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So I’m curious will property and rental prices drop in San Francisco now that funding is drying up? Can’t seem to find much information about that. For example

So I’m curious will property and rental prices drop in San Francisco now that funding is drying up? Can’t seem to find much information about that. For example a friend of mine who was laid off still has to pay $3300 / month for his studio. Curious how long this will last for?

dominotw 7y ago
I think its unlikely because everyone knows its going to right back up once this blows over. So demand should hold constant.
- deleted 7y ago
  [deleted]
- oiasdjfoiasd 7y ago
  that sounds like pretty wishful thinking.
- sheeshkebab 7y ago
  Perhaps, but the way it’s moving there will be another 20m+ people without jobs in a month or two (prime working age folks), and with a bunch of industries contracting at the same time it’s likely that recovery will take a while before it all resumes. Hope I’m wrong but it could be a few years before it will bounce back.
peter303 7y ago
In 2002 after dot.bomb, prices held flat for a while. A fair of vacancies in SoMa. The 2008 recession sort of bypassed tech.
- not2b 7y ago
  Are you kidding? The 2008 recession killed a ton of tech. The core of traditional Silicon Valley (Mountain View, Sunnyvale, Santa Clara) had so much vacant office space that large areas zoned industrial felt like ghost towns. Sure, the companies that later became dominant survived. The electronic design automation sector held on because chipmakers couldn't stop doing design work. But it was very tough.
jedberg 7y ago
During the dot-com bust, rental prices went down a bit. During 2008, they stayed flat (as opposed to going up a few percent each year). So I'm guessing it will either stay flat or go negative. It depends on how quickly things recover once the shelter in place is lifted and how many people actually leave the area. The housing prices are driven by lack of supply, so even if demand softens a bit, it won't have that big of an effect, I think.
- timr 7y ago
  Rents fell in 2008. I can tell you this for sure, because I had just moved to SF, and landlords were making deals. My landlord lowered my rent by $100 a month in order to keep me from moving in 2009. Even as late as 2010 this was happening. I looked at a place on Russian Hill around that time, and it was offering rent incentives. In my recollection, the market didn't pick up again until around 2012, corresponding with the rise in startup investment.
  - jedberg 7y ago
    The data seems to back you up, so I stand corrected. [0] I was basing it on my own experience pricing the rental unit I've managed in Berkeley for the last 21 years. Each year I do a rent survey for the East Bay, and that was based on my experience there, but the East Bay is a little less price sensitive in both directions compared to SF, so that's probably the difference. [0] https://medium.com/@mccannatron/1979-to-2015-average-rent-in-san-francisco-33aaea22de0e https://medium.com/@mccannatron/1979-to-2015-average-rent-in...
saiya-jin 7y ago
Corrections in real estate market, be it rent or selling, tend to reflect economy in slower pace and depend greatly on location/overall attractivity. Owners get very quickly used to higher rent/property valuations, but are very reluctant to go down with prices. It might be good for those high renters to simply move elsewhere in couple of months when/if there will be many free places on the market. This is experience from elsewhere, from +-2008, so it might not work out exactly like this of course, but generally I would expect so.
caseyf7 7y ago
In the early 2000s, rents really didn’t go down. In rent controlled buildings you should expect they will still ask for the max increase. That’s what happened back then and people were moving away in droves.
dchyrdvh 7y ago
These prices are set by the top 30% employees of the big tech firms. Unless there are massive layoffs there (e.g. 250k employees are let go) and this situation lasts for a few years (they have savings for 3-5 years usually), I wouldn't expect the prices to move.
- qqqwerty 7y ago
  Stock options and RSU's are a big part of the compensation packages for that group. So lower stock prices are essentially pay cuts. And unlike 2008, many of these companies are more mature and much more exposed to the broader economy. Cloud computing, Ads, GSuite, etc... There are a handful tech companies that will probably thrive (Netflix, Zoom, etc...), but most of them are probably going to see big drops in revenue. And considering that most of these companies have plenty of fat to trim (how many Alphabet moonshots are bringing in meaningful revenue, let alone profits?), I don't see how declining revenues won't result in some belt tightening. And when that starts happening, how many of the top 30% are going to be buying $2M-3M homes. The mortgages on those things are like ~$15k a month, and CA unemployment maxes out at ~$2k. It is certainly possible that Bay area real estate weathers the storm just fine. But I really don't see a compelling case for it. Salaries can, and likely will go down. And bay area real estate is at all-time highs relative to incomes.
  - aeyes 7y ago
    Why are lower stock prices pay cuts? Strike price is rarely fixed, usually it is some percantage of current stock price. So if stock price falls you get more shares. You have no way of knowing what the price might be when you are able to exercise your options. You also don't have to exercise them, it's your choice. Equity compensation is always a gamble.
    - agrajag 7y ago
      Because most (all?) of the large companies issue RSUs now, not options, with the quantity of RSUs determined at issue time.
  - 7y ago
derekdahmer 7y ago
Employees with high salaries at the larger more stable tech companies are doing most of the Bay Area home buying. Think FAANG, stripe, twitter, slack, etc. These companies can weather economic downturns without laying off people so Bay Area house prices don’t drop much. This was the case in 2000 and 2009. Supply is also dropping as tons of homeowners are refinancing, which balances out any drop in demand. The biggest hit is usually on the lower end of the market where you’ll see foreclosures as middle class people lose their jobs.
- TheOtherHobbes 7y ago
  Anyone who thinks FAANG will survive without a contraction is deluding themselves. What happens to the ad market during a depression? How about luxury IT hardware? Entertainment subscriptions? Web services? If there isn't a bounceback in three months or so, the entire tech sector will deflate like a balloon. FAANG will probably survive in some form because of cash reserves, but there will absolutely be cancelled projects and mass lay-offs. And those will have an effect on the the property and rental markets, on startup funding, and on everyone's cash flow. Business is a herd phenomenon, and as soon as panic spreads through the herd it reverses direction - until some new excuse for optimism appears.
  - jzl 7y ago
    Yup. Google has basically doubled in employee count since 2016. It doesn't seem unreasonable at all that it would contract back a few years or more, headcount-wise.
  - thethethethe 7y ago
    > FAANG will probably survive in some form because of cash reserves, but there will absolutely be cancelled projects and mass lay-offs. And those will have an effect on the the property and rental markets, on startup funding, and on everyone's cash flow FAANG will lay off their armies of contractors before down sizing FTEs. Google has 125k FTEs but over 300k temps. Will it get to the point where FTEs are laid off? I’m not sure, but it seems pretty unlikely unless things don’t improve over the next few years or so
pkaye 7y ago
The center region of the bay area will hold its value longer while the outskirts will drop earlier. Basically people will "move up" when there is an opportunity to be closer to their job. Remember not all people will lose jobs during this downturn so some will take it as an opportunity to buy. If nothing else the bay area has great weather to offer.
battery_cowboy 7y ago
My rent has gone up ~5-7% per year for the past 3 renewals and just recently (1 week ago) I got one that was 0 increase. I wouldn't have thought that was possible in the Bay Area until recently, so I'm not sure if I should renew or just wait until the last day and haggle a bit.

