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Inventory of Homes for Sale Is Rising in Silicon Valley and San Francisco
- nabla9 8y agoKnown unknown in those areas is the effect of securities-backed loans aka shadow margin. They are not tracked by SEC or margin debt statistics. Once you have non-retirement financial assets over $100,000, you may get a low interest revolving loan (SBLOC) from the broker that is 50-90% of your portfolio without other restrictions. Mortgage against the house + SBLOC might combine into very high level of risk. It has been amazing leverage during the decade long stock market boom, but if there is downturn, it can create massive havoc. These loans are subject to a maintenance call asking more collateral with little or no advanced warning.
- gdubs 8y agoBay Area realtors have been aggressively marketing to wealthy Chinese buyers for a while now. The Chinese government has started putting limits on American real estate investment. Given the scale of the high-end market, I’d think that’d be enough to have a measurable effect. Edit: “Bay Area” not “Baby Area” :)
- Tade0 8y ago> Baby Area Not sure if this was intentional but makes for a great reference to SV's apparent ageism.
- deleted 8y ago[deleted]
- vasilipupkin 8y agothis guy is always writing "everything is a bubble" articles. Ignore him. It's clear that SF real estate is affected by tech stock fortunes, but it's also clear that on average it appreciates roughly on par with stock market. So, if you work and live in bay area, buy a house because you want to live in it, not because you are speculating on real estate. Incidentally, unlike in many other parts of the country, over a long period of time, it is likely to prove a decent investment.
- moorhosj 8y agoI'm not sure "nothing is a bubble" is the proper reaction to "everything is a bubble". Do you have any rebuttals for the specific data mentioned in the article (surge in housing inventory, price cuts and falling asking prices)?
- vasilipupkin 8y agowhy does specific data need a rebuttal?
- moorhosj 8y agoYou are contending there is not a bubble, while the data presented indicates that there is a bubble. I was wondering if you had any data or analysis to back up your "no bubble" assertion or rebut the "bubble" assertion?
- vasilipupkin 8y agosorry, where did I make an assertion that there is no bubble? you must be confusing me with some other article?
- moorhosj 8y agoYou said to ignore the person who presented the argument that there is a bubble.
- sjg007 8y ago"But a slew of massive IPOs are being hyped for 2019 – Uber, Palantir, Lyft, Airbnb, and the like – before the Nasdaq craters, thereby shutting the IPO window. " Why do we expect Nasdaq to crater?
- kingnothing 8y agoWe just entered a bear market and the author is probably assuming another great recession.
- vkou 8y agoOr we are about to enter a recession, while you are assuming a bear market. The only way we will know is by waiting and seeing.
- prewett 8y agoWell, we did actually enter an official bear market (-20%), or at least really, really close, briefly in late December. And typically the stock markets leads the recession by a year. So, no, bear market and then recession.
- OldHand2018 8y ago> Why do we expect Nasdaq to crater? Oh, you can blame that on all of us olds that have lived through 3-6 business cycles, yet still have functioning memories and attention spans. The last time, we were presented with data proving that it would never crash. We heard stories about why things were different this time. The time before that, we got data and stories. The time before that, we got data and stories. Lest you panic and feel sad, we can also tell you that without fail, things will be going well again a few years later, we will have incredible gains in the markets and workforce, and soon after that we will start hearing of record highs in the markets and records lows in the unemployment rate. Such is life in an advanced society.
- marcosdumay 8y ago
- joeblau 8y agoI was just thinking about this last week. My wife has been looking at houses in the bay. Four years ago when we still lived there and we were looking, it seemed like there were very few options available. We ended up leaving the area and moving to Pittsburgh (which has been great), but we're looking at places back in the bay and there seem to be so many more options today.
- conanbatt 8y agoAnecdotally, I see some price stagnation in SF, but I dont think it got any better long term.
- conanbatt 8y agoA narrative without numbers.
