patrick.net

FunnyBayAreaBuyer says

1) Would you think that the bay area's current situation is similar?

Oh its different this time.... back in the 80s we created very very large employers, and they employed large numbers of a workforce locally.. no where near the numbers local workforce today.

Vanishing Public Companies Lead To The Incredible Shrinking Silicon Valley

http://www.siliconbeat.com/2010/02/17/vanishing-public-companies-lead-to-the-incredible-shrinking-silicon-valley/

1994....315
2000....417
2010... 241

Larry Ellison (Founder Oracle)

"We saw the zenith in tech jobs around 2001. We saw a point where half of all capital spending was tech. That will never happen again. My industry will never come back. Nor should it. Computer systems are still too expensive. They're too labor intensive."

FunnyBayAreaBuyer says

3) Do you know of other housing bubbles in california, previous to the 50s/60s/70s?

People talk of some "real estate cycle" but all we had was the 90s bubble/bust/recession and not much written about pre 2000...
but we dont have anything like 1997-2009....

Well, it seems like there was another bubble/burst, or at least some sort of correction, back in the 50s/60s:

Interestingly enough, it seems to be documented in the "Steve Jobs" biography from Walter Isaacson:

http://www.stevejobsthebiography.com/extras.html

” Across the street from the Jobs family lived a man who had become successful as a real estate agent. “He wasn’t that bright,” Jobs recalled, “but he seemed to be making a fortune. So my dad thought, ‘I can do that.’ He worked so hard, I remember. He took these night classes, passed the license test, and got into real estate. Then the bottom fell out of the market.” As a result, the family found itself financially strapped for a year or so while Steve was in elementary school. His mother took a job as a bookkeeper for Varian Associates, a company that made scientific instruments, and they took out a second mortgage. One day his fourth-grade teacher asked him, “What is it you don’t understand about the universe?” Jobs replied, “I don’t understand why all of a sudden my dad is so broke.” He was proud that his father never adopted a servile attitude or slick style that may have made him a better salesman. “You had to suck up to people to sell real estate, and he wasn’t good at that and it wasn’t in his nature. I admired him for that.” Paul Jobs went back to being a mechanic.

It seems like the housing boom they are referring to in Job's biography is the post-WWII housing boom:

http://voices.yahoo.com/becoming-california-california-post-wwii-era-153967.html?cat=37

"A more educated population not only supplied the military industrial complex in California with skilled workers, but it also helped create a larger middle class, one which would in turn feed back into the economy with a disposable income. This led to a housing boom in the state, as more and more Americans moved out of the cities and into suburban developments. The suburbanization of California also went underway as freeway development enabled Californians the mobility to travel from suburban tracts to the cities, where most of the jobs were still located. "

Anybody has any information about housing boom/crashes in the 70s?

The more one gets to look at history the more it seems like things seem to be pretty different from bubble to bubble and from crash to crash.

Moreover, cities and regions seem to be transforming.

Could it be that the bay area is transforming into a city-like metropolitan area? like a wide spread New York? A wide spread san francisco? Meaning, corrections will be minor, and it will be always a very expensive place to live in. More and more expensive as time goes by and as wealth gets more concentrated in the hands of a few ... a few that want to live in Menlo Park, or Palo Alto, or Los altos .... or cupertino (if they speak chinese :-) )

This article failed to mention the Loma Prieta earthquake in 1989 which freaked out many and was a large factor in real estate price stagnation in the early 90's in the Bay Area. People used to joke that they'll wait for the next earthquake to buy, but prices didn't really go down that much, maybe 10% in the better areas.

wave9x says

This article failed to mention the Loma Prieta earthquake in 1989 which freaked out many and was a large factor in real estate price stagnation in the early 90's in the Bay Area.

The earthquake didnt do squat... more like what the Japanese did between 1985 to
1990 pretty much wiped out lots of jobs.... triggering a tech recession.

FunnyBayAreaBuyer says

Could it be that the bay area is transforming into a city-like metropolitan area? like a wide spread New York? A wide spread san francisco? Meaning, corrections will be minor, and it will be always a very expensive place to live in. More and more expensive as time goes by and as wealth gets more concentrated in the hands of a few ... a few that want to live in Menlo Park, or Palo Alto, or Los altos .... or cupertino (if they speak chinese :-) )

This is literally the million dollar question! If it is, then the prices will continue to rise with only temporary downturns. If it is not, then eventually we should see some permanent easing of prices.

