5 ms·

This will burst as it is based simply and obviously on the greater fool theory and is devoid of any fundamental cash flow generation (i.e. rents).

huhtenberg 12y ago
The problem of course is that it's unclear when it will burst. Take Vancouver, Canada real-estate market, for example. It's the closest Canadian city to Hong-Kong / China, it's friendly to foreigners buying properties and it has a sizable Chinese population that can act as a proxy if needed. The house prices were inflating from late 90s. In mid '00s it became a common understanding that there's a bubble. A modest 500 sqft flat in downtown Vancouver was going for close to 500K and proper houses in decent areas were in 2-3 million range. Our place appreciated over 100% in a matter of 4 years. Tons of apartments in downtown and new condo developments sat empty, which was especially easy to tell at night. But the bubble wasn't bursting. Nor was it deflating. Moreover, tour buses driving mainland Chinese suits around open houses on their 2-3 day "buy all!" flash visits transformed from a one-off exotic thing to the routine. Local government doesn't do a shit about this. They are happy as this feeds the construction industry, creates jobs and they also get to tax all these new developments. Their hand is stuck in a cookie jar. In the end all these buildings are just a way to park the foreign money and so the Vancouver housing bubble is tied directly to the state of Chinese economy. The only way for it to subside is for China to have an economic crisis. It is a greater fool situation indeed, but regrettably it unfolds at a state level.
michaelochurch 12y ago
This will burst as it is based simply and obviously on the greater fool theory and is devoid of any fundamental cash flow generation (i.e. rents). The 2014-era housing bubble is driven not by runaway money-printing as in 2008, but by foreign corruption. Silicon Valley is expensive because every thieving Chinese official has a house out there in case things go seriously wrong (corruption is a death-penalty offense in China). As it turns out, rich people will pay a nearly-infinite amount of money to not die. We're not talking about tulip bulbs. We're talking about personal safety for some seriously bad people who are at risk of being killed by their own people (who they've been robbing for decades) and who, quite frankly, deserve to die.
- erehweb 12y ago
  Interesting theory, but why buy the house in SV rather than more affordable L.A.?
  - michaelochurch 12y ago
    Because when shit goes bad, it gets hard to move money. Your liquid assets are frozen. You have to change countries, move your family, change names, in order to avoid reprisal and extradition. Your contacts, excluding a few equally scummy people you trust (because they're as deep in the dirt as you are) are all gone. Your new name means nothing. You won't totally start over (you have a few scumbag contacts who can get your kids into top MBA schools, and you'll be able to buy a resume in time) but it will be a while before you can work again. You'll need to buy a resume and references, for your new identity, in order to get an upper-middle-class management job, but that is much harder than it might seem when you're on the run from the law and possibly being hunted internationally (by vigilante bounty hunters if not governments). The buying-a-resume takes 3 years and in the mean time, you'll have living expenses. How do you get money to cover those? Your old-country money est perdu. Rental income from a couple buildings you "just happened to have" might float you, but for short-term needs you'll want to borrow against your house. One house (two would draw attention). Best if that house is "worth" $1.5 million. You can borrow a lot more against that than against a $400k L.A. bungalow. Owning $1.5-10 million of real estate doesn't stick out as much in an area that is already horribly expensive.
    - rjsw 12y ago
      I thought L.A. had expensive houses too, though I guess the people you describe don't want tour buses driving past all the time.
    - qohen 12y ago
      Best if that house is "worth" $1.5 million. You can borrow a lot more against that than against a $400k L.A. bungalow. Your understanding of LA-area real-estate -- and its appeal to Chinese buyers -- appears to be...incomplete: "Wealthy Chinese home buyers boost suburban L.A. housing markets" [1] "Housing crisis hasn't touched San Marino" [2] In San Marino -- a former WASP bastion, now about 50% Chinese -- $2 - $10 million homes are readily found [3]. (And there are other, cheaper cities with large Chinese populations close by, so one can pick one's price-point). In the city itself, in or near West LA for example, the market has been hot for a while -- it's not hard to find areas with median house prices over $1 million (e.g. [4]) -- a $1.5 million house would not be hard to find. Or, for (much) more expensive places, one could go to Beverly Hills, Santa Monica, Rolling Hills, Malibu, etc. [5]. So, your putative fugitive would have little problem finding an expensive house -- for most of values of "expensive" -- in the greater LA area, either in a Chinese enclave or, if they needed to stay away from people who might recognize them, etc., in other nice areas. [1] http://www.latimes.com/business/la-fi-chinese-homebuyers-20140324-story.html#page=1 http://www.latimes.com/business/la-fi-chinese-homebuyers-201... [2] http://articles.latimes.com/2011/jan/31/business/la-fi-san-marino-housing-20110131 http://articles.latimes.com/2011/jan/31/business/la-fi-san-m... [3] http://www.zillow.com/san-marino-ca/expensive-homes/ http://www.zillow.com/san-marino-ca/expensive-homes/ [4] http://www.zillow.com/mid-city-west-los-angeles-ca/home-values/ http://www.zillow.com/mid-city-west-los-angeles-ca/home-valu... [5] http://la.curbed.com/archives/2012/10/10_pricey_houses_in_socals_10_most_expensive_zip_codes.php http://la.curbed.com/archives/2012/10/10_pricey_houses_in_so...

