patrick.net

ww2,

Detroit syndrome has always been a threat to the BA. What the BA has going for it that is different from Detroit lies in its total "economic ecosystem". The BA's numerous deaths and rebirths owe largely to an infrastructure which is easily transitioned from one high tech purposing to another. It's the virtuous circle economic effect which is so impossible to replicate. Areas like the BA evolve naturally, and will eventually die naturally too. But predicting their death is a sucker's game. London is still ticking right along despite it having been declared dead right around 1984. And how often was NYC going to turn into a prison island?

I honestly don’t know. The market here isn’t like the BA since it’s so obviously coming down, it just doesn’t make sense to me.

SQT, I was in the Natomas area last weekend. It was "flooded" with new developments. (Isn't Natomas in the flood zone?)

Oraclezone? Why?

Merely the reduced emphasis on stock option income.

Merely the reduced emphasis on stock option income.

True. But Google is still hiring while Oracle may have to deal with reorganizations.

Two high-income families have more effect on housing demand than one very-high-income family.

Two high-income families have more effect on housing demand than one very-high-income family.

Their demand is segmented because the "products" they demand are not direct substitutes.

Their demand is segmented because the “products” they demand are not direct substitutes.

"Demand" as in "strong demand for housing as evident in rising median price". :)

“Demand” as in “strong demand for housing as evident in rising median price”.

Take the first order derivative of that "Demand" as defined by your function, and you thus prove that It Only Goes Up

;)

Take the first order derivative of that “Demand” as defined by your function, and you thus prove that It Only Goes Up

If not, keep taking higher order derivatives until the appreciation is not in retrograde. ;)

SQT,

I guess the reason I asked about the 11th hour flippers is that my friend sold his home (near Riverside) that closed in mid-FEB. The flippers couldn't wait to get him out so he had to put some of his things in the garage before they'd even actually closed. Well, for all of their high energy and efforts according to Zillow it hasn't yet sold! Perhaps the fellows in your area are super savvy but I tend to think that they just thought to themselves that "they got a really great deal!" Yeah man, the sellers were really stupid. We're gonna make bank on this. Hey! Jorge! Go out to the van and get me my chalk line, a six foot ladder and my bong! We're gonna make bank on this one man.

Ray W,

I just saw the Megadisasters 1906 episode. When it hits here it will be pretty bad. But I suspect the area will rebuild rather than die. There are examples of large modern cities surviving and rebuilding from mega quakes in Japan. We may need a good whopper to get us to spend the necessary coin to really get serious about it.

Putting on the dark hood of a "soulless economist": mega disasters can be enormous stimulants to the economy over the long term. So long as the rebuilding is handled efficiently, a mega disaster gives an opportunity to wipe clean infrastructure mistakes and engineer a more efficient and productive city. Why do you think Western Europe has a great mass transit system?

I just hope I live through it and I'm not stuck on that stupid 101 bridge over the Bay letting into Mill Valley when it hits.

