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> I still have to guess that the impact of the recent large layoffs must be dwarfed by the impact from interest rate changes Two sides of the same coin. It'll

> I still have to guess that the impact of the recent large layoffs must be dwarfed by the impact from interest rate changes Two sides of the same coin. It'll be brutal. Bay area home prices will fall by at least 40% from 2021 highs by end of 2024.

metadat 4y ago
How do you arrive at 40%? The peninsula has never experienced such a drastic decline since.. ever. Even through the dotcom bubble and 2008 financial crisis.
- Firmwarrior 4y ago
  He's just trying to make me happy by telling a beautiful fantasy tale "And you'll have a yard without committing to a 3 million dollar investment!" Oh well, back to patching the grout on my dilapidated million dollar shithole condo..
  - metadat 4y ago
    Yeah, I'm still going to buy that house this quarter. Not too worried about the long-term value, there is literally no more land area to develop in the western region of the Bay Area.
    - Firmwarrior 4y ago
      Semi-related: What's the deal with all the empty land between SF and San Jose? I get that it's mountainous, but it seems like at $2,000,000 for a tiny parcel of land someone could figure out how to build on it Maybe I'm misunderstanding, but it kinda looks like a national forest or something when you drive along 280
      - metadat 4y ago
        Do you mean off to the side of I-280? It's government protected nature park reserves at the northern end, and the Santa Cruz Mountains to the southwest. One of the perks of living in Silicon Valley; you can get out of the office and go hiking or biking in nature
      - datalopers 4y ago
        Take Skyline early one morning and grab breakfast at Alice's. Whole lot of people with loads of money don't want to give that up.
- datalopers 4y ago
  Home prices tend to be a function of 30-yr mortgage payments. $1.5m @ 2.50% yielded a ~$6k/mo P&I payment last year $868k @ 7.25% yields a ~$6k/mo P&I payment currently. The price of this theoretical home need to drop ~40% to result in the same monthly payment. Home prices won't drop until people are forced to sell and widespread layoffs are just the catalyst necessary.
  - metadat 4y ago
    Sure, I follow. At the same time, we've still got tons of all-cash buyers in the Bay Area. Those $6.5m+ POS properties are still selling like hot cakes (surprisingly). Outside of SV, I expect you'll see such a drop.
    - datalopers 4y ago
      I agree it may be a bit more muted in the Bay area, though in dotcom we saw a 10% retraction and great-recession saw a 30% retraction.
    - Hermitian909 4y ago
      I'm curious how many are paying cash and how many are using delayed financing to make cash offers? The latter is usually just a mortgage + a fee to get the advantage of a cash offer. I know these shot up in popularity during covid but I don't know where you'd find stats on the split. Point being, if most of those cash offers are really a 30-year mortgage in a trench coat, the peninsula might slump very quickly in the near future.
      - metadat 4y ago
        Real estate isn't my full-time job at the moment, so I'm the wrong person to ask! All I can say is there's still a ton of cash sloshing around Silicon Valley. It could be awhile before is dried out, if ever. The VCs still have a ton of dry powder and they aren't moving out of Sandhill.
  - spoils19 4y ago
    Thanks for this, the logic looks sound and flawless. I'll definitely be using this when making future valuations with lenders.
- lob_it 4y ago
  Bottom graph shows 45% in defence/aerospace plus the additional sectors that supported it. https://lao.ca.gov/1995/010195_calguide/cgep1.html https://lao.ca.gov/1995/010195_calguide/cgep1.html Edit:not in SV, but the real estate prices probably felt it
ajross 4y ago
> It'll be brutal. Bay area home prices will fall by at least 40% from 2021 highs by end of 2024. This is a perfect distillation of "bad news leads". A year ago, threads like this were filled with complaints that bay area housing development and pricing was completely unsustainable and that the values and rents were simply too high to permit the needed workforce to live there. Now fast forward, the situation is correcting itself, and... that's not good. In fact it's "brutal". Really, what did we actually want? This is what dropping housing prices looks like. Any time prices change some people win and some people lose. (From my perspective, FWIW: yeah, this is a sorely needed correction and while it must suck to be a property owner right now there's no way we were ever going to sustain that ridiculous bubble.)
- bombcar 4y ago
  Probably the "best result" for everyone would be prices stagnating for 10-20 years (could this happen? maybe) and let inflation slowly bring them back to a sane percentage of income.
  - lumost 4y ago
    My suspicion is that this is what the Fed wanted, but that meant inflation at 8%+ for 5-10 years to crush non productive asset prices.
  - djmips 4y ago
    Doesn't that presume that salaries will keep up with inflation?
    - bombcar 4y ago
      Broadly, they have to but that doesn't mean that tech salaries will - they've so far outstripped inflation over the last 20 years that they could stagnate or drop for 10-20 years and still be way ahead.
    - ajross 4y ago
      That's "bad news leads" again! Discussion about "inflation" always presumes that it hurts everyone, even though (by definition) it's just a rescaling of an existing economy and that for every loser there's a winner. In fact salaries in the bay area have been rising ahead of and faster than inflation, so yes, it seems like a good bet. Also property owners (remember them from upthread?) are broadly helped by inflation as their mortgages aren't inflation-indexed (i.e. inflation makes their total debt go down in real value). But none of that nuance matters, because bad news leads.

metadat 4y ago

How do you arrive at 40%? The peninsula has never experienced such a drastic decline since.. ever. Even through the dotcom bubble and 2008 financial crisis.