San Francisco has been around for a very long time..

There is no point coming to SFBA.. the job-wealth creators...
HP, Intel, Cisco, and other Tech companies will set up shop
in your city/state more likely...

Non-California based tech employees are certainly not complaining.

thomaswong.1986 says

There is no point coming to SFBA.. the job-wealth creators...

HP, Intel, Cisco, and other Tech companies will set up shop

in your city/state more likely...

Yet, people keep coming. Why do you always list the tech companies of the 90s? Apple, Facebook, Google, Twitter are never mentioned by you.

JFP says

Yet, people keep coming. Why do you always list the tech companies of the 90s? Apple, Facebook, Google, Twitter are never mentioned by you.

there is gold in them hills.. actually all the tech companies hire more out of state then in Silicon Valley... why else do we have so many vacant building... just drive around !

Sure looks like prime RE for redevelopment and new housing...

Tech is Semiconductors, Storage and Software... Google/FB /Twit are network media and generate ad revenue...Advertising Revenue... there is a big difference...

thomaswong.1986 says

Tech is Semiconductors, Storage and Software... Google/FB /Twit are network media and generate ad revenue...Advertising Revenue... there is a big difference...

You have a very limited idea of what tech is. Google, Facebook and Twitter are definitely tech companies, as are all of the adtech companies in the valley.

Well, Google, Apple, Facebook, they are all generating tons of revenue. And they are also hiring a lot of people out-of-state.

More importantly, it would seem like they are generating the highest income jobs (pls, feel free to challenge this thought though. It would seem to me that, at 105K a year for a recent hire in google, it's a pretty high salary compared to the rest of the country).

So, Is the whole bay area becoming a wide spread city? Are we New York?

Or, is it just a cycle what we are seeing. Will we soon see empty streets and cheaper rents just like right after the dot com bubble bust? (ah..., the good old times, cheap rents. Loved 2003).

Marry xmass everybody!!! May your houses go up 30% if you are a home owner, may you get a housing crash if you are on the sidelines, may your rent decrease 50% if you are a renter, may rents increase by 50% if you are landlord.

May your dreams come true!!!

I saw in another thread an astonishing trend. SF is the least affordable (or, in better words, the most unaffordable) city in the U.S.

Do you guys expect a correction some time soon?

Hey FunnyBayAreaBuyer , this is from boots on the ground. I routinely check on who bought what attest in 95124 and with how much loan they bought. I see all cash or sometime 700K downpayment on houses and these buyers are At Directors/VP's in SV companies. Surprisingly they didn't even care to occupy or rent after paying astonishing sums of money. 2014 would be like 2013 or worse for buyers.

FunnyBayAreaBuyer says

So, Is the whole bay area becoming a wide spread city? Are we New York?

Only if your a New Yorker...that is only a New Yorker would
make that comparison... LOL! Put to you this way, if it could
it already would have happened.

ramonp says

Also, what if stocks go down? Most of facebookers/googlers wealth is in their RSUs (some inexperienced engineers, as individual contributors, receiving more than $100K in RSUs per year), so a stock bear market would definitely hurt those guys.

you gotta be careful about these wild stock awards MANY claim exist... they are actually very limited to a few people on top... anyway, if we are at peak market, then yes, employees net gain, will be pretty small, with strike prices being that much more higher...

FunnyBayAreaBuyer says

Well, Google, Apple, Facebook, they are all generating tons of revenue. And they are also hiring a lot of people out-of-state.

they were saying the same with Pandora (radio) and Zynga (games)...
odd how many arent crowing much about them... they are all toy companies...
except Apple... the Rest.. Goog. Yahoo, Face and Twit are all media companies..
generating AD revenues....

we sure attracted our share of hucksters and cons over the recent years...

BTW, how about this news?

http://online.wsj.com/news/articles/SB10001424052702303997604579242563662229536

What would be it's impact in the bay area? And, more importantly, what happens if the fannie/freddy loan cap is reduced early next year?

thomaswong.1986 says

Goog. Yahoo, Face and Twit are all media companies..

