6 ms·

I don’t think we are talking past each other. There is absolutely a housing supply crisis in the Bay Area that is not reflected in the national stats. I’m not

by zamfi 4y ago

I don’t think we are talking past each other. There is absolutely a housing supply crisis in the Bay Area that is not reflected in the national stats. I’m not sure why so many people believe that housing prices in high-demand markets are dominated by things like interest rates — there is certainly an effect, sure — but by far the predmoinant reason a 2br house on a small lot with a small yard costs $2m+ in Palo Alto is that there are thousands if not tens of thousands of well-off workers for nearby tech companies who would like to live there, there is not enough housing to go around, and $2m is the market clearing price. The idea that the “demand” is being “driven” by some “cheap money narrative” is missing the forest for the trees. Low interest rates might be why that house is $2m and not $1.8m. But the narrative is definitely not the reason the median home price across the Bay Area is many multiples higher than the national average of $350k. That’s pure supply and demand.

adam_arthur 4y ago
Firstly, I'm talking nationally. Secondly, the Bay Area is one of the markets subject to some of the more severe headwinds if remote work becomes the new normal, for the reasons you stated. SF population declined ~7% over the past two years. https://www.sfgate.com/bayarea/article/San-Francisco-population-decline-us-census-data-17203868.php https://www.sfgate.com/bayarea/article/San-Francisco-populat... The concept of being forced to live in a hyper local area for work may be a thing of the past, which doesn't bode well for employment driven locales. NYC being another example. Bay area is one of the last places in the country I'd want to own a home right now
- vostok 4y ago
  Density still has huge benefits unrelated to work. I don't know much about SF as I haven't lived there as an adult, but New York is an incredible place to live for lifestyle reasons too. It has great food, a very high concentration of smart and highly educated people, great museums, great performance arts, etc. It's also an incredibly walkable city, which is rare in the US. Hands down it would be my choice of city if I was a remote worker.
  - adam_arthur 4y ago
    Price is defined on the margin. Lack of forced demand from local workers will drive prices down, unless the leisure aspect of the locale outweighs the work aspect. It's subject to debate which locales would stand to net gain/lose from WFH, but I'd pick NYC as a net loser. You gain some who enjoy the city life and amenities, but you lose more to lower COL locales. Price will always be a factor weighed alongside amenities, even if one area is objectively nicer from an amenities perspective
  - lazide 4y ago
    SF only has one thing going for it really - weather. Everything else pales compared to NYC.
    - davidgay 4y ago
      > SF only has one thing going for it really - weather. This is far from an universal view - I live there (well, East Bay) and I think the weather isn't that great: too cold in summer, no nice evenings, never nice to hang out by the water. And I like cold winters as a contrast. October to December are nicer though.
      - lazide 4y ago
        Compared to NYC?
    - confidantlake 4y ago
      SF has better hills.
- zamfi 4y ago
  Sure, and I’m not making any claims about the future, either — just pointing out what the causes have been so far: demand/supply mismatch has had a far larger impact than speculation and interest rate policy or “narrative” on Bay Area housing prices. If demand plummets, of course prices will follow.
  - lazide 4y ago
    Demand is driven by those factors you say don’t matter. That’s the point folks are trying to make. It doesn’t just magically appear.
    - zamfi 4y ago
      Demand is people moving to the Bay Area for work and needing to live somewhere, wanting to have kids, etc. It’s not driven by Fed policies around interest rates. It’s not driven by speculation. It’s driven by people wanting to own homes. Period. The other factors are small.
      - lazide 4y ago
