[Rich Toscano]

The SF chart didn’t display right, you can add it with the “Add image” link near the bottom of the comment page. Or email it to me at rich at piggington and I will put it up.

Anyway it’s not too surprising about SF; incomes have gone absolutely nuts there because of the tech boom. You have software developers (individual contributors, not managers) making over 500k. So incomes have gone up way in excess of inflation. How sustainable it all is is another question, but it makes sense that SF home prices have risen much faster than inflation. (If you could find it, it would be interesting to chart SF prices vs. incomes).

[Rich Toscano]

Unfortunately they are not adjusted for inflation, which makes them pretty meaningless when it comes to comparing expensiveness over the long term.

You should be able to pretty easily generate something like this with FRED. First go here:

https://fred.stlouisfed.org/search?st=case-shiller

Pick your city to graph it. Then FRED lets you do transformations, which includes dividing one series by another. You can do this by clicking “edit graph,” then “customize data”. In the box where you can add a series, type CPI and choose it when it comes up. Then in formula, type “a/b”.

This is basically telling it to graph Case-Shiller/CPI, which is what you are looking for.

[Rich Toscano]

[quote=Myriad][quote=henrysd]Professor Shiller, the creator of CAPE, is in bull camp for stock 2020:

https://www.cnbc.com/2019/12/22/robert-shiller-trump-effect-could-drive-record-rally-through-2020.html%5B/quote%5D

LOL, now that he’s in the bull camp, probably means there will be a 20% correction in sometime in 2020[/quote]

He’s not in the “bull camp” – that’s a ridiculous characterization by CNBC (this is not a criticism of henrysd, who was just posting what CNBC said).

Paraphrasing the quotes in the article, he basically said “valuations are very high, but sure, the boom could continue for a while.” Simply acknowledging the possibility of short-term upside does not put one in the “bull camp.”

His framework is largely that valuations predict long term returns, but nobody has any idea what will happen in the short term. So to the extent there is any forecast implied by his comments, it’s a negative one. (And I’d be very surprised if he expressed belief in a 1-year forecast regardless of direction).

Just a super bad take by CNBC.

[Rich Toscano]

[quote=flu]Plus the real estate windfall from the Great Recession is probably that 1 hit, one time lifetime event.[/quote]

This. You bought in the midst of a severe crash (good job) and your returns were boosted accordingly. That can’t be extrapolated.

With that said, you are right to be suspicious of the “stocks return more than real estate” thing. This is a pretty common belief, but it’s based on an apples to oranges comparison. It’s true that housing prices (not just talking SD here, I mean overall residential RE) have only tended to keep up with inflation over time, but that’s only looking at the price return.

To compare with stocks you have to look at total return, which includes income from owning the property (or if you live there, the “income” you get from not paying rent). Once this is included, RE returns have been comparable to stocks over time.

For doubters or those interested, data here: https://www.frbsf.org/economic-research/files/wp2019-10.pdf

[Rich Toscano]

I’ve been out of town all week and just catching up… this was a nice post to come back to!

Thanks everyone for the very kind words. It makes me really happy that this site helped people out. 🙂

[Rich Toscano]

[quote=flu] But, I am waiting for CA to pass more laws that end up restricting contract workers , particularly contract IT workers. That would be funny.[/quote]

It’s already done. The media is focusing on rideshares, but the bill bans all contract work unless it’s “outside the course of the hiring entity’s business”. Seems like a lot of tech contractors are in the crosshairs, since they often are in the same business as their hiring entity (eg programming).

I think reasonable people could have a good debate about whether Uber drivers in particular should be contractors or not. But to basically outlaw a huge swath of the contract job market seems like lunacy to me.

http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB5

[Rich Toscano]

I have no idea on cost but I used these guys to crown-thin some pines in my yard and they were good: http://www.leafit2us.net

[Rich Toscano]

cb, you are right, I kind of misinterpreted the end of your original post there — sorry about that. I do agree that a near-term, steep pullback seems very unlikely*. Longer term, though, it’s really hard to know where valuations will go.

(* The one plausible exception case here would be if interest rates rise substantially. I know everything thinks that’s inconceivable now, but regardless… if it did happen, it would whack the market pretty hard I think.)

[Rich Toscano]

cbworker, you raise a lot of good points. But I have a couple clarifications:

1. I definitely did not say “valuation always falls back to the mean.” I dedicated several paragraphs to factors that could keep valuations elevated, and ended that section with: “The best approach is probably to allow for the possibility that valuations have permanently shifted to some degree, but not to depend on it.”

That’s not really central to your argument, but I wanted to clarify for anyone who is reading this post but didn’t read the piece I wrote.

2. Also a tangent and not related to your central point, but: I would not characterize it that Grantham is questioning mean reversion. His argument was that profit margins for US corporations may remain elevated for much longer than usual (due to monopolies, regulatory capture, etc.). That’s different than questioning mean reversion of valuations. And even more tangentially, fwiw… that viewpoint is not shared by the actual portfolio managers at GMO. (At least, not to the degree that it makes them want to have any US stock exposure).

Anyway. I think you make some good arguments and I particularly think your point 1 is valid and very important.

Where we part ways is your certainty that it will necessarily continue. I believe there are too many moving parts to know for sure. For example, there is a lot more going on than the internet. And some of the factors that have widened the income gap have already gone into reverse (a major example being globalization).

So my view is that it’s impossible to know for sure where valuations will go. But I do think you raise some good ideas.

[Rich Toscano]

[quote=NeetaT]I try to skirt CA taxes at all cost, because all the tax money goes to bloated salaries, pensions, and social programs.[/quote]

Please review this now-9 year old post:

https://www.piggington.com/threadjackers_will_be_persecuted_maybe_even_prosecuted

[Rich Toscano]

Actually months of inventory have had a huge (relative) increase in recent months. The economy is still quite strong so I think rates/SALT (combined with already-high valuations) probably are the main cause.

Prices won’t “fall off a cliff” – nobody is claiming that outside of the Zero Hedge crowd, right? But I would be surprised if prices didn’t weaken under this new supply-demand equilibrium… assuming it continues.

[Rich Toscano]

Wow… those are some crazy stats, especially the price/sq ft vs. median wage…

[Rich Toscano]

Hi ocr – Where did you find that data on real estate to GDP ratio? That was a really interesting stat so I went looking for more info, and found this from PIMCO:

“We estimate China’s property market to be worth around US$22 trillion, approximately 1.8 times the size of its GDP in 2017.”

https://blog.pimco.com/en/2018/06/chinas-property-market-bubble-or-balloon

[Rich Toscano]

[quote=FlyerInHi]Over the years, I’ve gotten pretty good at spotting the corrupt people and flimflamers.
I never met Duncan Hunter, Jr. But I met the old man as well as John Cunningham. They look and act like mafiosos or corrupt sheriffs. And you know what they say about looking the part….[/quote]

Did “John” Cunningham give you a fake name when you two were hanging out? Part of the flimflam maybe?

[Rich Toscano]

Re-using the floor epoxy! Love the efficiency…

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