Ray and Randy,
While I admit that for the time being, the tech, research, and creative infrastructures in the BA are seen by many as impervious, they are by no means diffrent than Detroit. I read a number of books last year, the best being " wheels for the world"- the history of the Ford Motor Co. What Ford and GM did for the automotive, manufactoring, marketing, and the then technology based sectors of the economy were nothing less than the equally phenominal sucess the West Coast has had in microtechnology. Ford virtually invented modern manufactoring and developed a system that was later mimicked by the Japanese- except the Japanese actually continued on with Henry Ford's belief in continually simplifying the manufactoring process. Wages in Detoit were at one time an average of 5 times more than the national average. That would be like you or I making 3-400,000 a year. Employees were given housing, 2 cars, local public facilities, and more. Detroit was at one time the hottest place to me. Scientists, metalurgists, CEO's, working men and women along with a plethora of middle class well to do families flocked there from all regions of the country. Indeed- the entire midwest was the manufactoring mecca of the US at a time when the US was primarily a manufactoring country.
The phenomina that got the BA it's advantage was from military contracts. The government infused billions into national defense, much of the foundation blocks for modern microchips, programming, and modern electronics being laid during the 50's-70's. Once this technology became more publically available after the fall of the USSR, over 30 years of military research was instantly available for the immediate financial development of many of these companies that had previously been under contract. Think about it- having what just a few years ago was top-secret, highly developed technology suddenly to be developed for consumers.
This of course created the golden age of california prosperity and fortune, as employees could be paid in outstanding amounts- all due to the fact that nobody else could do it better. This was the main reason RE in the BA only went down 10% in 1989 because this came at the same time that the tech boom was just starting.
This time around, the BA sits in the same position as Detroit. It can still make some rather innovative products and create things like video games and entertainement.But so can Austin, Nashville, Atlanta, and dozens of other cities and states. The term " tech" is on the same level as we speak as "brake drum" Perhaps the BA will conjur up a new technology. Recently, the talk was about nanotech, and biotech. The city was willing to pay researchers millions to set up shop here. But none of this has been realized, with much of the biotech moving to Ann Arbor, MI, and nanotech being taken up by a myriad of companies nationwide. I suspect that if there were anything that could throw the BA into "Detroit land", the enivitable RE crash will do it.

Austingal,
What I'm trying to definantly get my finger on concerning Austin is that am I right by saying that just 15-30 minutes outside of Austin, the prices drop to the 75-120k level? The reason I ask is that if that is the case, then this kind of situation is totally diffrent than the BA, where people drive sometimes as much as 2 hours EACH WAY just to get to work, and even then, the homes are still in the 500k range. It just seems like such a no-brainer that anyone who can't afford inner Austin... would just move 15 minutes down the road. I know I'd take that option, and if I had kids, well the cost diffrence would mean they'd go to private school. I also realize that Austin turns into Suburb-land real fast, so I could understand the desire to live in old Austin with some of the older homes and neighborhoods. This same thing is true in Nashville- the houses turn to el-cheapo houses- even nice ones as soon as you leave the city limits. If somone told me, here in SF that if I packed up and moved 15 minutes outside of the city, and houses cost 3 times less, hell Id do it in a split second/.

Ray,
The other reason I bring up the fact that BA could very well go into the Detoit zone is because this country has historically been about diffrent regions at diffrent times having booms and busts.
I can use East TN for an example. when I was growing up in Knoxville, I thought the downtown was a joke.It had been dead since the 1930's. Boarded up buildings, old mercantiles with broken glass, lots of nasty parts of the city where the slums just kept on going. Nothing of any note that you'd want to go there for. No nice eateries or neat features.I actually hated going downtown because it was depressing. Anyhow, in the last 3 years, suddenly- kaboom! coffee shops, little resturaunts, a new 2 story library with fireplace, rennovated historical buildings with art galleries, an old country store being put in one of the old buildings complete with hiking equipment and odds and ends such as overalls and chicken feed, a radio station that features free live shows every day, lofts being built, business coming in,and on and on. This happened suddenly, and within 3 years. City occupation is the highest since 1932.
There is proof that a dead area can suddenly become rejuvinated, and so too are there indicators that an area can just like Knoxville during the 30's be prone to long term economic misfortune for decades on end.

HARM and Peter P.,

I was joking about the Garry Watts guy who reportedly said something like "10 to 15% is in the bag" while predicting 2006 appreciation in San Diego real estate.

I guess he is not as famous as Suzanne.

Hey Austingal,
How far is Barstrop, Round Rock, Phlugerville? Those are the areas I'm looking at. Don't have kids so schools aren't on my radar. I grew up in the sticks with neighbors that shot semi-automatic rifles while drinking cases of Budweiser, so the boondocks don't really worry me. Sorry to be persistent. I'm heavily considering Austin in the next few years. I'm only waiting because I think it too is in somewhat of a bubble. The job thing worries me a bit too. I do graphic design. I haven't researched that market there yet.