You need to spend more time understanding how the cloud works. Networking is becoming virtual and much cheaper to do in the cloud putting serious pressure on Cisco. Why pay for a big router, when Amazon, Google, or Microsoft can do it much cheaper. Same with HP, why pay for a big server, when you can buy much better compute power in the cloud for cheaper.

Amazon, Facebook, Google are certainly technology companies. Twitter and Yahoo are media companies.

hmmm! nothing to say or add here, I just enjoyed reading the entire thread.

FunnyBayAreaBuyer says

Buy when things are crashing, wait for a while for prices to go higher.

Only problem is that when they want to draw you into the bubble, the prices will rise only gradually.

When the bubble pops, you'll hear about it on your smartphone after it's happened.

tr6 says

homaswong.1986 says

Goog. Yahoo, Face and Twit are all media companies..

You need to spend more time understanding how the cloud works. Networking is becoming virtual and much cheaper to do in the cloud putting serious pressure on Cisco. Why pay for a big router, when Amazon, Google, or Microsoft can do it much cheaper. Same with HP, why pay for a big server, when you can buy much better compute power in the cloud for cheaper.

Amazon, Facebook, Google are certainly technology companies. Twitter and Yahoo are media companies.

I been at this for 30+ years...it pretty obvious what is and isnt tech... what you call "cloud" is no more than shared services based on the IBM model.. back when I started my career in tech, we didnt have these whore marketers it was all a straight forward Industry.

thomaswong.1986 says

Amazon, Facebook, Google are certainly technology companies. Twitter and Yahoo are media companies.

I been at this for 30+ years...it pretty obvious what is and isnt tech... what you call "cloud" is no more than shared services based on the IBM model.. back when I started my career in tech, we didnt have these whore marketers it was all a straight forward Industry.

Calling it "no more than shared services" just demonstrates your ignorance and claiming there were no "whore marketers" in tech 30 years ago is ridiculous coming from a guy who quotes Larry Ellison

thomaswong.1986 says

I been at this for 30+ years...it pretty obvious what is and isnt tech... what you call "cloud" is no more than shared services based on the IBM model.. back when I started my career in tech, we didnt have these whore marketers it was all a straight forward Industry.

With the cloud, you could have someone in high school with good knowledge of javascript and basic information design, build applications that store and process petabytes of data with tiny upfront cost. This is not even close to IBM. Simplifying this as move from client to shared services server is not understanding it.

Oracle and Cisco missed the boat on the cloud; Google has higher revenues that either Cisco or Oracle. HP, ironically advised by board member Marc Andreessen, spend a lot of money for the wrong software (10B for Autonomy was plain stupid).

I am not saying that it all clear for the cloud business model. For example Amazon is taking on capital risk by providing infrastructure for many start ups that might not ever make it and eventually will not be able to pay the bills.

tr6 says

With the cloud, you could have someone in high school with good knowledge of javascript and basic information design, build applications that store and process petabytes of data with tiny upfront cost. This is not even close to IBM. Simplifying this as move from client to shared services server is not understanding it.

Exactly. Capital spending on hardware is dropping to almost nothing. The difference that makes in building a technology intensive company is huge.

I think we are getting somewhere here.

Assuming "real hardware technology intensive" companies are not with us in the bay area anymore ...

does that make the prospects of the bay area worse? or better?

I mean, less cost in hardware ... more profits ... more big fat RSU bonuses for the googlers and face bookers ... isn't that right?

More efficienciy concentrated in the bay area, higher salaries ... higher house prices. Is that right?

Or, are we increasing the risk in the bay area by bringing more efficiency and less hardcore technology?

ramonp says

I think we are getting somewhere here.

Assuming "real hardware technology intensive" companies are not with us in the bay area anymore ...

does that make the prospects of the bay area worse? or better?

Right now, it makes them better. The big threat to the Bay Area would be a shift of money to biotech or some other field where we don't have the proper concentration of talent and VC knowledge.

ramonp says

I mean, less cost in hardware ... more profits ... more big fat RSU bonuses for the googlers and face bookers ... isn't that right?

I think that's the way it's going right now. You need fewer talented people to do more. John Chambers at Cisco always focused on revenue per employee. Well Google has more revenue per employee than Cisco ever achieved. Some of the smaller companies like DropBox might even have much higher revenues per employee.