        People always want a nicer house in a nicer area. That doesn’t create real demand on it’s own (as in anything that will impact a market). As any experienced realtor will tell you, every house is always ‘in demand’ by a near infinite amount of people that can’t afford it. They have to be able to do something about that desire in a concrete way - high salaries count of course, but it’s always modulated by interest rates unless they are buying cash outright. Then it’s usually moderated less directly by other things they can be doing with that cash that are more interesting, and relative rents in the area.
        zamfi 4y ago
        Again, I am not saying those other factors do not matter, obviously they do. But if it was "interest rates" driving everything -- then every area would be very expensive, not just the areas where there are high salaries and lots of inflow and basically zero new construction. The Bay Area population grew 7.4% from 2010 to 2020 -- that's 614,901 residents according to census. New construction in that same time period was under 200,000 units. So: where are all those people living? Many of them are living with roommates, etc., and because of the scarcity of housing, having your own place has become a luxury that costs extra money. If 600k people are complying for 200k units, prices will go up regardless of what interest rates do. Then, salaries rise in response where they can, because tech companies need to pay enough for people to be able to move here (always more expensive, thanks to rent control and Prop. 13, than already living here) -- which then pushes home prices even higher, because there still isn't enough housing to go around, and the 30% of people who can bid the most are the ones who clear the market. (And then, of course, everyone else who isn't pulling in tech salaries is just shut out of the market.) Interest rates matter on the margin, yes, of course -- but the cost of capital is still low compared with availability. A couple making $400k combined is going to be able to bid more on a house at 3% interest than at 5% interest, but the only reason they're bidding so much at all is that there aren't enough homes to go around and they want one.
- almost_usual 4y ago
  > Bay area is one of the last places in the country I'd want to own a home right now I’d pick the Bay Area over anywhere else in the US, with or without remote. Judging by real estate prices after remote took off (ignoring condos) I’m guessing a lot of others feel the same way.
  - paulryanrogers 4y ago
    Are you thinking resale value or quality of life? And if resale value then where will you live when you sell?
    - almost_usual 4y ago
      Quality of life
lazide 4y ago
‘Demand’ includes availability of funds by potential buyers (and what they consider expensive) which is directly influenced by stock prices (which have seen major drops this year), and by interest rates. The amount that can be loaned/supported by a given income, and hence a lot of underwriting standards, are based indirectly on the cost to service the loan relative to the income the person has. The lower the interest rate; the bigger the loan someone can get if they shop around for the same income and assets. This isn’t perfectly linear, as principal payments vs interest payments have different ratios based on interest rates, but it very much applies.
- zamfi 4y ago
  Yes of course demand is influenced by all these things. But it’s driven by people moving to a location and wanting to buy homes. The market clearing price is also driven by these things. But let’s be clear: the primary driver of sky-high prices in the Bay Area is (1) people moving here, getting well-paying tech jobs, and wanting to buy housing, and (2) not nearly enough new construction to meet that demand.
  - lazide 4y ago
    If the fed continues on it’s current course, I guess we’ll find out over the next few years huh?
    - zamfi 4y ago
      I wish -- but I suspect we won't, sadly, because many factors are at play, including the move to remote work for many, many tech companies. If we see both higher interest rates and dramatic drops in demand, then everyone will be able to spin their own story out of it.
      - lazide 4y ago
        Eh, the demand shifted to more rural areas with the remote work shift, so nation wide the trend didn’t change much. See the Case-Schiller index [https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA] Changes in interest rates will be quite visible there, unless millions of people get ‘snapped’ and their houses remain intact anyway.

