San Francisco 2.0 – HBO housing bubble documentary

[Coronita]

[quote=spdrun]Millenials can’t get loans that easily. And — OOPS! — looks like Fannie Mae is bleeding again. So much for those 3% down loans for everyone. Mel the Skell is begging Congress for a bailout. Something a GOP Congress isn’t likely to want to give to Obama’s stooge…

http://www.marketwatch.com/story/fannie-freddie-may-need-to-tap-treasury-fhfa-director-says-2015-11-03

Note that I’m usually liberal, but I don’t think that your average Joe is cut out to own a home, or a dog shack for that matter.[/quote]

The problem with your narrative is that you aren’t going to find too many people doing a 3% down loan in Silicon Valley for a SFH that runs around $1million, in the same way you probably won’t find too many people doing a 3% loan in LJ,RSF,DelMar,etc,etc,etc. Wrong type of real estate sub-market to be talking about 3% down loans…Try again.

[spdrun]

Well, at least keeping every skell who feels they’re entitled to a home out of the US market as a whole will prevent another bubble. That’s good.

And remember that not every market is as infested with hot money as NYC and SFBA.

[Coronita]

[quote=spdrun]
And remember that not every market is as infested with hot money as NYC and SFBA.[/quote]

And the title of this topic here was “San Francisco 2.0 housing bubble documentary”. Apparently, you cared enough to respond and bring up about 3% down homes, which for the purpose of this discussion here has almost nothing to do with purchases in the submarket discussed here in this topic.

[an]

I dunno. I don’t see how this can last. Even with your 25 years old cousin getting a windfall of $1.2M, that still can’t get him a 1600 sq-ft house in Cupertino, which is now going for around $1.8-2M. So, if he plow all $1.2M into the house, he would still need to get a $600-800k loan for a 1600 sq-ft house. You can get a much bigger house in Carmel Valley for $800k. So, even if you get a $200k windfall in SD, you’re still in a much better situation here. Not to mention the long term property tax difference. A $1.8M house in Cupertino would have yearly property tax of ~$21k and rising 2% each year, while the $800k house in Carmel Valley would have property tax of $9500. After 30 years, the Carmel Valley house would have a property tax of ~$17k while the Cupertino house would have property tax of $38k. At $38k/year in just property tax alone, I hope people in the bay save well and aren’t counting on SS.

I don’t know how high this will go, but definitely, right now, the bay area feel like 2006 in SD. I feel sorry for they young people who haven’t bought a house up there and aren’t lucky and hit an IPO lottery. For every LinkedIn, there are thousands of engineers who aren’t so lucky.

[Coronita]

[quote=AN]I dunno. I don’t see how this can last. Even with your 25 years old cousin getting a windfall of $1.2M, that still can’t get him a 1600 sq-ft house in Cupertino, which is now going for around $1.8-2M. So, if he plow all $1.2M into the house, he would still need to get a $600-800k loan for a 1600 sq-ft house. You can get a much bigger house in Carmel Valley for $800k. So, even if you get a $200k windfall in SD, you’re still in a much better situation here. Not to mention the long term property tax difference. A $1.8M house in Cupertino would have yearly property tax of ~$21k and rising 2% each year, while the $800k house in Carmel Valley would have property tax of $9500. After 30 years, the Carmel Valley house would have a property tax of ~$17k while the Cupertino house would have property tax of $38k. At $38k/year in just property tax alone, I hope people in the bay save well and aren’t counting on SS.

I don’t know how high this will go, but definitely, right now, the bay area feel like 2006 in SD. I feel sorry for they young people who haven’t bought a house up there and aren’t lucky and hit an IPO lottery. For every LinkedIn, there are thousands of engineers who aren’t so lucky.[/quote]

I don’t think there’s a disagreement on there being a correction in the future. I’m doubting the magnitude of it that some apparently are convinced will happen, just as much as I doubted the magnitude of the correction we experienced here in SD in the areas where demand is generally stronger than other places.

And that cousin doesn’t *need* to live in a 1.8million+ place in Cupertino, he can live just fine in Santa Clara. It’s a tradeoff, that people make more so there than down here.

Regardless, when this new tech bubble does pop, guess who’s going to end up eating shit the most? Yup, retail stock “investors” who either bought these company stocks directly, or are indirectly holding onto them with a mutual fund, like the famous Fidelity Contrafund or OTC fund, that is in just about everyone’s 401k plan.. It won’t be all the employees and insiders of these companies that were given these shares as part of their employment package. Just like how was back in 2000/2001.