huhtenberg 12y ago

The problem of course is that it's unclear when it will burst. Take Vancouver, Canada real-estate market, for example. It's the closest Canadian city to Hong-Kong / China, it's friendly to foreigners buying properties and it has a sizable Chinese population that can act as a proxy if needed. The house prices were inflating from late 90s. In mid '00s it became a common understanding that there's a bubble. A modest 500 sqft flat in downtown Vancouver was going for close to 500K and proper houses in decent areas were in 2-3 million range. Our place appreciated over 100% in a matter of 4 years. Tons of apartments in downtown and new condo developments sat empty, which was especially easy to tell at night. But the bubble wasn't bursting. Nor was it deflating. Moreover, tour buses driving mainland Chinese suits around open houses on their 2-3 day "buy all!" flash visits transformed from a one-off exotic thing to the routine. Local government doesn't do a shit about this. They are happy as this feeds the construction industry, creates jobs and they also get to tax all these new developments. Their hand is stuck in a cookie jar. In the end all these buildings are just a way to park the foreign money and so the Vancouver housing bubble is tied directly to the state of Chinese economy. The only way for it to subside is for China to have an economic crisis. It is a greater fool situation indeed, but regrettably it unfolds at a state level.

michaelochurch 12y ago

This will burst as it is based simply and obviously on the greater fool theory and is devoid of any fundamental cash flow generation (i.e. rents). The 2014-era housing bubble is driven not by runaway money-printing as in 2008, but by foreign corruption. Silicon Valley is expensive because every thieving Chinese official has a house out there in case things go seriously wrong (corruption is a death-penalty offense in China). As it turns out, rich people will pay a nearly-infinite amount of money to not die. We're not talking about tulip bulbs. We're talking about personal safety for some seriously bad people who are at risk of being killed by their own people (who they've been robbing for decades) and who, quite frankly, deserve to die.

erehweb 12y ago
Interesting theory, but why buy the house in SV rather than more affordable L.A.?
- michaelochurch 12y ago
  Because when shit goes bad, it gets hard to move money. Your liquid assets are frozen. You have to change countries, move your family, change names, in order to avoid reprisal and extradition. Your contacts, excluding a few equally scummy people you trust (because they're as deep in the dirt as you are) are all gone. Your new name means nothing. You won't totally start over (you have a few scumbag contacts who can get your kids into top MBA schools, and you'll be able to buy a resume in time) but it will be a while before you can work again. You'll need to buy a resume and references, for your new identity, in order to get an upper-middle-class management job, but that is much harder than it might seem when you're on the run from the law and possibly being hunted internationally (by vigilante bounty hunters if not governments). The buying-a-resume takes 3 years and in the mean time, you'll have living expenses. How do you get money to cover those? Your old-country money est perdu. Rental income from a couple buildings you "just happened to have" might float you, but for short-term needs you'll want to borrow against your house. One house (two would draw attention). Best if that house is "worth" $1.5 million. You can borrow a lot more against that than against a $400k L.A. bungalow. Owning $1.5-10 million of real estate doesn't stick out as much in an area that is already horribly expensive.
  - rjsw 12y ago
    I thought L.A. had expensive houses too, though I guess the people you describe don't want tour buses driving past all the time.
  - qohen 12y ago
    Best if that house is "worth" $1.5 million. You can borrow a lot more against that than against a $400k L.A. bungalow. Your understanding of LA-area real-estate -- and its appeal to Chinese buyers -- appears to be...incomplete: "Wealthy Chinese home buyers boost suburban L.A. housing markets" [1] "Housing crisis hasn't touched San Marino" [2] In San Marino -- a former WASP bastion, now about 50% Chinese -- $2 - $10 million homes are readily found [3]. (And there are other, cheaper cities with large Chinese populations close by, so one can pick one's price-point). In the city itself, in or near West LA for example, the market has been hot for a while -- it's not hard to find areas with median house prices over $1 million (e.g. [4]) -- a $1.5 million house would not be hard to find. Or, for (much) more expensive places, one could go to Beverly Hills, Santa Monica, Rolling Hills, Malibu, etc. [5]. So, your putative fugitive would have little problem finding an expensive house -- for most of values of "expensive" -- in the greater LA area, either in a Chinese enclave or, if they needed to stay away from people who might recognize them, etc., in other nice areas. [1] http://www.latimes.com/business/la-fi-chinese-homebuyers-20140324-story.html#page=1 http://www.latimes.com/business/la-fi-chinese-homebuyers-201... [2] http://articles.latimes.com/2011/jan/31/business/la-fi-san-marino-housing-20110131 http://articles.latimes.com/2011/jan/31/business/la-fi-san-m... [3] http://www.zillow.com/san-marino-ca/expensive-homes/ http://www.zillow.com/san-marino-ca/expensive-homes/ [4] http://www.zillow.com/mid-city-west-los-angeles-ca/home-values/ http://www.zillow.com/mid-city-west-los-angeles-ca/home-valu... [5] http://la.curbed.com/archives/2012/10/10_pricey_houses_in_socals_10_most_expensive_zip_codes.php http://la.curbed.com/archives/2012/10/10_pricey_houses_in_so...