dominotw 7y ago

I think its unlikely because everyone knows its going to right back up once this blows over. So demand should hold constant.

deleted 7y ago
[deleted]
oiasdjfoiasd 7y ago
that sounds like pretty wishful thinking.
sheeshkebab 7y ago
Perhaps, but the way it’s moving there will be another 20m+ people without jobs in a month or two (prime working age folks), and with a bunch of industries contracting at the same time it’s likely that recovery will take a while before it all resumes. Hope I’m wrong but it could be a few years before it will bounce back.

peter303 7y ago

In 2002 after dot.bomb, prices held flat for a while. A fair of vacancies in SoMa. The 2008 recession sort of bypassed tech.

not2b 7y ago
Are you kidding? The 2008 recession killed a ton of tech. The core of traditional Silicon Valley (Mountain View, Sunnyvale, Santa Clara) had so much vacant office space that large areas zoned industrial felt like ghost towns. Sure, the companies that later became dominant survived. The electronic design automation sector held on because chipmakers couldn't stop doing design work. But it was very tough.

jedberg 7y ago

During the dot-com bust, rental prices went down a bit. During 2008, they stayed flat (as opposed to going up a few percent each year). So I'm guessing it will either stay flat or go negative. It depends on how quickly things recover once the shelter in place is lifted and how many people actually leave the area. The housing prices are driven by lack of supply, so even if demand softens a bit, it won't have that big of an effect, I think.

timr 7y ago
Rents fell in 2008. I can tell you this for sure, because I had just moved to SF, and landlords were making deals. My landlord lowered my rent by $100 a month in order to keep me from moving in 2009. Even as late as 2010 this was happening. I looked at a place on Russian Hill around that time, and it was offering rent incentives. In my recollection, the market didn't pick up again until around 2012, corresponding with the rise in startup investment.
- jedberg 7y ago
  The data seems to back you up, so I stand corrected. [0] I was basing it on my own experience pricing the rental unit I've managed in Berkeley for the last 21 years. Each year I do a rent survey for the East Bay, and that was based on my experience there, but the East Bay is a little less price sensitive in both directions compared to SF, so that's probably the difference. [0] https://medium.com/@mccannatron/1979-to-2015-average-rent-in-san-francisco-33aaea22de0e https://medium.com/@mccannatron/1979-to-2015-average-rent-in...

