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Lived in a rental house in SJ for 7 years now watching prices go up and deciding to sit it out, after having lost 30% on my house in the midwest years ago. I’m

Lived in a rental house in SJ for 7 years now watching prices go up and deciding to sit it out, after having lost 30% on my house in the midwest years ago. I’m kicking myself for not buying earlier, but not a chance you’d get me to buy in now. We’re in a bubble that’s ready to burst IMO.

pxeboot 9y ago
I agree, it seems crazy to buy now. But will we actually see a crash, or just a period of stagnation?
- state_less 9y ago
  I suppose it depends. Is the average property value increasing faster than the salaries of the people that fuel it? Sometimes folks will pack into a house, pumping up the total salary of the house over time, so you'd also have to consider cohabitation trends. If property values goes up faster than salary per home, you'll end up with a precarious housing market subject to the whims of investor sentiment. Workers won't be able to move in and back up the house valuation if they are priced too high.
- halbritt 9y ago
  It's pretty straightforward to look at prices throughout the course of the real-bubble and speculate about that fact. A few places along the peninsula had stagnant or slowly rising property values, like Palo Alto. Values in SF either held or declined very little. Places like Oakland lost a little value and Hayward, maybe one of the least desirable areas around the bay regained all of its lost value in just a few years.
  - nshelly 9y ago
    Yup, in general investing an equivalent money in stocks is better than leveraging your income to buy an illiquid, non-diversified asset like a single-family home. From Jan 1987 to Jan 2018, prices in San Francisco MSA have gone up 5.0% a year, ((258.81-46.95)/46.95)^(1/(2018-1987)). The equivalent amount invested in the stocks over that time period would have yielded 10.3% a year[1], with dividends reinvested. Unless you are planning to use it as an investment property and reinvest rents (net of property tax, maintenance) in other properties, it still doesn't appear clear that buying a home vs renting and investing heavily in the market is a better bet, not to mention other intangibles like upkeep and longer commutes. [1] https://fred.stlouisfed.org/series/SFXRSA https://fred.stlouisfed.org/series/SFXRSA [2] https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
aphextron 9y ago
>We’re in a bubble that’s ready to burst IMO Why do you think that, though? Is it solely because prices are rising very quickly? There's no indication whatsoever that people will stop buying any time soon. Homes are selling >110% of asking price for all cash within days, and supply is essentially fixed.
- refurb 9y ago
  People were saying the exact same thing before the crash in 2007. Not saying a crash is imminent, but prices are even higher than before last crash, even taking inflation into account.
  - aphextron 9y ago
    >People were saying the exact same thing before the crash in 2007. People were buying overvalued homes they couldn't afford in the middle of nowhere on subprime adjustable mortgages, which caused the crash of '07 when the ARM rates kicked in and they couldn't afford payments. This is a fundamentally different situation. Now, a very small number of elite highly wealthy people from around the world are treating American housing stock as their investment vehicles since there is literally no other better option in 2018. Where we go from here in terms of affordable housing, nobody knows. But I really really doubt we're going to see a housing crash any time soon. It's just simple supply and demand.
    - tehlike 9y ago
      I dont have much knowledge, but i hear asian buyers investing looked similar to japan investing in 80s.
      - halbritt 9y ago
        In the period after the downturn and just before the market started to tick up in mid 2012, there were a number of Asian investors buying up large swaths of foreclosed and distressed homes in Oakland for cash. I recall this specifically, as I was in the market for a house at the time. Fortunately, I didn't face much cash competition as I was shopping slightly upmarket. The line seemed to be $300-400k. Those folks would be seeing pretty good returns at this point as those houses are now typically worth $500-600k and might be renting for $2-3k.
AceJohnny2 9y ago
> We’re in a bubble that’s ready to burst IMO. Not necessarily. Bubbles are based on speculation. The last bubble was powered by sub-prime mortgages, which is what burst. The Bay Area has the problem of ongoing immigration, a very highly paid demographic, and housing market that isn't keeping up. Simply, Offer < Demand. Offer isn't looking to catch up any time soon [1], and demand crashing would mean the tech economy will have crashed as well (or, you know, The Big One). [1] I'll have to sleuth up the link from 6mo-1y ago about how maximizing consctruction at this point would only keep up with demand, effectively only preventing a further increase.
- usaar333 9y ago
  Rents are flat the last three years. Values are up by over 30%. That difference feels speculative..
  - charlesdm 9y ago
    The question also is, have sales kept up at those values?
  - refurb 9y ago
    Looking at the Case-Shiller index for SF, I would agree it looks speculative.[1] SF home prices went from an indexed 219 in Mar 2006, down to 120 in May 2009. That's a 45% decrease over two years. Right now the index is at 259 and that's inflation adjusted. [1]https://alfred.stlouisfed.org/series?seid=SFXRSA https://alfred.stlouisfed.org/series?seid=SFXRSA
    - nshelly 9y ago
      I believe the Case-Shiller index is "seasonally-adjusted", not "inflation-adjusted"[1]. What makes you think it's adjusted for inflation? [1] https://www.advisorperspectives.com/dshort/updates/2018/03/27/home-price-surge-continues-in-january https://www.advisorperspectives.com/dshort/updates/2018/03/2...
