THE WOLF STREET REPORT: Housing Bubble 2 in San Francisco & Silicon Valley Lost its Mojo. Why?

Even as the Fed floods the market with $400 billion in four months, with stocks at record highs, and reality pooh-pooed as irrelevant. What’s different this time?

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  144 comments for “THE WOLF STREET REPORT: Housing Bubble 2 in San Francisco & Silicon Valley Lost its Mojo. Why?

  1. Another Millennial
    Jan 20, 2020 at 12:11 am

    Was at an open house on the Peninsula this weekend, it was full of people from Mainland China. The house was a tear down for 1.5 million. Bet this house will sell within a week.

    The trade war is off and the Chinese investors are back. This market won’t crash for a while.

    • Anthony
      Jan 20, 2020 at 12:59 am

      I respect your optimism. I still think those buyers are dumb money. Suckers. Longest bull market in history with an asset bubble. That should say a lot.

      • Another millennial
        Jan 20, 2020 at 2:17 am

        Absolutely. I think a lot of the buyers from mainland China don’t understand that American property values can crash.

        For them, it’s safe haven out of China. Maybe it’s worth it to secure American citizenship and live in a community of other people from the mainland in America. Our neighbors are recent immigrants from China and seem to be extremely rich.

        It’s just stupid for anyone else. The house prices are two times rents and we’re in a massive bubble. Eventually, it will pop and take the whole world down with it, including CA house prices.

        I keep hearing the elites control it all. They’ll keep printing forever. Bull. It’s never been true / the elites like to create the impression they do. But Mother Nature is in control on this ship. It will sink. It’s only a question of when.

        • Xabier
          Jan 20, 2020 at 8:16 am

          The elites have the means to exert pretty much 100% control over us, that’s the nature of primate groups: but their own powers in the wider scheme of things are limited,and they over-estimate them.

        • Trinacria
          Jan 20, 2020 at 9:07 pm

          Indeed, but denial is strong and many folks out there simply don’t want to be “confused” with facts, logic and reality.

      • Bill
        Jan 20, 2020 at 7:16 am

        They are smart. They know the impossible Trinity will hit China at some point.
        China is just doing the East Asian crisis and Japan style rise and fall. Same thing happened in the 90s.
        Personally I see them going their own direction compared to the East Asians and even japan.
        Strong capital controls. They are uniquely positioned for this. I think trade wars have magnified a problem already looming for China. And although a deal will lift the pressure it won’t stop the descent.

      • nhz
        Jan 20, 2020 at 1:38 pm

        Dumb money? aren’t all bull markets pushed up by dumb money, especially in the later stages? In that case it probably means that this RE bull still has a long way to go, given the huge amount of “dumb” players from China. I don’t think they are dumb, they are probably taking their chances although much of this is probably money laundering (but that’s not exclusive to Chinese or foreign buyers in general, it is typical of the RE market).

        Why don’t we have loads of Chinese buying RE in Netherlands, with a RE bubble market that has been thriving for 30 years and that dwarfed probably all other national RE bubbles in price gains? Maybe the Chinese buyers know something?

    • Jan 20, 2020 at 11:45 am

      Interesting comment, you suppose China’s capital controls were put in place to mollify US interests, trade wars? I thought the policy was more about propping up China’s credit bubble. US sterilizes bonds to prevent monetary inflation blowback. If you recycle enough trade dollars taken in through Treasuries, into US RE the Fed will take special measures (OpTwist?) to see you don’t suffer any draw downs, esp when China has to issue their own credit to transmit the exchange.It would make more sense if these cash buyers were building budget KOAs for the motor-homeless. Fed doesn’t care either way.

      • DINK Boomer
        Jan 21, 2020 at 9:10 pm

        It is the scramble for the exits in Hong Kong as Canada has a foreign buyers tax besides the empty house tax. pfhizzz spletzz plotsz…

    • A
      Jan 20, 2020 at 12:01 pm

      I agree the primary driver of excess cost in major US cities are foreign millionaires/billionaires who see US property as a safer investment than anything back home.

      If you were a Chinese billionaire would you trust having your money in a communist-party-owned bank or USA property? If you were a Venezuelan billionaire would you own Maduro-bucks or USA property?

      Land in the USA is now just a modern currency traded around by foreign billionaires. And when a billionaire is bidding on the same house your middle class family bids on, the billionaire can win every time.

      The foreign billionaire class has more rights, incentives, and ability to own property in the USA than the middle class. They’ll keep buying and forcing US citizens to pay foreigners rent for the privilege of getting to live in our own coutry.

      • Bologna
        Jan 20, 2020 at 3:09 pm

        Holy shit A you are scaring me it’s almost as if that’s what’s happening

      • Cas127
        Jan 20, 2020 at 4:43 pm

        “Land in the USA is now just a modern currency traded around by foreign billionaires. ”

        To an extent, this is true – at some level, it is ultimately land values (and theoretical taxing power) that stands behind the Fiat dollar.

        And I agree that wealthy foreigners tend to trust the US/UK more than their own gvts – whether this is warranted or not remains to be seen.

        These factors are pretty important and rarely mentioned…Americans tend just to assume the inviolate magnificence of their currency – foreigners have learned through bitter experience that fiat currencies are just the Monopoly money of the political class.

      • c1ue
        Jan 21, 2020 at 12:17 pm

        Sorry, but the driver isn’t the safety of the money – it is money laundering.
        Or in other words – it isn’t clean money trying to be safe from bad people, it is dirty money being sanitized from clawback.

    • Shawn
      Jan 20, 2020 at 3:14 pm

      Wow one house for 1.5m inside a housing market worth 700 billion dollars. We are certainly on a roll here.

      • DINK Boomer
        Jan 21, 2020 at 9:18 pm

        Same things were happening in Vancouver as crack shacks the size a large garden shed were being snapped up.
        There are more millionaires in China then in America, don’t we all know they don’t have to be billionaires!? It is either buy another empty condo, or gamble on the stock market but they all are looking for an exit.

  2. Xi
    Jan 20, 2020 at 12:51 am

    I agree with the previous comment, open houses are still crazy. I am currently in the market which is why I visited lots of properties since last year. The buying power is still there, I swear it.

    As for the IPO money, they are waiting for a better entry point IMO.

    • Bob
      Jan 22, 2020 at 10:44 am

      Don’t believe it. All rumors and one off examples should be ignored here without real data. China has locked down further money exiting China, and is the reason they are so aggressive with Hong Kong, they need to control the bank to further reduce US dollar outflow. Does anyone have any actual stats on buying and Chinese buying. It is almost certainly notably down, which is where the market correction is headed. What is certain is month over month declines persist.