JFP says

The big threat to the Bay Area would be a shift of money to biotech

We have a really good infrastructure for biotech (industry, universities, and VCs). Biggest biotech, Gilead, is here. The threat to established biotech might come from "bio-hacking" in the next decade.

ramonp says

I mean, less cost in hardware ... more profits ... more big fat RSU bonuses for the googlers and face bookers ... isn't that right?

as an employee you get a salary.. what extraordinary work have these people done earn additional compensation ? all of them. for these companies there is always someone behind the main candidate that will do the work for less... we dont have a supply issues today, nore are we in some infancy of tech revolution... we are way way past that...

JFP says

Calling it "no more than shared services" just demonstrates your ignorance and claiming there were no "whore marketers" in tech 30 years ago is ridiculous coming from a guy who quotes Larry Ellison

all cloud is providing, renting, it space.. thats all.. and yes Ellison is certainly a whore.. and how he managed to survive is beyond me..

tr6 says

With the cloud, you could have someone in high school with good knowledge of javascript and basic information design, build applications that store and process petabytes of data with tiny upfront cost. This is not even close to IBM. Simplifying this as move from client to shared services server is not understanding it.

thats what people did ... even I, accounting major, with limited programming experience/knowledge created my own apps, query big data to provide financial analysis. back in my AMD days we had armies of skilled professionals doing the same. What you called Cloud.. we called Shadow Files.

I know for a fact even Apple, Intel and HP were using the same tools and provided the same training to their employees to maximize productivity.

The 1929 market crash (Great Depression) recovered and we hit another recession in 1937, then a brief recession in 1946, another recession in 1949, then 1954.

If history is any indication, this housing cycle might top out in 2016-2017. If the Fortress didn't budge much during a Great Recession, what makes people believe it will budge during the next recession?

The data speak louder than any expert's opinion and yours, or mine. People vote with their pockets. If you cannot afford to buy in the Fortress, you, in fact, have been priced out. It will only get more pricey after each cycle. The weak will get pushed out further from the job center or have to settle for a smaller pad in a prime area. It will become a privilege, if not already, to own a single family on a 6,000 sq.ft. lot in the Fortress.

Look at San Francisco. They're building and selling 225 sq.ft. condos. It's time we start to adjust our expectation. Our standard of living will gradually decline in the coming years and decade. The market has spoken.

E-man says

If history is any indication, this housing cycle might top out in 2016-2017. If the Fortress didn't budge much during a Great Recession, what makes people believe it will budge during the next recession?

Pretty strong and valid argument. An I tend to agree with it mostly.

Can I ask comments about Prof. Schiller's opinions about investors?

http://www.cnbc.com/id/101228953

Anybody that agrees with Prob Schillers? and if not, why?

JFP says

The big threat to the Bay Area would be a shift of money to biotech or some other field where we don't have the proper concentration of talent and VC knowledge.

or competition from China and India. i don't think it's a good idea to buy in the BA long term.

E-man says

If history is any indication, this housing cycle might top out in 2016-2017. If the Fortress didn't budge much during a Great Recession, what makes people believe it will budge during the next recession?

but it did budge and budged, significantly. Prof Shillers above interview may
be more indication downside risk (further corrections/recover) are still in the cards.

we seemed to have forgotten BA prices fell between 1989 to early 90s. Is the Govt
policies blunting major corrections from occuring today.. most likely true.

http://patrick.net/?p=1235339

Wow, wow, wow!!

37% declines in SF and SJ? This was news to me!. I knew there was a correction, but I did not know it took SF and SJ all the way to 37%!!!!!

I tend to love this data! Brings certainly great glimmers o hope!. So, to avoid confirmation bias syndrome, let me say:

"This time is different!. In the 1990s and 2000s, people could not afford their purchases. Today, investors are buying all cash. There is almost no debt in today's real estate transactions. There is no faulty debt. Facebookers (select engineers inside Facebook) are an average Incomes of 200K-300K a year, similar to select engineering staff at Google, Linkedin and so".

"This time is different!. In the 90s we had the savings and loans crappy lending institutions. In the 2000s we had the subprime lending. Today, we have sound lending standards!!!"

Anybody cares to derail my "This time is different" arguments? What could possibly bring the bay area down? Layoffs? Investors pulling off? Google, linked in, and so going down? Could that ever be possible?