- jartelt 8y agoI wonder how much of this is due to number of capable buyers dwindling when prices reach a certain point. There is a good number of people willing to buy a junky 2 bedroom house on the peninsula for $1M. Make that house $1.5M and raise rates a little bit and maybe people just start to say no thank you. If you want to buy that $1.5M project, you need like $200K for the down payment and fees. Plus, you need the capital to remodel. Perhaps salaries simply haven't kept up with the rise in home prices?
- almost_usual 8y agoIf you’re going 20% down with 4% closing costs it’s more like $360k. I honestly think a lot of buyers have paused into a “wait and see” mode.
- nostrademons 8y agoYou also see people moving away because the switching costs become worth it at those prices. "Would you leave all your friends, family, coworkers, and local knowledge behind for $50K?" is a hard sell. For $500K some people would consider it, but lots more wouldn't. For $1M and suddenly people might be like "Y'know, starting over in a new location is a pain in the ass, but a million bucks is a lot of money." Plus a lot of the big tech companies will let you relocate to satellite offices and keep your job if you've had several years tenure with them.
- docker_up 8y agoI'm not holding my breath yet. A house in my neighborhood with extensive, extensive termite damage went pending after its first weekend, for over $2.0 million with multiple offers. My friend and I were discussing strategies for how much to bid, thinking it might go for $1.4 million, and then he could commit cash for a reno, but nope. There are still a lot of people with a lot of money that want houses in good, safe neighborhoods in good school districts.
- WhompingWindows 8y agoWhere do the teachers live in these ridiculously priced districts?
- danso 8y agoThey probably commute, just like the firefighters: http://fortune.com/2016/03/28/silicon-valley-housing-crisis-firefighters/ http://fortune.com/2016/03/28/silicon-valley-housing-crisis-...
- OliverJones 8y agoThe magnet cites (NY, Boston, Vancouver BC, Sili Valley, San Francisco) all have nosebleed housing prices. Are they sustainable? Or, just maybe, do some of the present owners want to cash out? As long as people move to magnet cities and are willing to put half their pay into housing, the prices will hold up. But, somewhere along the way the HR departments at big tech will start hearing, "I'd love to accept your offer but I can't afford to live anywhere near your office." That's when the "fundamentals" (stockbroker lingo) underneath housing prices will start to erode.
- kindatrue 8y agoIf you ever want to understand why parts of Silicon Valley has a 16:1 new jobs:new homes ratio, check out this twitter: https://twitter.com/nextdoorsv/status/999364778907914245 https://twitter.com/nextdoorsv/status/999364778907914245 The NIMBYism is insane. You have people who own $2M houses ($1.9M of which is capital gains) complaining about gentrification and ruined neighborhood character.
- conanbatt 8y agoI won't get tired of saying this: SF does not have a nymbism problem as much as a tax structure problem. The city spends 2600U$S per month household. (11 bil / 360k households). Because the city levies taxes on sales and corporate taxes and business taxes, the ultimate burden of taxes is borne by consumers, workers and business owners. Thus owning a home is a way to capture the value of all that tax expenditure, possibly with an incredibly reduced prop 13 tax rule. If instead, San Francisco changed its tax structure from corp/sales to land taxes, workers would see their incomes increase, businesses thrive, and real estate residences plummet in value. Think that if every propery had to pay 2600U$S monthly in taxes they would be worth almost nothing. The most stern nymbism will very desperatly ask developers to nuke his own house if he had to pay that much every month.
- anonuser123456 8y agoWhile this may be true, I'm not sure this is the calculus that goes through the average NIMBYite's mind. There are a lot of SF nativists that don't own property and are activists against change.
- conanbatt 8y agoThe calculus definitely goes through their mind: if you bought a house 20 years ago, worth 1 million in the market, you might be paying less than 5k a year, while their average tax consumption from the city would be 31k. Unless they make up the difference with a business, working, or consuming enough to offset with sales taxes, they are 26k+ positive.
- Fjolsvith 8y agoCould this be caused by people emigrating from California?
- diplocorp 8y agoIt would be interesting to compare the Seattle and Boston prices to see if this is the case.