Firmwarrior 4y ago
He's just trying to make me happy by telling a beautiful fantasy tale "And you'll have a yard without committing to a 3 million dollar investment!" Oh well, back to patching the grout on my dilapidated million dollar shithole condo..
- metadat 4y ago
  Yeah, I'm still going to buy that house this quarter. Not too worried about the long-term value, there is literally no more land area to develop in the western region of the Bay Area.
  - Firmwarrior 4y ago
    Semi-related: What's the deal with all the empty land between SF and San Jose? I get that it's mountainous, but it seems like at $2,000,000 for a tiny parcel of land someone could figure out how to build on it Maybe I'm misunderstanding, but it kinda looks like a national forest or something when you drive along 280
    - metadat 4y ago
      Do you mean off to the side of I-280? It's government protected nature park reserves at the northern end, and the Santa Cruz Mountains to the southwest. One of the perks of living in Silicon Valley; you can get out of the office and go hiking or biking in nature
    - datalopers 4y ago
      Take Skyline early one morning and grab breakfast at Alice's. Whole lot of people with loads of money don't want to give that up.
datalopers 4y ago
Home prices tend to be a function of 30-yr mortgage payments. $1.5m @ 2.50% yielded a ~$6k/mo P&I payment last year $868k @ 7.25% yields a ~$6k/mo P&I payment currently. The price of this theoretical home need to drop ~40% to result in the same monthly payment. Home prices won't drop until people are forced to sell and widespread layoffs are just the catalyst necessary.
- metadat 4y ago
  Sure, I follow. At the same time, we've still got tons of all-cash buyers in the Bay Area. Those $6.5m+ POS properties are still selling like hot cakes (surprisingly). Outside of SV, I expect you'll see such a drop.
  - datalopers 4y ago
    I agree it may be a bit more muted in the Bay area, though in dotcom we saw a 10% retraction and great-recession saw a 30% retraction.
  - Hermitian909 4y ago
    I'm curious how many are paying cash and how many are using delayed financing to make cash offers? The latter is usually just a mortgage + a fee to get the advantage of a cash offer. I know these shot up in popularity during covid but I don't know where you'd find stats on the split. Point being, if most of those cash offers are really a 30-year mortgage in a trench coat, the peninsula might slump very quickly in the near future.
    - metadat 4y ago
      Real estate isn't my full-time job at the moment, so I'm the wrong person to ask! All I can say is there's still a ton of cash sloshing around Silicon Valley. It could be awhile before is dried out, if ever. The VCs still have a ton of dry powder and they aren't moving out of Sandhill.
- spoils19 4y ago
  Thanks for this, the logic looks sound and flawless. I'll definitely be using this when making future valuations with lenders.
lob_it 4y ago
Bottom graph shows 45% in defence/aerospace plus the additional sectors that supported it. https://lao.ca.gov/1995/010195_calguide/cgep1.html https://lao.ca.gov/1995/010195_calguide/cgep1.html Edit:not in SV, but the real estate prices probably felt it

ajross 4y ago

> It'll be brutal. Bay area home prices will fall by at least 40% from 2021 highs by end of 2024. This is a perfect distillation of "bad news leads". A year ago, threads like this were filled with complaints that bay area housing development and pricing was completely unsustainable and that the values and rents were simply too high to permit the needed workforce to live there. Now fast forward, the situation is correcting itself, and... that's not good. In fact it's "brutal". Really, what did we actually want? This is what dropping housing prices looks like. Any time prices change some people win and some people lose. (From my perspective, FWIW: yeah, this is a sorely needed correction and while it must suck to be a property owner right now there's no way we were ever going to sustain that ridiculous bubble.)

bombcar 4y ago
Probably the "best result" for everyone would be prices stagnating for 10-20 years (could this happen? maybe) and let inflation slowly bring them back to a sane percentage of income.
- lumost 4y ago
  My suspicion is that this is what the Fed wanted, but that meant inflation at 8%+ for 5-10 years to crush non productive asset prices.
- djmips 4y ago
  Doesn't that presume that salaries will keep up with inflation?
  - bombcar 4y ago
    Broadly, they have to but that doesn't mean that tech salaries will - they've so far outstripped inflation over the last 20 years that they could stagnate or drop for 10-20 years and still be way ahead.
  - ajross 4y ago
    That's "bad news leads" again! Discussion about "inflation" always presumes that it hurts everyone, even though (by definition) it's just a rescaling of an existing economy and that for every loser there's a winner. In fact salaries in the bay area have been rising ahead of and faster than inflation, so yes, it seems like a good bet. Also property owners (remember them from upthread?) are broadly helped by inflation as their mortgages aren't inflation-indexed (i.e. inflation makes their total debt go down in real value). But none of that nuance matters, because bad news leads.