- e3b0c 9y ago
pascalxus 9y ago
Well, it's worse than a bubble. It's a genuine mass-scale shortage of housing. I don't think housing prices will crash down anytime soon based on all the pent up demand. But, much of it depends on how much hiring Google and other companies decide to do. If they keep hiring, Real estate will continue to go up.
- diogenescynic 9y ago
  Eventually they’re either going to lobby and change the laws-they will always get their way-or eventually hiring will slowly shift out of California. If the Bay Area had built more housing and kept housing prices in the realm of affordability I doubt Austin, Denver and many other cities would have half the tech scenes they have. One city’s loss is another’s gain. California is the real loser though in the situation which is why the should fix the housing restrictions on a state level and step in to overturn some of the stupid laws we have (like capping homes to 4 stories).
mbesto 9y ago
I recently sold property in the bay area. It's crazy indeed, but if I had the chance I'd sit on it for at least another 10 years. There no signs of progress to increase inventory and between Google/Apple/Facebook (and name every other large tech company) there's enough cash in their coffers to hire 300,000 more engineers making $300k/year. Which basically means even in a massive downturn, they're still going to hire net new in the 10's of thousands every year for the next 10 years. I don't think people really fathom how big of a deal this is. When was the last time a group of heavily concentrated companies were so flushed with cash sitting in banks? And also who's most coveted asset was highly paid white collar workers? Wall Street in the 80's maybe?
- scythe 9y ago
  >There's no signs of progress to increase inventory SB 827? That's what's kept me from buying. The fact that housing in the Bay is political scares me off. I'll bet on economics every day, but not on politics.
  - mbesto 9y ago
    SB827 passing will only begin to tickle the situation. It's a good start, but nowhere near what needs to be done. NIMBY'ism is part regulation, part culture. I don't see the culture part going away anytime soon. Out of curiosity - is there anywhere in the US in history where housing that had the highest value in the country was affected massively (negatively) by regulation?
    - nugget 9y ago
      Wait and see what happens as a result of SALT deduction reform. Property taxes in the most expensive zip codes just became twice as expensive for many people. California may be less effected due to proposition 13 but places like Texas and New Jersey could be hit hard. I'm guessing we'll start to see the impact (whatever it is) in early 2019 when 2018 tax returns are due.
pcwalton 9y ago
I just bought a condo in SF myself. It was an agonizingly difficult decision that I had been contemplating for years and years before finally taking the plunge. Some of what drove my decision was that most experts don't believe that the Bay Area real estate market is a bubble [1] [2]. (I wouldn't wish the anxiety around this decision on anyone, least of all future generations, which is why I've resolved to buck the trend of homeowner NIMBYism.) [1]: https://www.mercurynews.com/2017/10/19/housing-economist-poses-the-big-question-will-the-bay-area-bubble-burst/ https://www.mercurynews.com/2017/10/19/housing-economist-pos... [2]: https://www.mercurynews.com/2018/01/11/unpacking-the-bay-area-housing-market-why-does-the-inventory-keep-shrinking-and-will-prices-ever-gulp-go-down/ https://www.mercurynews.com/2018/01/11/unpacking-the-bay-are...
- rubicon33 9y ago
  If you're in it for the long haul, then it was a very wise decision. The bay area, specifically San Francisco, is one of the best real estate purchases anyone can make. It's geographically constrained and has historically shown to gain value over the past 100 years CONSISTENTLY. There will be some small bumps in the road here or there, but when you look back in 20, or 30 years, I can almost guarantee you're going to see pretty solid returns. At least you can rest easy knowing it was perhaps the safest real estate investment anyone (who can afford it) could make.
  - rpearl 9y ago
    The fact that real estate is so fundamentally an investment here (in the US/in the western world) is a deep underlying part of the problem. I agree - this person made the right decision, from their point of view, and it will be a good return on investment. But I'm definitely sort of existentially disappointed in the sort of social system that makes housing an investment like this.
    - pcwalton 9y ago
      Me too. I would take 0% return on investment and reasonable housing costs over obscene housing prices and some return on investment in a heartbeat. For people who just want a comfortable safety net for themselves and their children and not speculation, investments should be liquid and diversified, not tied up in one illiquid asset.
pkaye 9y ago
I know many of my neighbors in the bay area bought long time ago (20 years) for maybe 1/5 of the current value. It would have to drop quite a bit to put them in the red. And they are getting the same high salary as any other techie. Of course the tech industry can eventually totally collapse but then why would people want to move in?
ryguytilidie 9y ago
"We’re in a bubble that’s ready to burst IMO." People have been saying this every single day since I moved to San Francisco in 2009. I guess if you keep predicting it eventually, you might end up being right, but its not exactly insightful.
- diogenescynic 9y ago
  Markets can stay irrational for a long period of time and then correct pretty quickly. I’d be surprised if prices aren’t near a plateau. A lot of tech companies are shifting hiring to other states. I don’t see the Bay Area growing forever and rent/home prices won’t go up exponentially forever.