[an]

[quote=flu]
I don’t think there’s a disagreement on there being a correction in the future. I’m doubting the magnitude of it that some apparently are convinced will happen, just as much as I doubted the magnitude of the correction we experienced here in SD in the areas where demand is generally stronger than other places.

And that cousin doesn’t *need* to live in a 1.8million+ place in Cupertino, he can live just fine in Santa Clara. It’s a tradeoff, that people make more so there than down here.

Regardless, when this new tech bubble does pop, guess who’s going to end up eating shit the most? Yup, retail stock “investors” who either bought these company stocks directly, or are indirectly holding onto them with a mutual fund, like the famous Fidelity Contrafund or OTC fund, that is in just about everyone’s 401k plan.. It won’t be all the employees and insiders of these companies that were given these shares as part of their employment package. Just like how was back in 2000/2001.[/quote]
I won’t predict the depth of the crash because it’s foolish to even try. However, according to the video, Cupertino saw a 70+% rise in 1 year? If that’s true, I think there’s a possibility of a big decline, but who knows. Even at the peak of the bubble, I don’t think places like La Jolla and Del Mar were seeing 70% increase in a year. So, this is uncharted territory. Maybe this is the new normal for bay area and it’s going to be forever expensive like other major cities around the world. Only time will tell. But regardless, if you’re not making millions from the IPO lottery, I don’t see a reason to stay. If you own a home, this is a perfect opportunity to sell your million dollar shack and move to less expensive places like SD, LA, OC and retire.

Then the next question is, at what point do companies will start saying, why are we paying Sr. Engineers $250k in the bay (just so they can afford an average life style) while we can pay 1/3 of that in SD, OC, LA, etc. I don’t know where that tipping point is, but I would assume there has to be a tipping point.

As for your cousin, I find it crazy that you would have to make that kind of tradeoff when you have that big of a windfall. That’s one of the reason why I think it’s unsustainable. It goes back to, if you’re not young (in your 20s) with no kids trying to chase the IPO lottery, this is a perfect opportunity to cash out.

As for who will eat shit the most, I think it’s the young engineers who feel rich with their paper $ who got in a little too late and got greedy and does not cash out. Remember all the .com companies? You can be millionaire one minute and a few months later, you’re back to where you started. Only the lucky few who are founders who sell their company who would make it out big, but they’re the minority, even in the bay. I don’t think the bay area tech crash would bring down the entire economy like the housing crash, since bay area tech is isolated, unlike housing.

[spdrun]

Why is the spread 300%? Other than maybe housing costs (probably more like 2x), the BA doesn’t cost 3x as much as Southern California.

Bay Area does have one other advantage over Southern California. It’s closer to the relatively undeveloped part of Northern California, Oregon, and the Sierras if you’re into hiking, skiing, biking, etc.

Once the sprawl ends, you’re in a truly beautiful part of the world.

[Jazzman]

[quote=The-Shoveler]IMO any crash were it to happen would not be near as severe as the last time

Everyone keeps thinking we are doomed to repeat the last crash when there is almost none of the conditions that really caused the last crash occurring right now (that was truly a once in a life time event).

what we have going on now is more like what happened in the 1980’s when the boomers were coming of age to buy homes, only this time its millennials.

and Please STOP BLAMING BOOMERS, look across the Aisle at you old classmates.[/quote]
Are you referring to just the housing crash, or the credit crisis that led to the recession? There were three distinct, albeit interconnected, phases. The problem is that even last time we didn’t know exactly what the causes were until after the event. At the time it looked like lending was out of hand and irrational behavior had taken hold. All you need to know is that prices are very high. I don’t believe that prices have to be as high as the last bubble to qualify for a bubble.

What is common between now and then is high prices, monetary and fiscal policy aimed at buoying prices, conveyor belt collateralized mortgages, a sophisticated lending market, and government policy aimed at increasing home ownership. On top that you’ve had tax credits, mortgage interest deductions, a distorted property tax code, government guarantees, low deposit requirements, and schemes such as HAMP. So what subprime did for the last bubble you can find plenty that took its place. On the other hand, credit is tighter and investment banks are (hopefully) not stuffing toxic loans and concealing them in investments. But, you also have very low supply, a lot of speculative investor activity, and a market that was distorted by distressed properties. There is still a back log of REOs in some states. Pile on top of that the very low labor participation rate and anemic economic growth. Now throw in the Fed’s hesitancy to raise rates.

Now please explain to me what is good about our current situation? Your home has increased in value? Well, that doesn’t make you richer unless you sell it and downsize. You can borrow against it, but we know where that leads. No. Houses do not substitute for stocks and bonds and should not be a retirement plan. It doesn’t work. We need to get back to a normal market based on historical averages. Savings should be put to better use and people worried about having enough to retire on should be concerned about all these asset distortions, not relying on them.