Good article on risks involved in investing in commodities.

http://finance.yahoo.com/columnist/article/futureinvest/4496

Hasn't anyone noticed a melt-down in global stock markets ? Nothing, almost NOTHING is up. Major markets in Europe and Asia are down. Commodities are down. Except maybe US$.

The stock market is a leading indicator. What is this melt-down telling us ? This does not look like a short term blip.

@To BA Or Not To BA,

We know who Gary Watts is (and his infamous "15% in the bag" quote). I just assumed you were being cheeky ;-) .

@Peter P,

Please check you gmail inbox, sir. I, er... have something for you. :mrgreen:

I thought the now famous "already in the bag comment" was made in regard to the Orange County RE market? Oh well, doesn't much matter. All CA RE appreciates at what ever level the local realtors determine it should appreciate at anyway! Right?

What made "in da bag" even funnier was that they ran a companion piece that stated something like 17% of the OC hadn't paid their property taxes! Nope, no sign of market stress here. "Sign of market stress have been largely absent".

Time will tell if the BA goes the way of Detroit. I would remind that such a pronouncement has been made at least twice before; each time the BA emerged even stronger after a round of creative destruction and restructuring.

Detroit is not a major metro area, and lacks many of the anchoring "synergies" that the BA enjoys. The BA is comprised of three major cities which are significantly diversified from one another. San Francisco has always been a major financial hub; Detroit never has been. Oakland has always been a major transit hub; San Jose has risen to fill in "technology knowledge" work.

A collapse in tech won't change the fact that a large percentage of Wal-mart products ship through the ports of Oakland. Or that most Western US financial transactions and nearly all trans-Pacific financial transactions involve San Francisco Banks. The world's largest system of venture capital -- larger than all of NYC + Boston + Golden Triangle -- won't evaporate and go away over night; and it won't pack up and move to Atlanta or Austin. I doubt that the top feeder research universities will relocate either. Where are Detroit's parking lots of Nobel Laureate reserved spaces?

I am very bullish on the BA over the long-term. It could get tough, and a ton of people will decry the death of the area. They'll leave. New blood will replace them, and the virtuous circle will continue. Detroit, on the other hand, lacked many attributes of this system. It went the way of Toledo, Cleveland, etc. Auto in Detroit was no different than auto and steel in Cleveland, or auto in Toledo. It seems that only Chicago, a much better direct comparison, has managed to hold on to enough diversity to survive creative destruction and restructure. But then Chicago is a major metro area with synergistic suburbs (many of which are effectively larger than Nashville) and vibrant Finance and diversified services industries.

Just my opinion. We'll know eventually. Trust your instincts. If you think the BA is going the way of dilapidated US heavy industry centers, then you may want to bail out while you can. I'm not going to lose any sleep over this. I'm more worried about the next earthquake.

Austingal,
We do not have any RE funnymoney to trade in for a song. If I did, then Austin proper would be more ideal. We've been saving for over 5 years now, and have enough to buy something in the 150-170k range outright. That's why I'm starting to get a little concerned about the trickle of people from California and other overpriced areas that seem to be taking some of these places by storm.Just a year ago I started singing to leaving California song, and now it seems that every other Californian is now saying the same thing. They can't ALL move away. We can't compete against someone who just sold an 800k house in Cali moving to downtown Austin. The same seems to be coming partially true for many other areas as well. Again- I think Cali is at the tip of the breaking point. Many Californians seem to have negative views of anywhere they view as conservative, so as soon as the extreme costs that are driving even the most liberal californians out of disappear, and the state economy survives it, I'd hope that this kind of uncontrolled increase in the inner city will start to lag.
But from my observations, it seems that the Austin area is still very affordable, even for people like me and my wife with our unglamorous financial situation. As long as I can still find a plentitude of homes in the surrounding areas, I'm ok with that. The way I see it, moving to an area that is easier to afford means you have the ability to move upwards. Perhaps we'll live in a suburban area for a number of years, but in the meantime we can save up for someplace better or wait until market conditions are diffrent. None of the above is now possible in th entire state of CA.

