6 ms·
I spent most of my childhood in California. Real estate is and always has been the number one industry in the state. The majority of my childhood friends' wea
by nugget 10y ago
I spent most of my childhood in California. Real estate is and always has been the number one industry in the state. The majority of my childhood friends' wealth seems to derive from houses their families bought in the early 80s or earlier. Prices have benefited from a stable of one trick ponies - fixed low property taxes (prop 13), massive population growth (net domestic migration is now negative), job growth from the tech sector, the cultural shift to assortive mating of dual income white collar professionals, and the drop to near zero interest rates. I thought for sure that prices had hit the mathematically inevitable plateau - and then came tens of billions in foreign capital fleeing China. Is there another unpredictable one trick pony waiting in the wings? At some point it seems like prices would have to hit a ceiling reflecting the fact that all future appreciation and demand has been pulled forward, at which time the great financial machine grinds down to a much slower pace, if not a halt. It will be interesting to watch and see what happens.
- FuturePromise 10y agoProperty taxes are not "low". Even under Prop 13, they go up 2% a year. California's property taxes are about median for the nation. It has the absolute highest income tax (for incomes above $1MM) and near the highest sales tax. So anyone who opposes Prop 13 is simply wrong. Without it, California would have the highest tax in the nation, by far. With such a large tax base, there's no need to tax that high percentage wise. The money is being wasted.
- adrenalinelol 10y agoNegative interests rates... The Fed wants to stay relevant as a means of correction economic recessions and the rate is still pretty much ~0% atm.
- cubano 10y agoThe price will hit a ceiling at the exact time demand = supply, and not a moment before. A worldwide markets for these homes now exists, which means the number of people who both want and can afford them is huge, and therefore the price will rise until that condition is no longer true. Also, I believe we are again seeing signs of loan company shenanigans which, if so, will allow easy-to-game capital to continue to chase prices upwards as well.
- tomp 10y agoThe "demand=supply" argument doesn't exactly explain why a foreign billionaire would want to own an appartment exactly in San Francisco. Personally, I would buy a flat in Ibiza, Barcelona or Hawaii way before even considering SF.
- steffan 10y agoI suspect it is less about the “foreign billionaire” and more about the single-digit millionaires worldwide looking for an ostensibly safe place to park some money and be assured of a healthy return (or at least not a loss). It's a self-perpetuating cycle¹: people invest in real estate; prices go up; it becomes a more attractive investment. ¹Sometimes known as a “bubble”
- nugget 10y agoGiven that people don't want to leave the Bay Area and don't want to be homeless, prices seem to be largely determined by how much firepower the demand side of the equation has. In the absurd scenario of 0% mortgage rates and a 100% LTV interest-only mortgage you could theoretically occupy any house you wanted indefinitely for the price of the property taxes and maintenance (and turn a profit by subleasing to roommates or tourists). 0% is an extreme but how close could we get? Japan is already close to 1%. At which point it costs $10k/year or just a bit more than $800/month for every million in housing cost. It doesn't seem fiscally healthy (but who knows), and if any significant number of people started to consume housing in this way I can't see how we avoid another 2008 style housing collapse in those areas if rates ever rise.
- saenns 10y agodon't forget barriers to new construction such as NIMBY, zoning, environmental
- delazeur 10y agoReal estate as a driver of the CA economy goes at least as far back as the Homestead Acts and the Reclamation Act.