- matheweis 8y agoSeattle has had a nearly identical slowdown, so perhaps not entirely due to California emigration... although the water is muddy - reportedly people are exiting Seattle for greener pastures as well.
- devmunchies 8y agoI have a theory that a major portion of the population in Seattle is always churning. Lots of people moving in and out (Like a college town). But if they can’t get people to keep moving in, you end up getting huge deflation. The weather is a shock to lots of people. I just sold my house in Seattle and will be leaving next month.
- vkou 8y agoSeattle may be a revolving door, but the main reason people are leaving is because they can't afford it, so they move out to the boonies, and commute. Despite that, it is having an unprecedented net population boom.
- CalRobert 8y agoPerhaps, or just from the bay. Over half of my bay area friends now live in Portland. I left the bay myself (for a new country), but not due to housing costs. Eventually, making it a rotten place to live for anyone who's not a millionaire had to catch up to it.
- 8y ago
- christkv 8y agoCould it be foreign money divesting in California housing ?
- matheweis 8y agoThis is a hot issue up in the Seattle/Vancouver area as well. tl/dr, the proper studies I’ve seen suggest foreign money doesn’t have as strong an effect as most people assume, and where it does it amplifies trends rather than drives them.
- petermcneeley 8y agoDoes there actually exist a dataset that shows this? The data that you need is income, age, wealth (loans), purchase price etc. I dont even think the government has this data, and even if it did Im guessing for privacy reasons this dataset would never be made public.
- danso 8y agoCalifornia county assessor records are, or were public. When I worked in Sacramento a decade ago, you could look up property by address on the county website and not only get the assessed value and taxes owed, but the name of the owner and realtor, past owners, price paid and amount of loan. Seems like much of that info has been removed from the public facing website, but that doesn’t mean it isn’t available for purchase. That’s presumably how Zillow gets its data.
- muzz 8y agoThe records have names, but how do you correlate that with nationality? I.e., there are plenty of people with Chinese or Indian names that are Americans.
- danso 8y agoIt would be a statistical estimate. Some foreign buyers may have trusted go-to realtors who specialize in these kinds of transactions. IIRC, home owners have to indicate whether a home is a primary residence or being used for rental (for tax purposes). All these factors may make the statistical estimate more accurate with reality.
- TomVDB 8y agoIn the past 3 years, all houses in my small neighborhood (6 out of ~40 houses) were bought by employees of Google, Facebook, and Apple. Last week, one nicer 4BR house sold for 20% less than a smaller 3BR house that sold in April for a ridiculous $2.4M (that then underwent major remodeling for 6 months.) Now look at the stock price of those companies between then and now, and the increased interest rate. AFAICS this has not to do with foreign investments unwinding or people moving out of CA, but houses having become too expensive compared to what people could afford earlier with a mix of increased fear and uncertainty thrown in.
- MrTonyD 8y agoI lived by the beach outside Silicon Valley. My neighborhood gradually became more and more deserted. Executives would buy houses in the neighborhood, and just stop by once or twice a year to use it. At some houses I never saw anyone ever - over many years. I think the real issue is that we let market forces determine housing prices and housing strategy. Housing is, like medicine, something that is poorly served by markets - since markets distort basic resources away from the common good.
- wpasc 8y agowhat do you believe is a better alternative? in your specific case, must one live in a house full time to maintain ownership?
- kharms 8y agoAn approach that's being tried elsewhere is a vacancy tax. This encourages either private use or leasing of the properties.
- WillPostForFood 8y agoOr you could allow more houses to be built. The market can’t work if building is restricted.
- anilshanbhag 8y agoIt can't keep going up forever. There is enormous demand around $800k which is still significantly higher than the median price of homes of around $500k Houston/Dallas. As supply increases, prices will fall and hopefully people can buy houses finally.