I had a thread about this in March. At least one of the comments there is from a colleague who's been in in biz in the BA for a long long time, and seen it "die" before. He'll tell you that this time is nowhere near as bad as it was when the chip plants packed up and left. That was much closer to a Detroit scenario than loss of one type of knowledge job for another. Back then we had to replace manufacturing jobs with knowledge jobs. Something many experts claimed was altogether impossible.

Randy,
I'll concede that indeed, I would be surprised if the BA lost it's lustre. As someone has mentioned on this forum many times, the jobs exsist where the CEO chooses to live. So as long as there are wineries to drink at, beaches to see, somewhat pleasant weather( even though this year sucked) and lots of other rather affluent trendy places to eat at, I wouldn't worry about the BA economy tanking even if the only people left in 5 years are ALL CEO's.
But on the other hand, history hasn't been kind to any given area for any long length of time. The US is a micromodel of the world. Certain parts of the country have been leaders.Other parts have been paupers. The wealthy stats hold priority and influence over the lesser known states. Turn on a TV: All the shows take place in NYC, SF, LA, and Chicago. If any take place in the south, a visual romanticism of the old, decrepid, ancient south is shown, and usually in a diffrent time period.
But just as diffrent parts of the world have at times held the reins of power, so too do I see the remote possibility that the traditional regions of the country that have held the reins may lose them just as easily. A swift look at the numbers shows a projected growth of over 40% in the SE and Midwest. Signifigant gains have been made already. TX is way up there too, procuring more new business than just about any other state. There simply are more opportunities not only for individuals, but business as well. If a company makes a killing, what good does it do if the employees are priced out of the market? The model that exsists in SF simply no longer works. High wages are not good enough. The smart people will leave. The economy will go the way of the once indestructible US consumer electronics industry, with the biggest one- RCA falling into an era of corruption as the " old hands" at the top cut more and more off the bottom, bleeding the company dry. The same predictment will occur here. Companies that cannot compete with the likes of new startups in other states will cut more, and more, and more until finally they are simply shells with only the top of the company still functioning.
I have no doubt that the BA economy will continue on. But it might be one with only a hollow shell devoid of employees.

But on the other hand, history hasn’t been kind to any given area for any long length of time.

How long have London and NYC been leading nexuses? I'm trying to think of a nexus city that's fallen into demise in modern history and having trouble coming up with one. Even Tokyo remains a nexus today; and it hasn't been one nearly as long as NYC (or arguably SF). Maybe you could argue Berlin; but I'm not sure it really was ever a nexus...just portrayed as one for political reasons.

About all I can come up with is Vienna, and that's stretching the limits of the current era (but it does overlap London and NYC).

Michael wrote:

> With a price drop. The new price is $1,294,888.

I can't believe it didn't sell to a Chinese buyer at that price...

To BA,

not really, Euro held up throughout this mess. I sense that people cashing out of commodities and emerging markets are NOT heading back into USD, they are taking refuge in Euro instead.

SP,

I repsectfully disagree.

The initial asking price was never realisitic to begin with. My observation is, most of homes that have gone through reductions were asking for 15-50%(!) higher than last year's price, of course they can't sell. The asking price was never consummated at any point in time.

I need to see reduction from 2005 price level to call this the beginning of the correction.

I am betting on 10-15% below 2005. By the end of this year. Not in all areas.

Here is a nice downtrend. MLS 40153534 on ZipRealty.
DOM : 109
Price Reduced: 05/03/06 -- $790,000 to $780,000
Price Reduced: 05/08/06 -- $780,000 to $750,000
Price Reduced: 05/19/06 -- $750,000 to $730,000

60K already reduced in May. This is almost 2005 price.