  3. Josh
    Jan 20, 2020 at 1:44 am

    A few months ago I posted the link to a 3 bedroom house on a 8k sq ft lot for just under $5 million. Hasn’t sold in 4 months so it looks like there are still some sane people out there.

    Not sure if you mind the links but I also stumbled on this gem which was bought in 2017 for $8.3 million. With 20% down that would be a monthly payment around $40k. They have been trying to rent it out since Nov 2017 starting at $20k per month and now down to $14k per month. While it has been vacant, they have spent over $130k in property tax alone. That’s the other problem with paying top dollar, you get locked into higher property taxes.

    As I’ve pointed out before, even if you could buy, rents are just so much cheaper than buying. I’m in Palo Alto renting for a monthly payment 2-3 times less than my monthly payment if I bought the house with a 20% down payment. Prices have to come down a lot before I buy.

    That being said, it seems like the sub $3 million houses still sell reasonably fast but I haven’t noticed if the prices are coming down.

    • Ismar Didic
      Jan 20, 2020 at 8:42 am

      With REPO MARKET is trillion for months.

      • Jan 20, 2020 at 11:56 am

        You could fund a new home in SF using a REPO loan and rolling it over every day for 30 years. Put the profits from stock market trades into a separate account and open a portfolio line on that, 30% YOY gains, (okay maybe 8%). You pay 1.5% interest on REPO (compounded daily) offset by profits from your trades, which you need to draw down each day, or at least enough to cover the interest on the REPO. Limited downside risk to your collateral, (day trading) and 3% due on the PLOC, annual.

    • Bobber
      Jan 20, 2020 at 11:56 am

      That “$ 5M house” in Silicon Valley would cost $600,000 or less in the Midwest. I think it will be hard for that extreme gap to widen much more.

      There must be tons of young people in Silicon Valley that want to make a million, then move elsewhere. I know a guy that moved to San Fran upon graduation and lives with three others in an apartment. He’s been doing this for three years now, and not really liking it.

      As an aside, he’s complained from time to time that people are just sitting around, as though the hiring is San Fran was a bit optimistic the last few years.

      • Dan Romig
        Jan 20, 2020 at 1:39 pm

        The median price in San Francisco is $1,450,000. That is twice the price of this home just to my north along the Mississippi river.

        OK, we do have winters, and the realtor needs to shovel, eh?

        • Dan Romig
          Jan 21, 2020 at 10:09 am

          Perhaps I should not have posted a link to the home I was referring to, as it is no longer there.

          My point was, that as Wolf says, “Real estate is local.”

          The median list price in San Francisco is $1,090 per square foot. But for $210 per (725k), one can buy a beautiful two-story classic Tudor just southeast of downtown Minneapolis. A five-fold disparity in prices seems crazy to me, but it’s just supply and demand I reckon.

    • Cas127
      Jan 20, 2020 at 4:54 pm

      “so it looks like there are still some sane people out there”

      Good post but I think everyone tends to obsess over outliers here – SF/SJ is maybe 1.5 pct of US population and even CA in crazy Toto is only maybe 12 pct.

      The entire US mkt has been repeatedly inflated by ZIRP since 2000 but SF is at the extreme end of the insanity and not symbolic of the US as a whole.

      *And* discussing the CA mkts without mentioning the 50 pct lower sales volumes holding in Bubble 2 v Bubble 1 is probably a big mistake too.

      Fewer nutso buyers/MTG banks means this bubble is more brittle – the MTG rate hike from 4 to 5 in 2017-18 caused a quick 15 pct drop in sales volumes in CA

    • Baypoor
      Jan 22, 2020 at 2:34 pm

      That’s right, josh. We are Palo Alto renters, too, and every time I see a sub-$3 million (usually teardown-condition shack from 1948), I do the calc and my rent is 3 times less in the reasonably nicely renovated house that we rent (though still smallish and from 1948).

  4. Bay Area Person
    Jan 20, 2020 at 1:56 am

    We’ve been looking for houses this past year in Palo Alto and Los Altos. Many homes are priced 1.5x to 2.5x what they were purchased for 2-10 years ago, many homes have lingered on the market for weeks, and many that are priced >$3M just don’t sell and eventually just disappear off market. Just look at DeLeon’s (or other agents) off market listings to see the houses starting to pile up. A friend of ours who sold recently with DeLeon heard Michael Repka say that there’s a preturnatural abundance of listings coming on the market this Spring in addition to the ongoing accumulation of older listings. In addition to that, the Zillow and Redfin price trend algorithms now forecast future prices of listings lower and lower every few weeks (Zillow actually says that the prices of homes in the neighborhoods we’re exploring will decline by 6-10% in the next year!).

    So, we’ve been looking but every day it feels just we should just hold out a little bit longer…just another Spring when all the new listings show up, just long enough for Zillow’s prediction for a lower price to materialize, just until after Fed raises rates again and more pressure is applied at the top end, just until the election when things might go up or down even more. Given the number of unsold houses I’m seeing, I suspect I’m not the only one running through these scenarios.

    • BrianC
      Jan 20, 2020 at 10:55 am

      Both Redfin and Zillow are now in the home ownership game and want to buy properties for themselves. They are a counter party. You cannot trust any of their algorithms or forward projections anymore – not that you could in the first place. Look at comparable sales transactions, calculate $/sf, $/br, and adjust based on amenities and location.

      • Wisdom Seeker
        Jan 21, 2020 at 9:09 am

        Amen to BrianC’s comment, and include “quality of construction”. Harder to tabulate but far more expensive if it’s not there. Just ask Boeing!

    • Cas127
      Jan 20, 2020 at 5:02 pm

      “just we should just hold out a little bit longer…”

      Based on the 2018 MTG rate hikes – assume a 15 pct decline in CA home sales volumes for each 1 pct hike in rates.

      And plan for associated price collapses.

      Pretty sure that in Bubble 1, a mere 2 or 3 pct hike in MTG rates was enough to slash sales volumes by over 50 pct and sales prices by over 60 pct – the whole history of post 2000 housing mkt insanity has been driven by the Fed’s Zyklon B like experiments with ZIRP.

  5. Patrick
    Jan 20, 2020 at 2:16 am

    I don’t always agree with Wolfe but always appreciate and look forward to his even-keeled ‘just the facts’ commentary.

    As a Bay Area resident with a small home that’s paid off, my wife often asks where prices are going from here. I usually say the same thing. Prices are headed down in the short-term due to unaffordability except for one major caveat…If the Japanese Yen finally starts to enter hyperinflation then Bay Area and New York City homes prices are going to the moon in an event that’ll make the Vancouver peak look like a soap bubble. I view such an event as inevitable but unforeseeable. It’ll be the very first modern ‘first world’ currency to go KaBoom and there’s an immense amount of wealth stored up there that’ll be looking to escape into US Real Estate (as well as US Stocks and Bitcoin).