- arbuge 8y agoThe median home price in Dallas is way below $500k: https://www.zillow.com/dallas-tx/home-values/ https://www.zillow.com/dallas-tx/home-values/ Even if you restrict yourself to the nicer northern suburbs, that's still way off: https://www.zillow.com/plano-tx/home-values/ https://www.zillow.com/plano-tx/home-values/
- muzz 8y agoProp 13 limits the supply of homes available for sale. In Texas if your house value doubles, your property taxes double also. In California (since 1978), they remain the same.
- phantom0308 8y agoThe inventory chart at the top of the article is a bit misleading. It'd be better to use a months supply of inventory chart. A 100% increase in inventory is equivalent to a -50% decrease in inventory, but they show up out of proportion. It's much easier to increase inventory by 100% if the months of supply is very very low. (e.g. going from 1 month of inventory to 2 months of inventory is a lot less substantial than 2 months to 4 months)
- matheweis 8y agoA nearly identical story is playing itself out in Seattle (1). I saw a house drop in price by $150k recently - a year ago you would have had to offer $150k over asking price just to play in the market at all. It’s slowing in other major markets Dallas (2), Denver (3), and others, although not as severely. From my perspective as a recent home seller and a prospective home buyer, the turnaround is largely due to the increasing interest rates. As a seller you suddenly don’t want to risk holding out for the best possible offer because you know the average person might not be able to afford as much soon, and even if that’s questionably accurate, the uncertainty makes you more willing to consider offers. As a buyer, even a 50 basis points change (half a percent) has a significant effect on what you can afford especially if you’re going to be highly leveraged. You’d be surprised the number of people doing crazy things like 10/10/80 Jumbo loans to get in the market, even in tech. From both the buyer and seller side there was an insane amount of demand just as rates started going up as people were pushing the limits to get in at the best rates. I suspect this pushed prices up sharply in early 2018, making the following slowdown as rates went up appear more severe than it otherwise would have. In the Seattle area, taxes are also a minor factor; there’s recently been several significant hikes in property taxes that eat further into affordability - I’m not sure if that’s the case in other markets, but it wouldn’t surprise me. 1. https://seattlebubble.com/blog/2019/01/07/nwmls-home-price-gains-vanish-as-sales-continue-to-slip/ https://seattlebubble.com/blog/2019/01/07/nwmls-home-price-g... 2. https://www.wsj.com/articles/the-u-s-housing-boom-is-coming-to-an-end-starting-in-dallas-1543248073 https://www.wsj.com/articles/the-u-s-housing-boom-is-coming-... 3. https://www.denverpost.com/2018/12/26/home-price-increases-slow-case-shiller/ https://www.denverpost.com/2018/12/26/home-price-increases-s...
- cobookman 8y agoI considered 80-10-10 over traditional 20% down as a way to lower my risk and leverage cheap interest rates. Put the other 10% down in a diversified stock portfolio over 10 years would likely fetch > 4.5% apr.
- sjg007 8y agoA lower down is good when the market is appreciating fast and you can either refinance or get PMI removed.
- lordnacho 8y agoThe elephant in the room is interest rates. After years of zero rates / QE that's now coming to an end. Markets have seen it too after many years of going up, and many of the tech workers in the Bay Area are paid in the growth-sensitive (rate-sensitive) shares of their employers. Those shares have come down a fair bit recently, and your marginal buyer might well be a big tech employee.
- dilyevsky 8y agoMortgage rates have been in steady decline for a few months now.
- diab0lic 8y agoBay area housing prices have been in steady decline for a few months now as well.
- maccio92 8y agoa steady decline from a massive high.. we started 2018 with a 3.95% for 30 year mortgage, it went all the way up to 4.94% in november. sure, it's declined since then, but only to 4.51% current rate which is still much higher than what we started 2018 at
- rsj_hn 8y agoWow, how far back does your memory go if you think 4.94% is a "massive high"? Since the modern (post-Bretton Woods) era, mortgages have been above 5% every year until the 2009 crisis, and usually above 7%. https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US Going back even further, Measuring Worth https://www.measuringworth.com/datasets/interestrates/ https://www.measuringworth.com/datasets/interestrates/ has long term interest rate data from 1790 and rates now are lower than in 88% of other years -- the only other major periods of such low rates was the depression era to WW2 price/rate controls: 1936-1955. Roughly prior to when the Federal reserve gained its independence and was able to set policies apart from federal budget needs. You are living in a very special period of historically low rates.