pxeboot 9y ago

I agree, it seems crazy to buy now. But will we actually see a crash, or just a period of stagnation?

state_less 9y ago
I suppose it depends. Is the average property value increasing faster than the salaries of the people that fuel it? Sometimes folks will pack into a house, pumping up the total salary of the house over time, so you'd also have to consider cohabitation trends. If property values goes up faster than salary per home, you'll end up with a precarious housing market subject to the whims of investor sentiment. Workers won't be able to move in and back up the house valuation if they are priced too high.
halbritt 9y ago
It's pretty straightforward to look at prices throughout the course of the real-bubble and speculate about that fact. A few places along the peninsula had stagnant or slowly rising property values, like Palo Alto. Values in SF either held or declined very little. Places like Oakland lost a little value and Hayward, maybe one of the least desirable areas around the bay regained all of its lost value in just a few years.
- nshelly 9y ago
  Yup, in general investing an equivalent money in stocks is better than leveraging your income to buy an illiquid, non-diversified asset like a single-family home. From Jan 1987 to Jan 2018, prices in San Francisco MSA have gone up 5.0% a year, ((258.81-46.95)/46.95)^(1/(2018-1987)). The equivalent amount invested in the stocks over that time period would have yielded 10.3% a year[1], with dividends reinvested. Unless you are planning to use it as an investment property and reinvest rents (net of property tax, maintenance) in other properties, it still doesn't appear clear that buying a home vs renting and investing heavily in the market is a better bet, not to mention other intangibles like upkeep and longer commutes. [1] https://fred.stlouisfed.org/series/SFXRSA https://fred.stlouisfed.org/series/SFXRSA [2] https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/

aphextron 9y ago

>We’re in a bubble that’s ready to burst IMO Why do you think that, though? Is it solely because prices are rising very quickly? There's no indication whatsoever that people will stop buying any time soon. Homes are selling >110% of asking price for all cash within days, and supply is essentially fixed.