This will spread. This spring has been bad. Real BAD. Nothing to do with super-bowl, rain, allergies, American Idol etc. Fall is going to be worse.

This actually happened. It's been a while since I heard anyone saying it.

I was part of a group discussing RE. I keep very quiet in these discussions. I have mastered the art of nodding and saying "Hmm", "yeah" and so on. Seems like everyone is now aware of the problems in other parts of the country. Everyone agrees tha DC is gone, Florida has tanked, Sacramento has crashed and buying in Phoenix is a real bad idea. Even South California is down 20% or more ! (I wasn't aware of that).

Then comes the real clincher. This area is different though. Everyone wants to live here.

Those exact words. People actually say those EXACT words. Like a parrot. In that order. The exact words we bubble believers are used to making fun of.

I have a new found respect on my own ability to keep a straight face.

Any Google Employees care to share their Haha's here with their job responsibility? Would like to know if they are paid below Market level.

Number of Pre-IPO employee for Google should be around 1,600.

However, those with significant options to cash out that would make them AFTER-TAX millionaires will be smaller than 400. Anybody joining AFTER the IPO, unless acquired or brought on board into a senior position, won't become an after-tax millionaire even at today's stock price.

Nowadays, the typical package of google for a fresh (or slightly stale) PhD from a first tier college is around 100K with

100K with less than 200 options.

My anecdotal survey of recent Google offers (and one who took the offer against my own and others' advice to the contrary) is that they pay below market salaries. Not a huge amount below market, but still materially below. They also demand hugely expensive educational creds. Ivy MBAs or equivalent. Glamorous PHd, etc. So, you're cost of getting into Google isn't going to pay off at a ~ 100K salary. There may be something to the prestige factor. It is a fact that Fortune 500 like to hire from recognized names. Any pure-bred entrepreneur can testify to that. No matter how much success you've had as an entrepreneur, if you can't put a headline name on your resume you have very little chance of getting through the gate-keepers to those jobs.

As to GOOG options, they are required to value them at the market when you accept your offer (or higher). They can no longer play games to give you in-the-money options. You go ahead and tell me if a few hundred at-the-money $370 options are worth anything at all. Even at a B-S valuation, they're not terribly valuable; and if you factor in liquidity preference, you're not making enough to cover your salary discount at a risk-free rate (esp. with rising inflation).

Google is running a great operation down there. Genius they can get new employees to accept their deal. If I were to consider working there (and they wouldn't have me, I can promise that), I'd demand a package with 0 options and all cash salary & bonus.

OO,

I will (in principal) agree. I can't speak directly to BA specifics but what I would prefer to see is virtually all residential RE revert back to pre-bubble prices with "normal" inflation factored back in. Will I get that to the "T". Doubt it. But make no mistake, a correction is none the less underway. I believe *To BA's* description is pretty accurate for most major markets. I feel (as apparently you do as well) that much of 2005's pricing just wasn't real. Perhaps that is why we have to endure so many bulls rantings about the handful of instances where someone BOUGHT in 2005, SOLD in 2005 and actually made a profit worth talking about! 2005 wasn't real and trying to flip a property in that year will be looked back on as a "risky lifestyle choice".

I hate to keep beating this to death (especially b/c it's Peter P's) but all we need to see a crash is for prices to simply stop appreciating. We're there. It's a major step in the right direction.

I recently accepted a management position...

Looks like USD has devalued against HaHa again. Home prices in HaHa have dropped.

what would happen if HaHa ever upgrades his skillz?

WWII,

I wouldn't worry too much about RE prices all over. The South has ample buildable land, especially over the long run. California RE lotto winners will be exhausted at some point and then new supply will come out.

Plus, Texas has very high carrying RE carrying costs relative to price in terms of property taxes and HVAC bills. That will encourage Californicators who has money but no earning power to cough their houses out, in time.