    Absent of any near-term major Asian or European devaluation event, it looks like homes prices here will fall until Fed printing finally starts to create their most hated of side effects – Wage Inflation. If there’s a pickup in that, then home prices here will start heading back up.

    As for the US stock market I subscribe to the dumbest of equations that fits the dumbest of money of today:

    If (USD purchasing power == True && Fed willing to print == True) {BTFD*}

    *That said, there are some major foreign and a few local Panics headed our way, but as long as both of the above hold true then they will be buying opportunities. As for those calling for the US Dollar’s early demise, ask yourself ‘exactly’ which alternative gov bond market both pays a positive yield and is as deep & liquid as US Bonds?

    • Jan 20, 2020 at 9:19 am

      “Wolf” without “e”:-]

    • Mike
      Jan 20, 2020 at 12:46 pm

      Japan has been in deflationary cycle about 30 years

      greatest threat to Bay Area home prices is stock market crash or extended decline…probably that simple

      • Wisdom Seeker
        Jan 21, 2020 at 9:14 am

        Mike – Not CPI hyperinflation, monetary hyperinflation. Countries in monetary deflation don’t have central banks buying stock funds. But Japan does.

        Japanese hyperinflation is embedded in their system. When the central bank starts buying stocks because it already owns the entire bond market, you know the game is close to over.

        Europe is close behind.

        But IMHO the Chinese may overtake both Europe and Japan, just because they are doing everything in the process so much faster.

    • nhz
      Jan 20, 2020 at 1:43 pm

      you think that in case of hyperinflation foreign buyers will buy the most expensive properties they can find worldwide? That would be real stupid IMHO … I would rather look for something that still has room to appreciate but who knows.

    • Harvey Mushman
      Jan 20, 2020 at 5:52 pm

      I like you C/C++ code snippet.

    • Patrick
      Jan 24, 2020 at 3:15 am

      Thanks! Love reading all of the replies here.

      As for Japan, so much as been ‘monetized’ it could really be down to algos+currency traders at this point. Markets are in love with drama these days and there’s an anything goes / damn the consequences air about them. If you see USDJPY peak above 130 I’m guessing the panicked reaction from the BoJ will only add fuel to the flames in getting Forex traders to pile in on shorting the Yen to buy Dollars. At that point Kuroda would have the choice of jacking up rates (god forbid into positive territory) and seeing the Nikkei crash or sitting back and letting currency traders pile into momentum selling.

      I see several other foreign & domestic Panics headed our way but don’t feel a ‘prolonged’ crash is in the cards yet. That said, Jerome Powell has monumentally mismanaged the Fed’s transition from tightening into easing. We all knew it would happen, but Powell’s recklessly thrown so much ballast overboard it’s making the hot air balloon of US stocks rocket skyward to the point of scaring markets. At least Greenspan, Bernanke and Yellen had their failed Keynesian models to lean back on for some semblance of fiscal pretense but, being a lawyer, Powell seems rudderless and eager to please every one at any cost.

  6. Jan 20, 2020 at 4:45 am

    Where’s the black swan ? Joe Biden ?!

    Cheap oil, Trump, the Fed, and China are
    propping up real estate prices in Vancouver BC,
    Seattle, San Francisco, and LA.

    • Cas127
      Jan 20, 2020 at 5:10 pm

      JR,

      All true – but CA home sales volumes are only 50 pct of that which held during ZIRPScam 1.0 – the political class can only run the same scam so many times before the sucker population wises up.

      After the next CA RE crash, ZIRP 3.0 may only get volumes up to 15 or 20 pct of that in ZIRP 1.0.

  7. unit472
    Jan 20, 2020 at 5:53 am

    I recall a survey of Silicon Valley Phase One put out around 1990 as to the aspirations of those microchip pioneers. As I recall, most hoped to amass a fortune of $7 million or so to have really ‘made it’ and then retire happily ever after. That would be about $14 million today.

    As noted, if you have that much money do you want to live in Palo Alto or in a middleclass SF neighborhood? Maybe, if you are still working in the industry, but if not why spend a fortune to buy a plain jane home when you can buy a trophy home for the same money elsewhere even in California without the congestion.

  8. David Hall
    Jan 20, 2020 at 6:49 am

    Nationwide foreclosure activity is near a 15 year low.
    Florida foreclosure activity is increasing, but is very low compared to years in the past, less than 1%.

    • Frederick
      Jan 20, 2020 at 7:01 am

      Looks like the money printing worked for equities and real estate anyway Alongside medical costs and college tuition

    • Jan 20, 2020 at 9:43 am

      David Hall,

      Yes, and think about it this way: if you cannot make the mortgage payments for some reason, but the price of your home has risen 15% since you got the no-cash-down mortgage, you can sell the home, pay off the mortgage, avoid default, and have some cash left over (for down-payment on a cheaper home or to rent and keep your credit in good shape). That’s where there are very few new foreclosures in a rising housing market.

      Foreclosures surge only after a large decline in home prices because then homeowners cannot sell their home and pay off the mortgage. They’re stuck and have to default. So foreclosures a lagging indicators, and the lag is fairly long.

      But then a big surge in foreclosures, when it does happen, also makes the housing downturn worse, as we have seen.

  9. historicus
    Jan 20, 2020 at 7:13 am

    “Even as the Fed floods the market with $400 billion in four months,…”

    More Cow Bell!!

    • Joe Renter
      Jan 20, 2020 at 8:35 am

      Agree on comment about China. We are on peninsula and have been offering. We loose to Chinese buyers who all do all cash. $2M like it is nothing. Fed doesn’t help by flooding money when it is all cash foreign money coming in. Land banking is real, many empty homes. For their kids some day.

      • Another Millennial
        Jan 20, 2020 at 10:31 am

        Yes, there’s also a lot of recently sold homes for rent on the Peninsula.

        Who would spend 1.7 million on a home to rent it out for $4500 with months of vacancy? Property taxes alone are probably 22k off the top. Your rate of return is minuscule.

        The only way this makes sense is money laundering. They don’t care if they lose 20% or 30%, since the money was not there’s to begin with. If it not black money, why not invest in the stock market or something else like Midwest real estate for a better return?

        I think the sweet spot is under 2 million as over 2 million there is more scrutiny.