refurb 9y ago
People were saying the exact same thing before the crash in 2007. Not saying a crash is imminent, but prices are even higher than before last crash, even taking inflation into account.
- aphextron 9y ago
  >People were saying the exact same thing before the crash in 2007. People were buying overvalued homes they couldn't afford in the middle of nowhere on subprime adjustable mortgages, which caused the crash of '07 when the ARM rates kicked in and they couldn't afford payments. This is a fundamentally different situation. Now, a very small number of elite highly wealthy people from around the world are treating American housing stock as their investment vehicles since there is literally no other better option in 2018. Where we go from here in terms of affordable housing, nobody knows. But I really really doubt we're going to see a housing crash any time soon. It's just simple supply and demand.
  - tehlike 9y ago
    I dont have much knowledge, but i hear asian buyers investing looked similar to japan investing in 80s.
    - halbritt 9y ago
      In the period after the downturn and just before the market started to tick up in mid 2012, there were a number of Asian investors buying up large swaths of foreclosed and distressed homes in Oakland for cash. I recall this specifically, as I was in the market for a house at the time. Fortunately, I didn't face much cash competition as I was shopping slightly upmarket. The line seemed to be $300-400k. Those folks would be seeing pretty good returns at this point as those houses are now typically worth $500-600k and might be renting for $2-3k.

AceJohnny2 9y ago

> We’re in a bubble that’s ready to burst IMO. Not necessarily. Bubbles are based on speculation. The last bubble was powered by sub-prime mortgages, which is what burst. The Bay Area has the problem of ongoing immigration, a very highly paid demographic, and housing market that isn't keeping up. Simply, Offer < Demand. Offer isn't looking to catch up any time soon [1], and demand crashing would mean the tech economy will have crashed as well (or, you know, The Big One). [1] I'll have to sleuth up the link from 6mo-1y ago about how maximizing consctruction at this point would only keep up with demand, effectively only preventing a further increase.

usaar333 9y ago
Rents are flat the last three years. Values are up by over 30%. That difference feels speculative..
- charlesdm 9y ago
  The question also is, have sales kept up at those values?
- refurb 9y ago
  Looking at the Case-Shiller index for SF, I would agree it looks speculative.[1] SF home prices went from an indexed 219 in Mar 2006, down to 120 in May 2009. That's a 45% decrease over two years. Right now the index is at 259 and that's inflation adjusted. [1]https://alfred.stlouisfed.org/series?seid=SFXRSA https://alfred.stlouisfed.org/series?seid=SFXRSA
  - nshelly 9y ago
    I believe the Case-Shiller index is "seasonally-adjusted", not "inflation-adjusted"[1]. What makes you think it's adjusted for inflation? [1] https://www.advisorperspectives.com/dshort/updates/2018/03/27/home-price-surge-continues-in-january https://www.advisorperspectives.com/dshort/updates/2018/03/2...
e3b0c 9y ago

pascalxus 9y ago

Well, it's worse than a bubble. It's a genuine mass-scale shortage of housing. I don't think housing prices will crash down anytime soon based on all the pent up demand. But, much of it depends on how much hiring Google and other companies decide to do. If they keep hiring, Real estate will continue to go up.

diogenescynic 9y ago
Eventually they’re either going to lobby and change the laws-they will always get their way-or eventually hiring will slowly shift out of California. If the Bay Area had built more housing and kept housing prices in the realm of affordability I doubt Austin, Denver and many other cities would have half the tech scenes they have. One city’s loss is another’s gain. California is the real loser though in the situation which is why the should fix the housing restrictions on a state level and step in to overturn some of the stupid laws we have (like capping homes to 4 stories).