- cleansy 8y agoThe end of this article reads like this is a bad thing. > These hopes still exist, and at least some of those IPOs will happen this year. While the water is a little ruffled, these are still the boom times in the Bay Area. It's more like the market comes back to a stable position, stopping the craziness of the last couple of years. It's actually a good thing. I'm in Europe and did not buy an apartment in the last 3 years even though I could have and wanted to. Just waiting for the overpriced square meter prices to fall to a more sustainable level - and if SV takes the first shot, so it might do in the rest of the world.
- Bombthecat 8y agoThen you pay more in interest rate... In. 30 to 40 year time. You end paying basically the same..
- lotsofpulp 8y agoWith a lower principal and higher interest rate, you have the option of paying extra principal before it is required to be paid, resulting in lower amounts paid towards interest. With higher principal and lower interest rate, you're stuck paying the higher principal no matter what.
- conanbatt 8y agoNot only that: high interest rate can be re-financed. Some real estate moguls say that its better to buy cheap with exp credit than expensive with cheap credit because of that asymmetry alone.
- foobiekr 8y agoTiming is everything - we are planning on putting our home in Mountain View on the market next month ... or at least we are for now. Now it seems like we might be better off holding in to it and renting it out.
- halbritt 8y agoThe market is unlikely to shift that much in a month and prices are still near an all-time high. It might be more difficult to get it to sell, but that doesn't make it a bad time. If the real-estate market does take a real downturn and the economy follows, it may take 5-10 years to regain its current value.
- foobiekr 8y agoYes, that’s my hope. The funny thing is, we aren’t obsessed with maximizing value so it should be interesting. If there was a model for limit orders in real estate we’d just set a limit or a buy-it-now price just to get the process over with. The whole real estate industry is a messy dance. The last cycle of the valley startups intended to disrupt this stuff - Zillow, zipreality, Redfin - seems to have quickly been co-opted into the traditional model.
- halbritt 8y agoI agree with your observations. The startups have given us new tools and maybe lowered reduced the cost of commissions, but it's still real estate people doing real estate things. If you're not worried about maximizing value overmuch, I wager that demand will be sufficiently high in a month that you can complete a quick sale if your house is priced at the market rate. Sellers in the bay area are accustomed to pricing houses 20% above market and still seeing a bidding war that includes cash offers. I'm guessing that the houses sitting on the market have sellers that are unwilling to let go of them without getting a big profit.
- masonic 8y agoHas there ever been a drop that took 10 years to recover to its earlier level in the history of SV? Ever?
- guiomie 8y agoLots of people can only afford a house in the bay area because of their RSUs. With the stock market slowing down, it seems normal to see housing cooling down. Now, add the new tax laws which impact a lot of residents of California (capped mortgage interest deduction) and interest rates going up, it only makes sense that the next phase is prices going down. And I'm certainly biased, I just bought a house in Sunnyvale 6 months ago, which seems to be around peak market.
- option 8y agoI live about 15-20 mins away from Apple and Netflix. The house next to ours has been empty for more than 2 years (as long as we lived in the neighborhood). Once a year, a Chinese lady (other neighbors say she lives in China now) appears in it for a day or two. The house is not for sale or rent and its estimate is over 1.5M.
- babyslothzoo 8y agoSounds like Vancouver, Toronto, Seattle, etc, where tons of capital flight from China has poured into real estate that sits vacant
- briandear 8y agoThe other part of that story is that due to Prop 13, you have old ladies living in 5 bedroom houses by themselves because if they downsize, their tax basis gets recalculated. So they might pay $5k per year on that big, expensive house but they might end up with $10k per year if they move to a much cheaper house directly next door.
- option 8y agoold ladies should be able to keep their houses if they chose to once the house is paid of and they retire.
