21% over the last two years, respectively.

This is nothing compared to Bay Area prices. Using San Francisco as a proxy, prices have gone up 320% in the past 13 years with a similar percentage run-up lately.

The initial phase of these price increases represented a recovery from the bust caused by the foreclosure crisis and the Great Recession. National prices peaked in 2006 before plunging 27% to the 2012 bottom.  At the low, prices reverted to 2003 levels.

San Francisco prices peaked in the spring of 2006 after rising 20% in 2004 and another 16% in 2005. Prices plunged an astonishing 43% to the 2009 low. This returned prices to levels first reached in 2000.

Could the feverishly rising prices of the past two years lead to another reversion?

The good news is that the reckless mortgage practices preceding the foreclosure crisis have vanished. NINJA – no income, no job – loans are a thing of the past. A massive new foreclosure crisis is unlikely.

Beyond this, for-sale inventory remains low. New housing completions have been hampered by labor and supply-chain shortages. Existing home sales are down 15% from year ago levels as listings are barely half the long-term average. The lack of listings may be due to the reluctance of current homeowners to give up their low-rate mortgages in order to move.

On the demand side, corporate buyers have moved into the residential market in a big way.

John Burns Real Estate Consulting catalogued $50 billion worth of corporate purchase intentions in 2021. These corporations appear to be purchasing based on the prospect of higher prices and higher rents.

Factors working against higher prices include an incipient softening of the job market. An increasing number of employers are announcing hiring freezes if not outright layoffs. Reduced employment opportunities and the effect of declining technology stock prices are particularly acute in Northern California.

Affordability has deteriorated markedly with the run-up in prices and the back-up in interest rates. Consider a house that would have cost $800,000 in 2020 and now goes for $1.1 million. A traditional 20% down payment would now be $220,000 rather than $160,000. A fixed rate mortgage payment might be about $4800 per month versus $2600 per month – an increase of 75%.

As economist Herbert Stein famously said, “If something cannot go on forever, it will stop.” Trees don’t grow to the sky and neither do house prices.

Jeffrey Scharf is the Founder of Act Two Investors LLC, a registered investment adviser. Contact him at jeffrey@acttwoinvestors.com.