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> The unemployment rate was 3.1 percent in April, the lowest since 2000, and home values are at a median of $1.1 million, the largest among the 50 biggest U.S.

> The unemployment rate was 3.1 percent in April, the lowest since 2000, and home values are at a median of $1.1 million, the largest among the 50 biggest U.S. cities. Mayor Edwin Lee on May 31 released a record $9.6 billion budget proposal. What goes up must come down. Here's my completely opinionated ideas of how an individual in San Francisco can ride out the economic change: 1. Sell your home. 2. Have a 6 month nest egg saved up. 3. Have an up-to-date resume. The "sell your home" part is not valid in the near-zero interest rate world, which who knows how long that will last.

StavrosK 10y ago
Why? I don't get it. EDIT: Ah, the parent edited their comment to clarify. I see what they meant now.
- swsieber 10y ago
  Sell while the market is hot and move somewhere else. Take up to 6 months to find the new home / job. At least, that's what I think the above implies.
  - matt_wulfeck 10y ago
    In fact, if you sell and want to realize gains on your home you pretty much have to move or at least downgrade, or else you and your buyer's profits cancel each other out.
- CoffeeDregs 10y ago
  I think the rationale is: You don't want to be holding an asset who's value is predicated on a very low interest rate loan. If mortgage interest rates go up by a factor of two, housing affordability will come down by a factor of two (assuming an interest only loan). Better to sell now, pocket the money, then buy back in when prices are lower.
  - shostack 10y ago
    Isn't that in essence trying to time the market?
    - jonknee 10y ago
      On the other hand it is buying low and selling high. It's a fool's errand to try and sell at the exact top (or buy at the exact bottom), but if you're already up nicely you have done the hard part.
      - shostack 10y ago
        Sure, but you're still trying to time the market.
        hiram112 10y ago
        Yes you are trying to time the market but interest rates cannot go any lower, literally. In hindsight, it will have looked obvious.
        shostack 10y ago
        Actually, they can go negative like Japan. Which I guess would push asset prices even higher?
SilasX 10y ago
But the interest rates can stay low indefinitely; the Fed is determined to keep it that way because of how many people depend on home value. Even moving short-term rates to 0.25% is met with shock.
- refurb 10y ago
  As far as I understand, the Fed only has limited control over the interest rates if they want to maintain a functioning economy. For example, if inflation starts picking up, rates will have to come up to tamper it. Otherwise you get runaway inflation. If inflation increases in other countries, then the US rate will follow, otherwise our dollar will take a huge hit due to the interest rate/exchange relationship.
- dragonwriter 10y ago
  > the Fed is determined to keep it that way because of how many people depend on home value. No, the main two things that the Fed manages with monetary policy (and they tend to be balanced against each other) are inflation and employment. Low rates are used to spur employment at the cost of risking inflation, high rates are used to constrain inflation at the risk of harming employment.
  - SilasX 10y ago
    I know what the textbook says; I'm talking about the political realities of pursuing a policy that would cause a precipitous value in people's homes. True, the Fed is nominally Independent, and Immune to Political Influences, not in practice it's not. The bankers that contribute to its policies also have to worry about mortgages going underwater from a return to historically normal rates.
    - dragonwriter 10y ago
      > I know what the textbook says; I'm talking about the political realities of pursuing a policy that would cause a precipitous value in people's homes. The political reality is that the Fed has fairly consistently -- and reasonably predictably by experts looking at the same signals that the Fed overtly claims to watch -- made rate decisions as one would expect considering the combination of employment-related and inflation-related considerations they consider under the "textbook" case. So, conspiracy theories about home prices are unnecessary. > True, the Fed is nominally Independent, and Immune to Political Influences, not in practice it's not. I won't argue that the Fed is someone subject to political influences, OTOH, those strongly militate both for working to promote employment and working to constrain inflation, which are also the Feds overt mandates. > The bankers that contribute to its policies also have to worry about mortgages going underwater from a return to historically normal rates. After the 2009 crisis, the wave of defaults that occurred then, and the tighter lending policies that banks have taken since, there's not a huge risk there.
Johnny555 10y ago
Where do you live after you sell your home? My home is "worth" over 50% more than I paid for it, but if I had to rent, I'd end up paying nearly double what I pay in mortgage.
- jonknee 10y ago
  If the market turns suddenly your home is not worth 50% more than you paid for it and renting looks a lot nicer! (In that situation rents will come down too.)
  - Johnny555 10y ago
    But if the market turns suddenly it's too late to sell. So do I sell today and "hope" that the market will tank and rents will soon drop lower than my mortgage and that I don't eat up most of the profit from selling in extra rent payments?
    - jonknee 10y ago
      Yes, that's what the OP suggested. 50% gain is pretty big and a capital gain from a home is nicely tax advantaged. You could also look to move somewhere else, that 50% gain is probably enough to buy a place outright in many other places.
      - Johnny555 10y ago
        Of course, I lose around 8 - 10% of the home selling price to selling expenses, and pay 20% capital gains taxes on the profit, so that 50% gain is not as large as it sounds. And sure, I could quit my job, sell the house, do a 1031 exchange and buy in a cheaper area to reduce the tax burden, but purposely quitting my well paying job and moving to somewhere that jobs are less plentiful sounds like a bad idea if I'm worried that we're facing a recession. Not to mention how disruptive it is to my family: "Hey honey, we're both going to quit our jobs and move the kids to a new school because the bubble might be bursting". Recommending that people homes now and move out just sounds like trying to time the market, and may not leave them any better off. Silicon Valley still still have a lot of jobs even after an economic downturn, some small town here homes are cheap may not.