        • Beardawg
          Jan 20, 2020 at 12:05 pm

          I agree wholeheartedly, and as Tech expands geographically and Cannabis businesses target the Midwest and other affordable real estate / labor markets, the Bay Area will slowly deflate and the Midwest will prosper from a real estate perspective. I was not considering any of the Tech real estate bubble issues when I moved all my single family home rental investments to the Midwest, but it may have been a harbinger…..???

        • Bobber
          Jan 20, 2020 at 12:06 pm

          Plopping down $1.7M for a home that rents for $4500 also makes sense if home prices increase. I think that’s the larger assumption.

          The problem is, in every downturn, somebody has to be the bagholder. Fortunately, they are usually the people raising their hand to be selected.

        • nhz
          Jan 20, 2020 at 1:57 pm

          I see the same dismal return in the Dutch RE market: a big chunk of current home sales are to “investors” (often small speculators, mostly native ones). With current prices even 5% gross ROI would be extremely difficult to get and 2-3% is more likely (even then most renters would have to spend over 50% of income on rent). Add costs of upkeep, vacancy, rental services, taxes etc. and it is difficult to break even as a landlord. But nobody seems to care, many homes are not even rented out after purchase because the rising tide will make every RE investor wealthy. And probably many prefer this gamble over the certainty of (very minor) negative rates on savings accounts.
          And because of the huge amount of RE speculation the speculators are cornering the market and forcing rents and prices further upwards.

          I guess for most Dutch people with money the stockmarket doesn’t look attractive, as it is still below its top from 20 years ago. Boomers and GenX have learned their lesson, playing in the stockmarket (or Bitcoin etc.) is mostly for Millennials. And in Netherlands RE looks like a sure bet, there hasn’t been a real crash since 1981 and in 2009 the government did everything they could to bail out stupid homeowners (those with >> 100% mortgage). Almost no one lost money, if necessary debs were forgiven and most of the risk was offloaded to the taxpayers. Clearly in Netherlands the RE market is too big to fail :(

        • Faifo
          Jan 20, 2020 at 4:22 pm

          Similar situation in Ireland. Small time landlords are leaving the market in droves. Foreign (and domestic) REITs are buying up complete apartment blocks in Dublin for rentals. However, the market is cooling and with the uncertainty of Brexit, prices have began to drop.

        • RoseN
          Jan 20, 2020 at 4:57 pm

          I’m so tired of the unfettered capitalism that’s practiced in America. Our neighborhoods are meant for communities, not for foreign speculators who have an unfair advantage. Americans are left with a ball ‘n chain around them for the next 30 years if they choose to compete. Plenty of other countries exert controls on who can own property in their country. We won’t do that because we worship the almighty free markets.

        • JZ
          Jan 20, 2020 at 8:45 pm

          RoseN
          I guess you are okay when world oil market NOT being a “free” market and it is forced to be traded in USD and controlled by a cartel. US printed USD and exchange the paper for oil.
          I guess you are okay with the financial asset market NOT being a free market when they we’re doing QE1/2/3 and force all asset prices up to juice up your house and 401K.
          Now when these foreigners with USD come and buy houses in your neighborhood, you want to kill the free market and only allow you and your community to buy houses.

          Looks like everybody wants to force the market do what they want.

          Please think harder on who have taken away your communities.

          Those foreigners with USD, and those homeless without USD infesting your community are created by Washington and Wall street.
          In stead of forcing foreigners, illegal aliens and homeless out of your neighborhood, how about end the FED? end the money printing? Let the free market work? It will be ugly and messy but you will get your community back. When you strip off money printing power from washington and wall street, you will rely on your neighbors to survive, NOT USD, NOT war in middle east, NOT debt fueled asset inflation.

      • cd
        Jan 21, 2020 at 12:45 am

        I would blame the obama admin for changing the foreign purchase tax easement and foreign pe ownership laws back in 2013-5 that led to this ……

    • Cas127
      Jan 20, 2020 at 5:13 pm

      Well, it is certainly cow “something”…

  10. Petunia
    Jan 20, 2020 at 8:43 am

    Silicon Valley is losing ground to tech in NYC and to other remote locations. Why buy a crap shack when you can rent in two locations for the same money, or rent in either location and own in a cheaper remote location? CA is losing its mojo very fast and tech people are finally paying attention, not just to compensation, but to costs as well.

    I follow a couple of SV tech guys online who can afford to invest in housing and they rent very nice apts. They barely own anything. These guys are starting to flow where money flows and just as fast. Mobility is the best financial asset these days.

    • timbers
      Jan 20, 2020 at 9:04 am

      Hi Petunia, get a load of this…

      There is a 630 sq ft, 1 bedroom condo for sale in Springfield, Massachusetts for $45k. It sold for something like $28k more than 10 yrs ago. It is in the Hotel Kimball, an 8 story once glorious hotel that accommodated past U.S. Presidents, with elegant common areas on the first floors. It is a declared Historical building in Springfield’s historical district.

      It the kind of place you could put on your credit card. Unfortunately, it’s mot my kind of living place. I have a Labrador Retrieve and must spend lots of time hiking in State Parks to accommodate his energy level and outgoing social nature. I’m sure the Hotel Kimball wouldn’t allow dogs let alone have easy access to unleased parks for dogs.

      If you check out the average income in Springfield in Wikipeadia, you get an idea of why prices are so low there. I afraid to say what is says because it’s hard to believe.

    • Paulo
      Jan 20, 2020 at 9:55 am

      Might as well get a new fifth wheel.

      What ever happened to people buying homes, living in homes, raising family in homes, feeling linked to their homes and communities.

      I find this new trend quite sad, actually. I certainly don’t understand it.

      I agree with Petunia about mobility, in one sense. If you get stuck with debt and obligations, you are living a modern version of sharecropping. However, camping out in apartments is not my idea of living, I guess. I remember doing this at 17, right after high school. Then, life called.

      I suppose there isn’t much of a sweet spot for those starting out, in any major metro area. Time to revise plans, imho.

      • tom
        Jan 20, 2020 at 11:21 am

        Have alot of clients that are retired, or nearing retirement, and will no longer have the income to pay the property tax bill.

        So they flee that state, and relocate across state lines.
        Keeps my business booming.

      • Just Some Random Guy
        Jan 20, 2020 at 12:22 pm

        Agreed Paulo. Every time I read something about how wonderful renting an apartment is, the focus is on 20-something single people. Yeah most 20-somethings rent an apartment and have done so since forever. But 25 year olds singles turn into 35 year old parents. That side of the equation is always left out.

        • Lols
          Jan 20, 2020 at 1:19 pm

          Boom. I never thought I’d own a place until I was 1.5 months shy of 30 and bought a home.

    • A
      Jan 20, 2020 at 12:08 pm

      We reached peak Silicoln Valley in 2017. There’s a big pivot to diversify in NYC with FB/GOOG/AMZN expanding by buying/renting entire skyscrapers.