by zamfi 4y ago

adam_arthur 4y ago

Firstly, I'm talking nationally. Secondly, the Bay Area is one of the markets subject to some of the more severe headwinds if remote work becomes the new normal, for the reasons you stated. SF population declined ~7% over the past two years. https://www.sfgate.com/bayarea/article/San-Francisco-population-decline-us-census-data-17203868.php https://www.sfgate.com/bayarea/article/San-Francisco-populat... The concept of being forced to live in a hyper local area for work may be a thing of the past, which doesn't bode well for employment driven locales. NYC being another example. Bay area is one of the last places in the country I'd want to own a home right now

vostok 4y ago
Density still has huge benefits unrelated to work. I don't know much about SF as I haven't lived there as an adult, but New York is an incredible place to live for lifestyle reasons too. It has great food, a very high concentration of smart and highly educated people, great museums, great performance arts, etc. It's also an incredibly walkable city, which is rare in the US. Hands down it would be my choice of city if I was a remote worker.
- adam_arthur 4y ago
  Price is defined on the margin. Lack of forced demand from local workers will drive prices down, unless the leisure aspect of the locale outweighs the work aspect. It's subject to debate which locales would stand to net gain/lose from WFH, but I'd pick NYC as a net loser. You gain some who enjoy the city life and amenities, but you lose more to lower COL locales. Price will always be a factor weighed alongside amenities, even if one area is objectively nicer from an amenities perspective
- lazide 4y ago
  SF only has one thing going for it really - weather. Everything else pales compared to NYC.
  - davidgay 4y ago
    > SF only has one thing going for it really - weather. This is far from an universal view - I live there (well, East Bay) and I think the weather isn't that great: too cold in summer, no nice evenings, never nice to hang out by the water. And I like cold winters as a contrast. October to December are nicer though.
    - lazide 4y ago
      Compared to NYC?
  - confidantlake 4y ago
    SF has better hills.
zamfi 4y ago
Sure, and I’m not making any claims about the future, either — just pointing out what the causes have been so far: demand/supply mismatch has had a far larger impact than speculation and interest rate policy or “narrative” on Bay Area housing prices. If demand plummets, of course prices will follow.
- lazide 4y ago
  Demand is driven by those factors you say don’t matter. That’s the point folks are trying to make. It doesn’t just magically appear.
  - zamfi 4y ago
    Demand is people moving to the Bay Area for work and needing to live somewhere, wanting to have kids, etc. It’s not driven by Fed policies around interest rates. It’s not driven by speculation. It’s driven by people wanting to own homes. Period. The other factors are small.
    - lazide 4y ago
      People always want a nicer house in a nicer area. That doesn’t create real demand on it’s own (as in anything that will impact a market). As any experienced realtor will tell you, every house is always ‘in demand’ by a near infinite amount of people that can’t afford it. They have to be able to do something about that desire in a concrete way - high salaries count of course, but it’s always modulated by interest rates unless they are buying cash outright. Then it’s usually moderated less directly by other things they can be doing with that cash that are more interesting, and relative rents in the area.
      - zamfi 4y ago
        Again, I am not saying those other factors do not matter, obviously they do. But if it was "interest rates" driving everything -- then every area would be very expensive, not just the areas where there are high salaries and lots of inflow and basically zero new construction. The Bay Area population grew 7.4% from 2010 to 2020 -- that's 614,901 residents according to census. New construction in that same time period was under 200,000 units. So: where are all those people living? Many of them are living with roommates, etc., and because of the scarcity of housing, having your own place has become a luxury that costs extra money. If 600k people are complying for 200k units, prices will go up regardless of what interest rates do. Then, salaries rise in response where they can, because tech companies need to pay enough for people to be able to move here (always more expensive, thanks to rent control and Prop. 13, than already living here) -- which then pushes home prices even higher, because there still isn't enough housing to go around, and the 30% of people who can bid the most are the ones who clear the market. (And then, of course, everyone else who isn't pulling in tech salaries is just shut out of the market.) Interest rates matter on the margin, yes, of course -- but the cost of capital is still low compared with availability. A couple making $400k combined is going to be able to bid more on a house at 3% interest than at 5% interest, but the only reason they're bidding so much at all is that there aren't enough homes to go around and they want one.
almost_usual 4y ago
> Bay area is one of the last places in the country I'd want to own a home right now I’d pick the Bay Area over anywhere else in the US, with or without remote. Judging by real estate prices after remote took off (ignoring condos) I’m guessing a lot of others feel the same way.
- paulryanrogers 4y ago
  Are you thinking resale value or quality of life? And if resale value then where will you live when you sell?
  - almost_usual 4y ago
    Quality of life

lazide 4y ago

‘Demand’ includes availability of funds by potential buyers (and what they consider expensive) which is directly influenced by stock prices (which have seen major drops this year), and by interest rates. The amount that can be loaned/supported by a given income, and hence a lot of underwriting standards, are based indirectly on the cost to service the loan relative to the income the person has. The lower the interest rate; the bigger the loan someone can get if they shop around for the same income and assets. This isn’t perfectly linear, as principal payments vs interest payments have different ratios based on interest rates, but it very much applies.

zamfi 4y ago
Yes of course demand is influenced by all these things. But it’s driven by people moving to a location and wanting to buy homes. The market clearing price is also driven by these things. But let’s be clear: the primary driver of sky-high prices in the Bay Area is (1) people moving here, getting well-paying tech jobs, and wanting to buy housing, and (2) not nearly enough new construction to meet that demand.
- lazide 4y ago
  If the fed continues on it’s current course, I guess we’ll find out over the next few years huh?
  - zamfi 4y ago
    I wish -- but I suspect we won't, sadly, because many factors are at play, including the move to remote work for many, many tech companies. If we see both higher interest rates and dramatic drops in demand, then everyone will be able to spin their own story out of it.
    - lazide 4y ago
      Eh, the demand shifted to more rural areas with the remote work shift, so nation wide the trend didn’t change much. See the Case-Schiller index [https://fred.stlouisfed.org/series/CSUSHPINSA https://fred.stlouisfed.org/series/CSUSHPINSA] Changes in interest rates will be quite visible there, unless millions of people get ‘snapped’ and their houses remain intact anyway.