StavrosK 10y ago

Why? I don't get it. EDIT: Ah, the parent edited their comment to clarify. I see what they meant now.

swsieber 10y ago
Sell while the market is hot and move somewhere else. Take up to 6 months to find the new home / job. At least, that's what I think the above implies.
- matt_wulfeck 10y ago
  In fact, if you sell and want to realize gains on your home you pretty much have to move or at least downgrade, or else you and your buyer's profits cancel each other out.
CoffeeDregs 10y ago
I think the rationale is: You don't want to be holding an asset who's value is predicated on a very low interest rate loan. If mortgage interest rates go up by a factor of two, housing affordability will come down by a factor of two (assuming an interest only loan). Better to sell now, pocket the money, then buy back in when prices are lower.
- shostack 10y ago
  Isn't that in essence trying to time the market?
  - jonknee 10y ago
    On the other hand it is buying low and selling high. It's a fool's errand to try and sell at the exact top (or buy at the exact bottom), but if you're already up nicely you have done the hard part.
    - shostack 10y ago
      Sure, but you're still trying to time the market.
      - hiram112 10y ago
        Yes you are trying to time the market but interest rates cannot go any lower, literally. In hindsight, it will have looked obvious.
        shostack 10y ago
        Actually, they can go negative like Japan. Which I guess would push asset prices even higher?

SilasX 10y ago

But the interest rates can stay low indefinitely; the Fed is determined to keep it that way because of how many people depend on home value. Even moving short-term rates to 0.25% is met with shock.

refurb 10y ago
As far as I understand, the Fed only has limited control over the interest rates if they want to maintain a functioning economy. For example, if inflation starts picking up, rates will have to come up to tamper it. Otherwise you get runaway inflation. If inflation increases in other countries, then the US rate will follow, otherwise our dollar will take a huge hit due to the interest rate/exchange relationship.
dragonwriter 10y ago
> the Fed is determined to keep it that way because of how many people depend on home value. No, the main two things that the Fed manages with monetary policy (and they tend to be balanced against each other) are inflation and employment. Low rates are used to spur employment at the cost of risking inflation, high rates are used to constrain inflation at the risk of harming employment.
- SilasX 10y ago
  I know what the textbook says; I'm talking about the political realities of pursuing a policy that would cause a precipitous value in people's homes. True, the Fed is nominally Independent, and Immune to Political Influences, not in practice it's not. The bankers that contribute to its policies also have to worry about mortgages going underwater from a return to historically normal rates.
  - dragonwriter 10y ago
    > I know what the textbook says; I'm talking about the political realities of pursuing a policy that would cause a precipitous value in people's homes. The political reality is that the Fed has fairly consistently -- and reasonably predictably by experts looking at the same signals that the Fed overtly claims to watch -- made rate decisions as one would expect considering the combination of employment-related and inflation-related considerations they consider under the "textbook" case. So, conspiracy theories about home prices are unnecessary. > True, the Fed is nominally Independent, and Immune to Political Influences, not in practice it's not. I won't argue that the Fed is someone subject to political influences, OTOH, those strongly militate both for working to promote employment and working to constrain inflation, which are also the Feds overt mandates. > The bankers that contribute to its policies also have to worry about mortgages going underwater from a return to historically normal rates. After the 2009 crisis, the wave of defaults that occurred then, and the tighter lending policies that banks have taken since, there's not a huge risk there.

Johnny555 10y ago

Where do you live after you sell your home? My home is "worth" over 50% more than I paid for it, but if I had to rent, I'd end up paying nearly double what I pay in mortgage.

jonknee 10y ago
If the market turns suddenly your home is not worth 50% more than you paid for it and renting looks a lot nicer! (In that situation rents will come down too.)
- Johnny555 10y ago
  But if the market turns suddenly it's too late to sell. So do I sell today and "hope" that the market will tank and rents will soon drop lower than my mortgage and that I don't eat up most of the profit from selling in extra rent payments?
  - jonknee 10y ago
    Yes, that's what the OP suggested. 50% gain is pretty big and a capital gain from a home is nicely tax advantaged. You could also look to move somewhere else, that 50% gain is probably enough to buy a place outright in many other places.
    - Johnny555 10y ago
      Of course, I lose around 8 - 10% of the home selling price to selling expenses, and pay 20% capital gains taxes on the profit, so that 50% gain is not as large as it sounds. And sure, I could quit my job, sell the house, do a 1031 exchange and buy in a cheaper area to reduce the tax burden, but purposely quitting my well paying job and moving to somewhere that jobs are less plentiful sounds like a bad idea if I'm worried that we're facing a recession. Not to mention how disruptive it is to my family: "Hey honey, we're both going to quit our jobs and move the kids to a new school because the bubble might be bursting". Recommending that people homes now and move out just sounds like trying to time the market, and may not leave them any better off. Silicon Valley still still have a lot of jobs even after an economic downturn, some small town here homes are cheap may not.