      For literally hundreds of years NYC has been one of the most desirable cities in the world for 20-somethings. And the lifeblood of those corporations is being able to get smart young people to come to the corporation and give all their best most innovative ideas away to the company. And where better to attract those you g folks than to the city that never sleeps?

      • Petunia
        Jan 20, 2020 at 4:17 pm

        NYC was always a big tech city. It has consulting, finance, medical, transportation and the highest population concentration. All big draws for tech companies along with 24/7 everything.

        The big draw of SV was the lifestyle and that’s now dead.

        • Greg Hamilton
          Jan 20, 2020 at 8:00 pm

          Also now that WeWork has imploded, aren’t corporate rents becoming NYC more desirable?

  11. timbers
    Jan 20, 2020 at 8:48 am

    Hi Wolf. Nice report as usual.

    I’ve been saying and taking shit for it, that the doom and gloomers aren’t going to see a real estate crash until the stock market crashes.

    Thanks for noting it is more specifically the NASDAQ. I didn’t know that.

    Anything is possible, but that seems the most likely to happen. Price variations from demographics or technically statistical recessions? Sure.

    But the Fed has outlawed recession, inflation, stock market crashes, and price discovery so my already flawed crystal ball is even more clouded on that subject.

    Having followed this for I guess a bit more than 2 years, I’d like to add, I just don’t see how the Fed won’t jump in to stop a stock market crash. It would be completely atypical IMO.

    I’d almost say point blank a market crash will never, ever happen because the Fed won’t allow it – but never say never, as they say.

    • Petunia
      Jan 20, 2020 at 9:35 am

      With all the stock buybacks the number of total outstanding shares keeps dropping, making it easier for the fed to buy the entire market. I heard an index that used to be a 5000 stock index is now a 4000 index. Lots of businesses disappearing.

      • Paulo
        Jan 20, 2020 at 10:00 am

        Stealth nationalization under the guise of keeping modern capitalism on life support. What will people rail on about when China policies are indistinguishable from western policies, except for the rhetoric, of course? :-)

        No worries, next week is Infrastructure Week.

        • A
          Jan 20, 2020 at 12:14 pm

          Ever since 2001 the US economic system has been socialism for the rich and exploitation for everyone else.

          Corporate media brainwashes voters into rejecting socialism for themselves while the billionaires who own the corporations get socialized 0% loans, socialized bailouts, socialized selling their bad purchases above-market-price to the government, socialized tax cuts, and now socialized REPO loans.

          For 20 years the US economic system has been socialism for billionaires and exploitation for everyone else.

        • Bobber
          Jan 20, 2020 at 12:14 pm

          It’s interesting how the wealthy cohort does very well under either regimes. They have their moats.

      • Cas127
        Jan 20, 2020 at 5:22 pm

        Petunia,

        “Lots of businesses disappearing.”

        Yep…I remember “whole market” indexes holding 7200 public companies circa 2000 – now it is about 4000.

        Ditto banks – 15000 in 1990 – about 6000 today.

        To me, that tells more the truth of US economic health than DC cooked GDP figures…

        • DINK Boomer
          Jan 21, 2020 at 10:00 pm

          Too much trouble going public with quarterly filings, press releases as there is a lot if private equity $$$ available less public companies. Larger caps are becoming more dominate buying up other companies. End stage capitalism.
          The latest trend is the digital nomad, generating income while traveling seeing the world and blogging about it. There was a convention about it starting your business.

    • Frederick
      Jan 20, 2020 at 12:00 pm

      So if what you are claiming is true what happened in 1929, 1987, 2008 They “ let” the market crash in pretty spectacular style then didn’t they Or was it planned? Either way lots of folks got reamed royally

      • timbers
        Jan 20, 2020 at 1:41 pm

        “So if what you are claiming is true what happened in 1929, 1987, 2008 They “ let” the market crash…”

        That’s not what I mean.

        I am referring to NOW, relatively speaking, or from 2008 onward, in general.

        QE, as far as I know, didn’t exist in 1929, 1987, and 2008 it the first time they started using it.

        The Fed is learning, evolving. It learned QE in 2008 or there abouts.

        Like Skynet, it changes.

        The Fed outlawing officially technically statistical recessions, significant stock market declines/crashes, inflation, price discovery thru rate suppression and QE, seems recent, unless I’m mistaken.

        • Cas127
          Jan 20, 2020 at 5:26 pm

          QE is as old as money printing – DC hasn’t invented the flush toilet, just grown desperate enough to treat the saving class like sh*t.

          With the same ultimate consequences that struck every fraud-based gvt in human history.

        • timbers
          Jan 20, 2020 at 6:19 pm

          Cas127….that may be true. But I’m thinking there IS a difference in QE vs printing money which makes unique, which is that QE is more efficiently targeted towards the rich & asset holders. Thus it’s inflation is sterilized except for assets

        • Greg Hamilton
          Jan 20, 2020 at 8:03 pm

          I think the PPP (plunge protection team) was originally created under Reagan, which is ironic since he was allegedly for free markets.

    • Lisa_Hooker
      Jan 20, 2020 at 1:23 pm

      Any truth to the rumor that the FED is pushing the SEC for a rule that prevents anyone from ever selling an asset at a loss? I guess it would simplify things. Call it a “circuit blocker” not breaker. “To the moon, Alice.” Invest in timber farms, we should soon have trees that grow to the sky.

      • nhz
        Jan 20, 2020 at 2:04 pm

        Or you could buy Dutch RE, because it comes with a cheaper-than-free put option from the Dutch government (“NHG”), at least as long as the purchase price is below about 300K euro. There are tricks like piggy-back mortgages (not fully legal, but who cares) to use the same NHG guarantee for far more expensive homes too. This system guarantees that you can never lose money when you have to sell your Dutch home. Heads I win, tails you loose – at least for people with full faith in the government.

        I guess foreign buyers are not covered but maybe they are already working on that ;(

    • Phoenix_Ikki
      Jan 20, 2020 at 4:27 pm

      You know what….as much as I am doom and gloomer myself, what you are saying is kind of what I am thinking will happen too. Really a sad time to be in if you’re not the .1% of the world.

      • Lisa_Hooker
        Jan 21, 2020 at 12:08 pm

        I am in a 0.1% of the world. I am absolutely certain that it is not the 0.1% with the money.

    • Willy Winky
      Jan 20, 2020 at 6:00 pm

      Prediction – when the global economy collapses as the central banks stimulus pushes on a string, the US stock markets will hit record highs.