[Jazzman]

[quote=flu][quote=Jazzman]^^^I think you’ve given very good reasons for why things could go pear-shaped, but your conclusion seems more influenced by lost hope.[/quote]

And I think you will be wrong (again). But we’ll see. I’m not doubting there will be a correction, but you folks thinking of a massive correction I think will be disappointed (again), in as much some of you were trying to second guess the RE correction here in San Diego and thinking that the best coastal parts of SD would fall 30-40% during the RE meltdown, despite prices had already gone down 20-25% in those parts of town. Wrong there too. I find it funny you guys are so convinced of a doomsday scenario, it’s almost comical. Do you really think there won’t be some intervention if things start to do south (again)?

‘Lost hope?’ I don’t personally care either way, because personally my cost basis there is so low and I don’t care since I don’t plan on selling, ever.[/quote]
It is more rational to judge the size of a possible correction by the size of the bubble that precedes it. When prices are very high compared to historical norms it is reasonable to assume a commensurate correction. Don’t be fooled into to thinking that the previous correction was somehow to do with fundamentals of value. There were so many factors that prevented a bigger correction. It was the explicitly stated aim of the government to prevent house price falls at any cost. The reasons were considered justified at the time, but the consequences not fully realized.

Unlike you, I do care. Not about SF per se but about the consequences that follow and the perpetual resumption of conditions that seem determined to repeat themselves.

[Jazzman]

[quote=AN][quote=flu]
I don’t think there’s a disagreement on there being a correction in the future. I’m doubting the magnitude of it that some apparently are convinced will happen, just as much as I doubted the magnitude of the correction we experienced here in SD in the areas where demand is generally stronger than other places.

And that cousin doesn’t *need* to live in a 1.8million+ place in Cupertino, he can live just fine in Santa Clara. It’s a tradeoff, that people make more so there than down here.

Regardless, when this new tech bubble does pop, guess who’s going to end up eating shit the most? Yup, retail stock “investors” who either bought these company stocks directly, or are indirectly holding onto them with a mutual fund, like the famous Fidelity Contrafund or OTC fund, that is in just about everyone’s 401k plan.. It won’t be all the employees and insiders of these companies that were given these shares as part of their employment package. Just like how was back in 2000/2001.[/quote]
I won’t predict the depth of the crash because it’s foolish to even try. However, according to the video, Cupertino saw a 70+% rise in 1 year? If that’s true, I think there’s a possibility of a big decline, but who knows. Even at the peak of the bubble, I don’t think places like La Jolla and Del Mar were seeing 70% increase in a year. So, this is uncharted territory. Maybe this is the new normal for bay area and it’s going to be forever expensive like other major cities around the world. Only time will tell. But regardless, if you’re not making millions from the IPO lottery, I don’t see a reason to stay. If you own a home, this is a perfect opportunity to sell your million dollar shack and move to less expensive places like SD, LA, OC and retire.

Then the next question is, at what point do companies will start saying, why are we paying Sr. Engineers $250k in the bay (just so they can afford an average life style) while we can pay 1/3 of that in SD, OC, LA, etc. I don’t know where that tipping point is, but I would assume there has to be a tipping point.

As for your cousin, I find it crazy that you would have to make that kind of tradeoff when you have that big of a windfall. That’s one of the reason why I think it’s unsustainable. It goes back to, if you’re not young (in your 20s) with no kids trying to chase the IPO lottery, this is a perfect opportunity to cash out.

As for who will eat shit the most, I think it’s the young engineers who feel rich with their paper $ who got in a little too late and got greedy and does not cash out. Remember all the .com companies? You can be millionaire one minute and a few months later, you’re back to where you started. Only the lucky few who are founders who sell their company who would make it out big, but they’re the minority, even in the bay. I don’t think the bay area tech crash would bring down the entire economy like the housing crash, since bay area tech is isolated, unlike housing.[/quote]
I agree with everything you say, except the interconnectedness between local markets. For example, high prices in CA have pushed buyers into other markets, pushing up prices there. Suburbs in particular benefit from increasing prices as more and more buyers are forced to look further afield. Let’s also remember that the current frothy market is not confined to SF or even the US. Other markets may have different causes for a bubble that are not connected to tech companies. For example, a favorable tax environment or anonymity. A danger of course is if mayors of other cities see the effect on housing and revenues that is happening in SF and seek to emulate it. The other important point to remember is that lending is not local, so what effects credit in one place can effect it in other places as happened in the last bubble. Some states scarcely saw a blip on the bubble radar, yet the effects of crashing markets in more frothy states especially cities were felt everywhere it terms of credit availability, unemployment, and the effects of a deep recession generally.