- csa 8y agoStories I’ve heard are more like $3-5k on that big house they inherited changes to $20-30k on that down-sized house they moved into — that is, a 4x-10x increase, not just 2x. What shocks me most is when I hear this story and learn that the downsizers (not always old) is shocked by their tax bill — they don’t know about prop 13 and no one told them!
- refurb 8y agoCalifornia homeowners 55 and older can get a one-time opportunity to sell their primary residence and transfer the property tax assessment to a new home under Proposition 60. The caveat here is the market value of the new house generally must be lower or equal to the home being sold. For married couples, only one spouse must be 55 or older.
- megaman8 8y agoYou have to remember, the % increase in housing inventory was already extroadinarily low. So if that tiny number doubles, it's not as big of a change as you might imagine.
- johnwyles 8y agoHonest question about the graph because I haven't had my coffee yet: doesn't this red spike simply mean the 2018 levels returned to the 2016 levels?
- zellyn 8y agoJust a reminder about apenwarr's fantastic blog post about Bay Area housing price simulation: https://apenwarr.ca/log/20180918 https://apenwarr.ca/log/20180918 The tl;dr is that as soon as demand exceeds supply, prices shoot up to the average software engineers can afford.
- nostrademons 8y agoThe same applies to many inelastic markets with bimodal (or otherwise "lumpy") distributions. When the supply falls below demand from the highest tiers only, there's a sudden sharp spike in price, as all the lower tiers are priced out of the market entirely. The market-clearing price becomes what the higher-paying buyers are willing & able to pay, because there's not enough product to service the lower-paying mass market anyway and so no incentive to price affordably for them. You see this most dramatically with startups. A single engineer might go for $200K/year. If that single engineer founds a startup that develops a commanding lead in a market that suddenly becomes interesting to a big company, they can fetch billions. Why? Because now instead of there being one Yahoo and 30,000 Jan Koums, there is one WhatsApp and some very deep-pocketed Googles/Facebooks/Yahoos. It applies to other markets like gasoline, therapists, health care, etc. too. When demand exceeds supply, all the "excess" demand simply has to go without, and the market-clearing price rises to the maximum that the marginal customer can pay.
- evgeniysharapov 8y agoSomeone probably expressed this idea, but why why why tech companies stay in SF area ? Their operations do not depend on being local to SF. It looks like the tech sector is the single driver of the SF economy. Everyone is quick to blame regulations or residents who support these regulations, but why not to press tech giants to move, even gradually, their operations elsewhere, or distribute it across the whole state/country/world, starting from depressed areas with no jobs.
- muzz 8y agoCompanies are profit-maximizers, so if it were beneficial to move, individuals would not need to press them to do so. If their calculation is to stay and even expand in the Bay Area, it would be best to understand why (concentration of talent? network effects? etc?).
- ravenstine 8y agoPutting aside any theories around the "Cult of Silicon Valley", the typical answer I get when I ask others that same question is that "tech" companies group in these areas, especially SF, because it makes it easier to get the best talent; since everyone already lives in the same area, there's hypothetically no moving expenses that would stop candidates from accepting a job, especially when it comes to candidates with families. Personally, I don't completely buy that explanation, and think there's an unspoken cult-like quality to the tech scene of SF/SV that confines it to a few cramped spaces in the country. Big "tech" still represents the modern form of the American Dream and the Gold Rush to countless people, and San Francisco is symbolic of that idealism in and of itself. Making six figures and living in the outskirts working for a company nobody's heard of isn't as cool as working for Unicorn X in Mountain View, CA.
- TheBeardKing 8y agoI would take a 20% pay cut to be able to live somewhere like the Bay Area with its coastal scenery and perfect weather. But as it is, I'd need to triple my salary to be able to afford to live there.
- chatterbeak 8y agoGood! They're also building a lot of homes and apartments in Silicon Valley (outside of SF). That will help ease the shortage and relax prices.
- masonic 8y agoI am shocked, shocked! that people tend to take their houses off the market for the holidays and reactivate listings after the holidays.