      Print this comment as paste it on your wall. When you are starving and the neighbour is threatening to shoot you if you don’t hand over your final can of beans, read that comment again, for a little light amusement in a grim situation.

  12. VintageVNvet
    Jan 20, 2020 at 10:15 am

    Thanks for the update Wolf. I worked in SF Bay Area many years, found that the best combination WAS living in the Santa Cruz area for better access to sand and surf and other recreational opportunities, especially ‘back in the day’ when dogs could run on the beach most of the time…
    That said, the commute could be a nightmare sometimes, very pleasant other times to go over on 92, then down 1, with stops on the way home to hit the waves when good…
    This was a couple of decades ago, but going that way last summer was still a lot of fun and some open space, even on July 4th. (Early morning.)

  13. Jonas Grimm
    Jan 20, 2020 at 11:37 am

    The hogs are getting fat. Pretty soon we’ll have to get the stuffing and a firepit…

  14. sybrib
    Jan 20, 2020 at 11:58 am

    On a week-day daily basis I see the Armada of G-Buses heading out from Ground Zero for their long commute to Hipster neigborhoods in SF. Laptops on board that can work as effectively on the G-bus as at a desktop anywhere. Like Sacramento or Reno or Bangalore.

    Less frequently, I am in communication with my niece in Davao, Mindanao. She and thousands like her with their Computer Science degrees work exclusively with US clients, mostly from California, for about $250 per month. She walks a short distance from home then takes a jeepney through town to the jobsite, when she’s not “working from home” on the laptop. She has described her work with me, it doesn’t sound different from the work of those I know including close family, who are paid about the same as her monthly pay per hour. Besides being completely fluent in English, she is fluent in and works in the popular programming languages.

    And then there’s this: at today’s prices, if given a house for FREE in this region, we cannot afford it as the tax bill is just too high. This is a reason so many of my relatives left Long Island over the years: Property Tax Refugees.

    Party On, Hipsters.

  15. Jan 20, 2020 at 12:07 pm

    HB 2 didn’t really get going until 2011, Op Twist, and current Fed is starting to go long, mixing in more MBS, and rumors to the effect they will target mid range bonds. This Fed does everything, POMO TOMO REPO RRPO, today the balance sheet is T Bills, next is MBS, again. They are a monetary conglomerate. Between HB1 and 2 there was a little dip, someone already bought it! FOMO…

  16. wkevinw
    Jan 20, 2020 at 12:08 pm

    SF is a lot like NYC in that area is limited by the water surrounding it (and hills, etc.). Malthusian resource limitations work in small areas (run out of land or water because of population pressure).

    The Chinese buyers are not as sensitive to markets tanking. They figure worst case is that they got their family/kids to the US. They figure they’ll do what they have to do from there to survive.

    • A
      Jan 20, 2020 at 12:17 pm

      Chinese can’t own land in China, they can only rent it from the government on a 90 year lease.

      The Chinese have way more rights in the USA than they do in China. And with all the tax loopholes for billionaires, a Chinese billionaire has way more rights and privileges to buy land in the USA than an American citizen middle class family does.

      It’s an easy decision for foreigners to just buy up land in the USA and own it – renting it back to US citizens who get the lay the foreigner for the privilege of getting to live in their own country.

    • Jan 20, 2020 at 12:32 pm

      wkevinw,

      There is actually a lot of land in SF that is scheduled for redevelopment, including the area at Hunter’s Point, the former Naval Shipyards, and former Candlestick Park. This is a huge area full of old warehouses, old docks, a torn-down stadium and parking lots around it, and nuclear contaminated soil (from the Navy). The cleanup has been bogged down in corruption. Then there is Treasure Island, which also has had nuclear contamination remediation issues that I think are now sort-of resolved. There are tens of thousands of housing units being planned for those areas.

      • Lisa_Hooker
        Jan 20, 2020 at 1:34 pm

        That’s just great. Perhaps we will get a few more Daily City style developments, or the modern equivalent. (I’m not talking about Broadmoor.) How picturesque.

      • Jan 20, 2020 at 1:48 pm

        TI is actually two entities, Goat Island which is the original piece and TI which is the fill. Just read more about the radiation issue ( i spent a year there 68/69) . There is no resolution I see other than gifting it for low income housing development. Hunters Point shipyard is probably as bad. The neighborhood was featured in the movie ‘Dirty Harry’.

      • nhz
        Jan 20, 2020 at 2:08 pm

        And just look what cities like HongKong are doing, or what the Netherlands did in the past. There are always options to work around land limitations, especially when there is plenty of money around and some political will (in Netherlands they nowadays prefer NOT to make any more land …).

      • GirlInOC
        Jan 20, 2020 at 4:02 pm

        I dont know if you’ve been following the story of the women in Oakland that took over an investor-owned vacant house. On the surface, for non-progressive circles, it is an obvious black/white case of illegal squatting. But I truly think the issues surrounding this make for a compelling case for these women and children. Does it make sense for houses to sit empty for years (that were swooped up at discounts because it was “poor people” housing, and with cash outbidding any first-time homebuyer) while so many people are on the streets? I’ve heard that there are enough vacant houses in Oakland to house the majority of their homeless population.

        It may not be a popular opinion at this point in history, but the housing-as-a-right movement is gaining traction.

        https://www.motherjones.com/politics/2019/12/bay-area-moms-homeless-squatters/
        (They actually just released news today that the investment company that owns the house is now willing to work with the women in selling them the house)

        • Petunia
          Jan 20, 2020 at 4:28 pm

          I said it here, a couple of years ago, rent control is coming to America in a big way. It may well start in CA, as most things do.

          Canada, in Vancouver, has implemented a few versions of rent control with a tax on foreign buyers and high taxes on empty properties. Watch for this coming to a town near you, with our elderly population being outsourced to s*hole countries and most of the homeless with full time jobs.

        • Jan 20, 2020 at 5:37 pm

          GirlInOC,

          The newer condo towers in SF have lots of vacant condos that investors bought with no intention of living there, they’re hoping for capital gains and for a way out of their own country if they get in trouble there. Once housing is turned into a global asset class, all kinds of distortions are taking place.

          Housing is not stocks or bonds. People actually have to live somewhere, but they don’t have to live in stocks or bonds. That’s a huge difference. But in our financialized economy, housing is treated like other asset classes. That’s the root-cause for many housing issues.