saiya-jin 7y ago

Corrections in real estate market, be it rent or selling, tend to reflect economy in slower pace and depend greatly on location/overall attractivity. Owners get very quickly used to higher rent/property valuations, but are very reluctant to go down with prices. It might be good for those high renters to simply move elsewhere in couple of months when/if there will be many free places on the market. This is experience from elsewhere, from +-2008, so it might not work out exactly like this of course, but generally I would expect so.

caseyf7 7y ago

In the early 2000s, rents really didn’t go down. In rent controlled buildings you should expect they will still ask for the max increase. That’s what happened back then and people were moving away in droves.

dchyrdvh 7y ago

These prices are set by the top 30% employees of the big tech firms. Unless there are massive layoffs there (e.g. 250k employees are let go) and this situation lasts for a few years (they have savings for 3-5 years usually), I wouldn't expect the prices to move.

qqqwerty 7y ago
Stock options and RSU's are a big part of the compensation packages for that group. So lower stock prices are essentially pay cuts. And unlike 2008, many of these companies are more mature and much more exposed to the broader economy. Cloud computing, Ads, GSuite, etc... There are a handful tech companies that will probably thrive (Netflix, Zoom, etc...), but most of them are probably going to see big drops in revenue. And considering that most of these companies have plenty of fat to trim (how many Alphabet moonshots are bringing in meaningful revenue, let alone profits?), I don't see how declining revenues won't result in some belt tightening. And when that starts happening, how many of the top 30% are going to be buying $2M-3M homes. The mortgages on those things are like ~$15k a month, and CA unemployment maxes out at ~$2k. It is certainly possible that Bay area real estate weathers the storm just fine. But I really don't see a compelling case for it. Salaries can, and likely will go down. And bay area real estate is at all-time highs relative to incomes.
- aeyes 7y ago
  Why are lower stock prices pay cuts? Strike price is rarely fixed, usually it is some percantage of current stock price. So if stock price falls you get more shares. You have no way of knowing what the price might be when you are able to exercise your options. You also don't have to exercise them, it's your choice. Equity compensation is always a gamble.
  - agrajag 7y ago
    Because most (all?) of the large companies issue RSUs now, not options, with the quantity of RSUs determined at issue time.
- 7y ago

derekdahmer 7y ago

Employees with high salaries at the larger more stable tech companies are doing most of the Bay Area home buying. Think FAANG, stripe, twitter, slack, etc. These companies can weather economic downturns without laying off people so Bay Area house prices don’t drop much. This was the case in 2000 and 2009. Supply is also dropping as tons of homeowners are refinancing, which balances out any drop in demand. The biggest hit is usually on the lower end of the market where you’ll see foreclosures as middle class people lose their jobs.

TheOtherHobbes 7y ago
Anyone who thinks FAANG will survive without a contraction is deluding themselves. What happens to the ad market during a depression? How about luxury IT hardware? Entertainment subscriptions? Web services? If there isn't a bounceback in three months or so, the entire tech sector will deflate like a balloon. FAANG will probably survive in some form because of cash reserves, but there will absolutely be cancelled projects and mass lay-offs. And those will have an effect on the the property and rental markets, on startup funding, and on everyone's cash flow. Business is a herd phenomenon, and as soon as panic spreads through the herd it reverses direction - until some new excuse for optimism appears.
- jzl 7y ago
  Yup. Google has basically doubled in employee count since 2016. It doesn't seem unreasonable at all that it would contract back a few years or more, headcount-wise.
- thethethethe 7y ago
  > FAANG will probably survive in some form because of cash reserves, but there will absolutely be cancelled projects and mass lay-offs. And those will have an effect on the the property and rental markets, on startup funding, and on everyone's cash flow FAANG will lay off their armies of contractors before down sizing FTEs. Google has 125k FTEs but over 300k temps. Will it get to the point where FTEs are laid off? I’m not sure, but it seems pretty unlikely unless things don’t improve over the next few years or so

pkaye 7y ago

The center region of the bay area will hold its value longer while the outskirts will drop earlier. Basically people will "move up" when there is an opportunity to be closer to their job. Remember not all people will lose jobs during this downturn so some will take it as an opportunity to buy. If nothing else the bay area has great weather to offer.

battery_cowboy 7y ago

My rent has gone up ~5-7% per year for the past 3 renewals and just recently (1 week ago) I got one that was 0 increase. I wouldn't have thought that was possible in the Bay Area until recently, so I'm not sure if I should renew or just wait until the last day and haggle a bit.