While I agree that making precise predictions is a fools past time, I see ample justification for that happy middle ground of hoping for the best yet expecting the worst.

[spdrun]

If suburbia in SF’s equivalent of lizard country crashes and burns, that’s just fine and dandy. Sprawl is not a good thing.

[Coronita]

[quote=Jazzman][quote=flu][quote=Jazzman]^^^I think you’ve given very good reasons for why things could go pear-shaped, but your conclusion seems more influenced by lost hope.[/quote]

And I think you will be wrong (again). But we’ll see. I’m not doubting there will be a correction, but you folks thinking of a massive correction I think will be disappointed (again), in as much some of you were trying to second guess the RE correction here in San Diego and thinking that the best coastal parts of SD would fall 30-40% during the RE meltdown, despite prices had already gone down 20-25% in those parts of town. Wrong there too. I find it funny you guys are so convinced of a doomsday scenario, it’s almost comical. Do you really think there won’t be some intervention if things start to do south (again)?

‘Lost hope?’ I don’t personally care either way, because personally my cost basis there is so low and I don’t care since I don’t plan on selling, ever.[/quote]
It is more rational to judge the size of a possible correction by the size of the bubble that precedes it. When prices are very high compared to historical norms it is reasonable to assume a commensurate correction. Don’t be fooled into to thinking that the previous correction was somehow to do with fundamentals of value. There were so many factors that prevented a bigger correction. It was the explicitly stated aim of the government to prevent house price falls at any cost. The reasons were considered justified at the time, but the consequences not fully realized.

Unlike you, I do care. Not about SF per se but about the consequences that follow and the perpetual resumption of conditions that seem determined to repeat themselves.[/quote]

Sure. If you say so.

[The-Shoveler]

[quote=spdrun]If suburbia in SF’s equivalent of lizard country crashes and burns, that’s just fine and dandy. Sprawl is not a good thing.[/quote]

Sprawl (at least in CA) is just bedroom communities turning into big cities (with their own job centers).

[The-Shoveler]

[quote=Jazzman][quote=The-Shoveler]IMO any crash were it to happen would not be near as severe as the last time

Everyone keeps thinking we are doomed to repeat the last crash when there is almost none of the conditions that really caused the last crash occurring right now (that was truly a once in a life time event).

what we have going on now is more like what happened in the 1980’s when the boomers were coming of age to buy homes, only this time its millennials.

and Please STOP BLAMING BOOMERS, look across the Aisle at you old classmates.[/quote]
Are you referring to just the housing crash, or the credit crisis that led to the recession? There were three distinct, albeit interconnected, phases. The problem is that even last time we didn’t know exactly what the causes were until after the event. At the time it looked like lending was out of hand and irrational behavior had taken hold. All you need to know is that prices are very high. I don’t believe that prices have to be as high as the last bubble to qualify for a bubble.

What is common between now and then is high prices, monetary and fiscal policy aimed at buoying prices, conveyor belt collateralized mortgages, a sophisticated lending market, and government policy aimed at increasing home ownership. On top that you’ve had tax credits, mortgage interest deductions, a distorted property tax code, government guarantees, low deposit requirements, and schemes such as HAMP. So what subprime did for the last bubble you can find plenty that took its place. On the other hand, credit is tighter and investment banks are (hopefully) not stuffing toxic loans and concealing them in investments. But, you also have very low supply, a lot of speculative investor activity, and a market that was distorted by distressed properties. There is still a back log of REOs in some states. Pile on top of that the very low labor participation rate and anemic economic growth. Now throw in the Fed’s hesitancy to raise rates.

Now please explain to me what is good about our current situation? Your home has increased in value? Well, that doesn’t make you richer unless you sell it and downsize. You can borrow against it, but we know where that leads. No. Houses do not substitute for stocks and bonds and should not be a retirement plan. It doesn’t work. We need to get back to a normal market based on historical averages. Savings should be put to better use and people worried about having enough to retire on should be concerned about all these asset distortions, not relying on them.[/quote]

Not saying it’s good (or Bad), just saying that today has more in common with 1984-5 than 2006-7.

[FlyerInHi]

The difference today are the high rents.

A housing correction would be lead by unemployment. Unless we start seeing unemployment, prices will hold.

Someone told me that rents for a 1/1 at sommerset in mira mesa is now $1600. That one’s for you flu. Aren’t you glad you invested in mira mesa?

[Author]

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