          There are many steps that can be taken: De-financialize housing, raise interest rates to increase the carrying costs of vacant homes, don’t allow non-US-residents to buy housing, institute a vacant home tax, seriously crack down on money laundering in real estate, etc. …

        • nhz
          Jan 21, 2020 at 11:15 am

          Same story in the Netherlands: in the historic center of my city at least 10% of homes have been empty for years. We are not talking about “pour people housing” but big and expensive properties that are often owned by obscure corporations. Why bother with renting out when the valuation has increased by (!) 8-10% per year on average in the last 30 years? Smaller homes in bad condition are quickly bought up by small speculators and rented out or “updated” and sold for huge profits. The few luxury highrise buildings in a nearby town that were build around the time of the Financial Crisis have been mostly empty ever since, but recently some speculators have started to unload their apartments – most of them have never been lived in. Newly build town houses at the edge of town are gobbled up by investors despite record high prices (up nearly 100% in a few years) and offered for rent at outrageous cost, or also left empty. The rents are so high (over 50% of median income) that people only rent there if they really have no alternative. Many people who are entitled to social housing (often former migrants) rent out their home for 2-4x the cost to others and retire early to a cheaper country; government doesn’t want to know about this kind of widespread fraud because these are all potential voters.

          At the same time the country has 40.000 people living on the street (many of them people with a job) and about 1 million (over 5% of population) completely stuck in the housing market, forced to live with family or in other desperate conditions. And the government only pours fuel on the fire because they like what they see: record profits for RE speculators and record land prices which is what the Dutch local governments have as primary income source. At the same time local RE taxes are next to nothing and profits from RE speculation are totally tax free. It’s paradise for those in a position to profit and hell for many others.

          And hell will materialize for many more once this bubble finally pops, because it will take the whole Dutch economy with it. In the seventies/eighties we had fierce squatting riots in Netherlands, nowadays the housing situation is getting even worse but there are very strong anti-squatting laws and none of the bigger political parties is interested in addressing the problem; they know where the money is :(

      • Cas127
        Jan 20, 2020 at 5:33 pm

        Wolf,

        If only there some sort of “computer” “technology” that allowed people to work “remotely”…imagine if there really was very little reason to cram into a tiny handful of 30×30 mi metros…we could call this “technology” the…interwebs, a large series of tubes…

      • wkevinw
        Jan 20, 2020 at 5:59 pm

        Wolf- Typical CA.

        I had relatives living on Treasure Island (USN) and friends near Candlestick Pt. Quite familiar with the area.

        My hometown redeveloped with higher density housing.

        Almost everybody I grew up with (that I knew), is gone from CA.

        I am a “westerner”- we like rural areas/maybe some suburbs.

        A long time ago we used to say the once friendly CA cities were being New Yorkified.

        I think they have fully accomplished that mission.

        • Cas127
          Jan 20, 2020 at 9:51 pm

          “being New Yorkified…fully accomplished”

          The human poop on the streets is the real giveaway.

          You only get that in the cultural capitals.

      • Jeff Kline
        Jan 20, 2020 at 11:06 pm

        Long time reader, rarely comment, but I have lived on TI for 20 years, so I’ll add my two cents on that subject. The Navy Cleanup on TI is now twenty five years old, and they Navy thinks it is nearly complete, except the same radiation contractors who botched 95% of samples in HP (according to EPA)– some of whose employees are now in prison– also worked on TI, so yes, the radiation issue is only “sort-of resolved”. Related to comments about (mainland) Chinese buyers, the TI Project had to (ab)use the EB-5 Visa program to fund the initial Sub-phase, with former SF Mayor Willie Brown going to China to find naive (non-English speaking?) investors, at $500K plus $50K processing fee, a ‘pop’, to get on a 5-7 year waiting list for the visa, and own a small piece of this high risk $6B project, with 6,000 units of luxury housing. Lennar, biggest home builder in US, is the lead developer, and wanted to unload five, later six, problematic projects in the Bay Area involving redevelopment of former military bases, in an IPO called Five Points, that includes HP Naval Shipyard in SF, Concord Naval Weapons Station in Contra Costa, TI, and three more. The IPO was planned for 2019, but they thought better of it (maybe after Uber and Lyft?). Five Points SEC prospectus is over 500 pages of fine print, so caveat emptor! But Chinese appetite for such high risk deals may be waning, since the developers have turned to S. Korea for latest round of EB-5 funding. https://markets.businessinsider.com/news/stocks/new-world-regional-center-closes-successful-eb-5-san-francisco-treasure-island-phase-1-project-1028500766

    • Happy1
      Jan 20, 2020 at 2:06 pm

      San Francisco proper also has zoning that drastically limits high rise development for much of the city. This is a much more significant factor there than the intrinsic geographic limits. If the land there was developed like Manhattan, you could easily fit another million people. Of course it would be a very different place if that ever happened.

  17. PoorCoder
    Jan 20, 2020 at 12:08 pm

    In Fremont, the market definitely has picked up again. Back to 2017 mania after a 6 month lull in 2019 that ended in December.

    I know because I have been trying to buy and the good properties get snapped at 50-100k over asking within a week.

    I see a few overseas Chinese but a lot of H1B Indians and the latter don’t appear to be particularly well off – I realize frugality well enough but driving a 5 year old Civic to buy a 1.3 M house looks weird.

    The other trend in Fremont is to buy a 4 bedroom house and sublease 1 unit to a bachelor – everyone is is slum dog landlord.

    I am just ready to flee to a heartland city and act like a overseas Chinese with bag of money

  18. Just Some Random Guy
    Jan 20, 2020 at 12:16 pm

    Seems like NYC and SFO are struggling somewhat. The rest of the country’s R/E is doing just fine.

    • Cas127
      Jan 20, 2020 at 5:44 pm

      NYC has definitely hit the thin air – the finance industry has no appetite to live through Bubble 2.0…only profit from it happening in CA. NY still has a big backlog of Bubble 1.0 foreclosures.

      The big banks are moving their people heavy back offices to Nashville, SLC, north Florida, Jersey City.

      And NYC without the finance industry (advertising having long suicided itself with a big assist from Google/FB) is more or less a rodent uprising away from mass economic emigration. (There being a finite supply of tech/VC doofi who think building startups at 3
      to 4 times the standard cost of US living is wise business judgment)

  19. KGC
    Jan 20, 2020 at 12:18 pm

    As overseas money inflates the cost of housing on the west coast I’m seeing Boomers pack up and head inland. Prices 400-500 miles from the coast are rising at almost the same rate as on the water as they have cash from their previous property sales and are now competing for housing in areas that never really had a building boom. Boise, for example, is keeping pace with Seattle and houses are hard to find. Most are going for 5-15% more than asking and in less than a week. Locals can’t afford to keep up, as wages were much lower, many deals are cash up front, and there’s a growing number of older age people moving in.

    A major problem I forsee with this is those areas don’t have an infrastructure that supports an aging population. Hospitals are not a quick build, and the workforce will require adjustments to the local salary structure and they too will need affordable housing.

