5 ms·

It's no surprise why so many people are still trying to get in even though the market is insane. They just look at those graphs, with 5-20% YOY growth almost ev

It's no surprise why so many people are still trying to get in even though the market is insane. They just look at those graphs, with 5-20% YOY growth almost every year, see a horrible recession once every few years that has at most a 30% effect on house value (which recovers all "lost" value very quickly)... makes a lot of financial sense. You buy a $2m home and it'll be $3m in no time. Plenty of folks said it would stop a long time ago but it clearly isn't stopping. I'm genuinely curious as to where the price cap is going to land with the homes. We're already at prices that almost no one can pay (you have to be a 1%'er) - but at what point is it too much even for most of them?

seanmcdirmid 8y ago
It has to stop, obviously. That $2 million house isn’t going to be $20 million in 10 years without serious inflation. No one today remembers the early 90s, when plenty of people did or almost lost their shirts in the Bay Area housing markets.
- mateo411 8y ago
  It's very unlikely that it will be 20 million. However, it's likely that it will be worth around 4 million. That would be a 7 percent year over year growth.
  - seanmcdirmid 8y ago
    Yes, but nowhere near 20%. 7% a year itself isn’t very sustainable.
    - troygoode 8y ago
      It has been 8.2% over the last 23 years (inclusive of both major housing crashes). "The market can stay irrational a lot longer than you can stay solvent," as the saying goes.
      - seanmcdirmid 8y ago
        Yes, but it will always end, we just don’t know when.
- paulsutter 8y ago
  A friend bought his house in Sunnyvale at the peak and I think the trough was about 30% lower. The decline had no effect whatever on his life, before long it was multiple times his original price.
  - thatfrenchguy 8y ago
    Unless you get fired and you can’t afford your mortgage.
    - mateo411 8y ago
      If you get fired or laid off, then you get another job.
      - ghaff 8y ago
        Said a lot of people in 1999. And say a lot of people who are commanding high-level wages for relatively specialized skills and experience.
      - nostrademons 8y ago
        This was not always possible in 1991 or 2002 or even 2009.
        mateo411 8y ago
        This is true. The biggest risk with buying is that there could be a recession in the near future and you will be unemployed.
  - seanmcdirmid 8y ago
    My land lady in San Carlos told me she had a heck of a time keeping her house in the late 80s early 90s housing crash. Ya, you can win if you are liquid enough to weather the storm, not everyone is though, especially if you are heavily leveraged and go underwater on your loan.
- icantdrive55 8y ago
  The internet was young then. Most people didn't know about certain enclaves in the Bay Area that just won't/can't build more. We didn't have foreigners buying up realestate with a wire transfer. I think it's rediculious, but if I had the money; I would buy in Marin County, or northern San Francisco in a heart beat. We are really experiencing what happens when a small percentage of the population can afford to buy any home. I guarantee wealthy moguls are buying up realestate as I type, and renting it back to their employees. I'm getting sick just thinking about it. (A guy I knew died while being homeless. He was one of the Programmers of the original Word Star. I saw him go from good job, kinda Republican; to someone begging for money. Our last conversation, "I just don't want to die of pneumonia. And Bob's wife told me I couldn't sleep in the barn anymore. Bob couldn't even look at me? And no, I'm not angry, just suprised. I was so quiet, and did my chores.")
- eanzenberg 8y ago
  Yeah but, that $2M wasn't $200k 10 years ago so why assume same trajectory? I bet more than anything the growth is linear.
eanzenberg 8y ago
Price cap goes hand-in-hand with what people will be able to afford. Dual tech income ~5-600k means the ceiling is still ahead, and if incomes continue to rise on the top end then the ceiling is open-ended.
- Apocryphon 8y ago
  What's driving up tech salaries, is it primarily because companies are aware of the cost of living in the Bay Area and are paying their employees accordingly? And if so doesn't that just cause a feedback loop? Or is it just because tech is making a lot of money and so compensation naturally increases?
  - ghaff 8y ago
    A bit of both I would think. It's hard to hire skilled developers etc. in the Bay area if they would have a better standard of living elsewhere. Arguably they would anyway--as has been the case forever--but there are various compensations to SV and Northern California. AND, while they'd prefer to pay less, many companies can in fact afford it if the alternative is to be unable to hire or to be forced to hire lesser talent.
  - IkmoIkmo 8y ago
    The potential value of an engineer is unlike anything else. At the time of Whatsapp's acquisition by Facebook they had 10m users per employee and a roughly $500m valuation per employee. That's pretty insane if you think about it, even if it's an outlier. Workers in other industries couldn't cut hair fast enough, fill grocery bags, cook meals, wait tables or chauffeur people fast enough etc to generate that much value in SV. There's just no competing with the type of worker that can de facto service millions of customers every minute of the day like a Whatsapp engineer does. Given that, and network effects and the gigantic pile of liquidity the US/world is sitting on right now (at bizarro low-inflation interest & rates the past decade), and it all just pools around one spot. They'll put support staff in satellite offices, but they can easily afford to put the core devs in central locations. Facebook had about 15k employees up until 2016 or so, Walmart has 1.5 million (100x) on somewhat similar net income (same order of magnitude). These ridiculous salaries aren't the biggest deal to tech companies as insane as that sounds.