mbesto 9y ago

I recently sold property in the bay area. It's crazy indeed, but if I had the chance I'd sit on it for at least another 10 years. There no signs of progress to increase inventory and between Google/Apple/Facebook (and name every other large tech company) there's enough cash in their coffers to hire 300,000 more engineers making $300k/year. Which basically means even in a massive downturn, they're still going to hire net new in the 10's of thousands every year for the next 10 years. I don't think people really fathom how big of a deal this is. When was the last time a group of heavily concentrated companies were so flushed with cash sitting in banks? And also who's most coveted asset was highly paid white collar workers? Wall Street in the 80's maybe?

scythe 9y ago
>There's no signs of progress to increase inventory SB 827? That's what's kept me from buying. The fact that housing in the Bay is political scares me off. I'll bet on economics every day, but not on politics.
- mbesto 9y ago
  SB827 passing will only begin to tickle the situation. It's a good start, but nowhere near what needs to be done. NIMBY'ism is part regulation, part culture. I don't see the culture part going away anytime soon. Out of curiosity - is there anywhere in the US in history where housing that had the highest value in the country was affected massively (negatively) by regulation?
  - nugget 9y ago
    Wait and see what happens as a result of SALT deduction reform. Property taxes in the most expensive zip codes just became twice as expensive for many people. California may be less effected due to proposition 13 but places like Texas and New Jersey could be hit hard. I'm guessing we'll start to see the impact (whatever it is) in early 2019 when 2018 tax returns are due.

pcwalton 9y ago

I just bought a condo in SF myself. It was an agonizingly difficult decision that I had been contemplating for years and years before finally taking the plunge. Some of what drove my decision was that most experts don't believe that the Bay Area real estate market is a bubble [1] [2]. (I wouldn't wish the anxiety around this decision on anyone, least of all future generations, which is why I've resolved to buck the trend of homeowner NIMBYism.) [1]: https://www.mercurynews.com/2017/10/19/housing-economist-poses-the-big-question-will-the-bay-area-bubble-burst/ https://www.mercurynews.com/2017/10/19/housing-economist-pos... [2]: https://www.mercurynews.com/2018/01/11/unpacking-the-bay-area-housing-market-why-does-the-inventory-keep-shrinking-and-will-prices-ever-gulp-go-down/ https://www.mercurynews.com/2018/01/11/unpacking-the-bay-are...

rubicon33 9y ago
If you're in it for the long haul, then it was a very wise decision. The bay area, specifically San Francisco, is one of the best real estate purchases anyone can make. It's geographically constrained and has historically shown to gain value over the past 100 years CONSISTENTLY. There will be some small bumps in the road here or there, but when you look back in 20, or 30 years, I can almost guarantee you're going to see pretty solid returns. At least you can rest easy knowing it was perhaps the safest real estate investment anyone (who can afford it) could make.
- rpearl 9y ago
  The fact that real estate is so fundamentally an investment here (in the US/in the western world) is a deep underlying part of the problem. I agree - this person made the right decision, from their point of view, and it will be a good return on investment. But I'm definitely sort of existentially disappointed in the sort of social system that makes housing an investment like this.
  - pcwalton 9y ago
    Me too. I would take 0% return on investment and reasonable housing costs over obscene housing prices and some return on investment in a heartbeat. For people who just want a comfortable safety net for themselves and their children and not speculation, investments should be liquid and diversified, not tied up in one illiquid asset.

pkaye 9y ago

I know many of my neighbors in the bay area bought long time ago (20 years) for maybe 1/5 of the current value. It would have to drop quite a bit to put them in the red. And they are getting the same high salary as any other techie. Of course the tech industry can eventually totally collapse but then why would people want to move in?

ryguytilidie 9y ago

"We’re in a bubble that’s ready to burst IMO." People have been saying this every single day since I moved to San Francisco in 2009. I guess if you keep predicting it eventually, you might end up being right, but its not exactly insightful.

diogenescynic 9y ago
Markets can stay irrational for a long period of time and then correct pretty quickly. I’d be surprised if prices aren’t near a plateau. A lot of tech companies are shifting hiring to other states. I don’t see the Bay Area growing forever and rent/home prices won’t go up exponentially forever.