seanmcdirmid 8y ago

It has to stop, obviously. That $2 million house isn’t going to be $20 million in 10 years without serious inflation. No one today remembers the early 90s, when plenty of people did or almost lost their shirts in the Bay Area housing markets.

mateo411 8y ago
It's very unlikely that it will be 20 million. However, it's likely that it will be worth around 4 million. That would be a 7 percent year over year growth.
- seanmcdirmid 8y ago
  Yes, but nowhere near 20%. 7% a year itself isn’t very sustainable.
  - troygoode 8y ago
    It has been 8.2% over the last 23 years (inclusive of both major housing crashes). "The market can stay irrational a lot longer than you can stay solvent," as the saying goes.
    - seanmcdirmid 8y ago
      Yes, but it will always end, we just don’t know when.
paulsutter 8y ago
A friend bought his house in Sunnyvale at the peak and I think the trough was about 30% lower. The decline had no effect whatever on his life, before long it was multiple times his original price.
- thatfrenchguy 8y ago
  Unless you get fired and you can’t afford your mortgage.
  - mateo411 8y ago
    If you get fired or laid off, then you get another job.
    - ghaff 8y ago
      Said a lot of people in 1999. And say a lot of people who are commanding high-level wages for relatively specialized skills and experience.
    - nostrademons 8y ago
      This was not always possible in 1991 or 2002 or even 2009.
      - mateo411 8y ago
        This is true. The biggest risk with buying is that there could be a recession in the near future and you will be unemployed.
- seanmcdirmid 8y ago
  My land lady in San Carlos told me she had a heck of a time keeping her house in the late 80s early 90s housing crash. Ya, you can win if you are liquid enough to weather the storm, not everyone is though, especially if you are heavily leveraged and go underwater on your loan.
icantdrive55 8y ago
The internet was young then. Most people didn't know about certain enclaves in the Bay Area that just won't/can't build more. We didn't have foreigners buying up realestate with a wire transfer. I think it's rediculious, but if I had the money; I would buy in Marin County, or northern San Francisco in a heart beat. We are really experiencing what happens when a small percentage of the population can afford to buy any home. I guarantee wealthy moguls are buying up realestate as I type, and renting it back to their employees. I'm getting sick just thinking about it. (A guy I knew died while being homeless. He was one of the Programmers of the original Word Star. I saw him go from good job, kinda Republican; to someone begging for money. Our last conversation, "I just don't want to die of pneumonia. And Bob's wife told me I couldn't sleep in the barn anymore. Bob couldn't even look at me? And no, I'm not angry, just suprised. I was so quiet, and did my chores.")
eanzenberg 8y ago
Yeah but, that $2M wasn't $200k 10 years ago so why assume same trajectory? I bet more than anything the growth is linear.

eanzenberg 8y ago

Price cap goes hand-in-hand with what people will be able to afford. Dual tech income ~5-600k means the ceiling is still ahead, and if incomes continue to rise on the top end then the ceiling is open-ended.

Apocryphon 8y ago
What's driving up tech salaries, is it primarily because companies are aware of the cost of living in the Bay Area and are paying their employees accordingly? And if so doesn't that just cause a feedback loop? Or is it just because tech is making a lot of money and so compensation naturally increases?
- ghaff 8y ago
  A bit of both I would think. It's hard to hire skilled developers etc. in the Bay area if they would have a better standard of living elsewhere. Arguably they would anyway--as has been the case forever--but there are various compensations to SV and Northern California. AND, while they'd prefer to pay less, many companies can in fact afford it if the alternative is to be unable to hire or to be forced to hire lesser talent.
- IkmoIkmo 8y ago
  The potential value of an engineer is unlike anything else. At the time of Whatsapp's acquisition by Facebook they had 10m users per employee and a roughly $500m valuation per employee. That's pretty insane if you think about it, even if it's an outlier. Workers in other industries couldn't cut hair fast enough, fill grocery bags, cook meals, wait tables or chauffeur people fast enough etc to generate that much value in SV. There's just no competing with the type of worker that can de facto service millions of customers every minute of the day like a Whatsapp engineer does. Given that, and network effects and the gigantic pile of liquidity the US/world is sitting on right now (at bizarro low-inflation interest & rates the past decade), and it all just pools around one spot. They'll put support staff in satellite offices, but they can easily afford to put the core devs in central locations. Facebook had about 15k employees up until 2016 or so, Walmart has 1.5 million (100x) on somewhat similar net income (same order of magnitude). These ridiculous salaries aren't the biggest deal to tech companies as insane as that sounds.