    I see this playing out in some strange areas; Flagstaff, Meridian, MS, Savannah, GA, etc. It seems like the “second string” cities are going to get an older population if this pattern continues. I can also see a lot of expat action looking for lower housing, lower medical, and quiet corners to rest in. I may join them …

    • Happy1
      Jan 20, 2020 at 2:01 pm

      I’m a bay area refugee living in Colorado.

      If you look at census data, people from CA are moving to TX, AZ, OR, WA, and Colorado. They aren’t typically moving to the sticks, they are moving to large cities similar to their locations in CA. These other states have no problem absorbing the health care needs of retired boomers, but they do struggle to build enough roads to accommodate people moving in generally. The bay area is desirable enough that there will always be a premium paid to live there, but for people not employed in tech, it hasn’t made financial sense to live there since about 1995.

      • wkevinw
        Jan 20, 2020 at 6:04 pm

        Agree. We left in 1993.I got off that treadmill and have been much better off for it.

        Many of my friends have/had very little retirement savings. They have residential RE equity. When we were single, a lot of us had front yard landscaping, enough a bed, dining table (maybe) a couch, and a TV. That let us buy a house and wait long enough to save for everything else.

        If I look back at total quality of life over the past ~ 30 years, my friends and family (pretty large sample size) would indicate that most who left ended up with a better deal than those that stayed.

    • nhz
      Jan 20, 2020 at 2:21 pm

      Yes, this happens often with RE bubbles; Eric Janszen from iTulip website already wrote about this some 20 years ago.

      It is interesting how this happens on different geographical scales and different time scales. E.g. in my remote corner of the Netherlands over the last 10-20 years we had wealthy buyers who escaped from e.g. Amsterdam drive up RE prices over here. When they sold their Amsterdam canal house and purchased a similar home here (similar looking city center, but much smaller) they had maybe 1-2 million euro profit, and because local wages are much lower for almost everyone the locals simply cannot compete. Over the last few years wealthy foreign buyers have appeared who buy the same type of monumental homes but usually only as a vacation or rental property, causing another price surge. But I really doubt these wealthy buyers will stay put here, because services are at a relatively low level.

      At the same time you can see how the Dutch RE bubble spilled outside the country (20 years ago already) and pushed up prices just over the border in Germany and Belgium. Lately the reverse effect can also be seen because they “ran out of properties” in Belgium, in the more speculative areas near the coast. Now people in the extreme southwest corner of Netherlands are complaining about wealthy people from Belgium driving up prices, just like the Germans have been complaining for many years (and rightly so) about Dutch buyers who are causing mayhem in their RE market.

  20. Ron
    Jan 20, 2020 at 12:27 pm

    I checked the listings initially for San Mateo County which borders both SF and PA and listings did not look much different than the last couple of years with listings above 2M having significant time on market. Santa Clara County was similar including PA which had the most high end listing but time on the market was very long for all these pricy listing. What is different about todays market VS the hot markets in the recent and distance past is time on the market which now is many months or even years. Clearly the the high end price points throughout both San Mateo County and Santa Clara County has significantly slowed the housing turnover.
    I sold my Bay Area home last year and moved to Sacramento but have been an active real estate buyer in the Bay Area since 1976 owing 6 homes over time and my impression looking at the market listings today is that the overall market looks pretty cooled down from its past. How long prices can stay elevated beyond the most prestigious locations is anybody’s guess.

  21. Just Some Random Guy
    Jan 20, 2020 at 12:29 pm

    I got an email from a recruiter today about a job in San Jose. I get these a couple of times a week. I don’t even ask questions anymore, my standard reply is I don’t want to move to a place where a barely livable home costs $1M. And the reply back is always along the lines of “yeah I understand, I hear that a lot”.

    But they’ll find someone eventually who won’t mind living in squalor. They always seem to.

  22. Yak now
    Jan 20, 2020 at 12:58 pm

    Wolf’s “about me” page shows a picture overlooking the Golden Gate bridge. Its probably in a gated community.

    From that perspective, he cannot see the homelessness, the squalor, the human feces, the used needles, the despair of making “only” $150,000 and not being able to afford a house built on top of a well known earthquake fault line.

    The political extremism of silicon valley (even if residents of SF don’t see it, the rest of the country does). The arrogance of lighting the landscape around your air conditioned McMansions while complaining about electricity generation in other states that aren’t as “environmentally woke”.

    Some Chinese citizens want to launder money out of their centrally planned economy, but they don’t want to actually live in SF.

    And for all the higher education and allegedly advanced STEM skills, they can’t balance a checkbook. Its addition and subtraction for gosh sakes, elementary school stuff.

    • Happy1
      Jan 20, 2020 at 1:56 pm

      There are no gated communities in SF. Everyone who lives there sees the impacts of homelessness in almost every neighborhood.

    • Jan 20, 2020 at 2:02 pm

      Yak now,

      Hahahaha, concerning your first two paragraphs… the picture (me with beer mug, GG Bridge in the back) was taken from the rotten and falling-apart Van Ness Pier, which forms part of the breakwater (to slow down the often-ferocious tidal currents and to reduce the waves) around of the “cove” where I swim. It’s a public area at Aquatic Park, with totally gorgeous Bay views in all directions, and access is free, and people fish from it (Dungeness crab, striped bass, etc.). Walking out on this rotten pier that struts into the Bay is a must-do for tourists and locals alike because it’s so beautiful and free. But the homeless don’t go there because it’s too windy and too moist and too cold.

      • Zantetsu
        Jan 20, 2020 at 2:44 pm

        Wolf, why do you remove my comments and retain Yak’s misinformation?

        To be honest, I don’t mind you removing my comments, many are posted after getting triggered and they rarely contribute anything worthwhile, so remove away.

        But leaving Yak’s FUD? Why?

        • Jan 20, 2020 at 5:23 pm

          I didn’t delete any comment from you in this thread. So what are you talking about?

          In the other thread on CSX, comments got completely derailed over three totally unrelated topics, and got nastier and nastier, with commenters calling each other names and violating every commenting guideline I have. So I went through and deleted dozens of comments, from numerous commenters. If you were part of that group, I deleted yours too. I deleted almost all of the comments on those three topics, with a few samples left for posterity.

        • Zantetsu
          Jan 20, 2020 at 11:41 pm

          Wolf, I was talking about on the site in general, not necessarily this particular thread.

          Yesterday I posted a bunch of stuff that I thought was fairly innocuous but on going back to search for them (the only way to find follow-ups on this site unfortunately) they were gone. No biggie though, there are plenty of comments from more informed posters than me so if mine get deleted, like I said, I am OK with that.

          But don’t worry about it, any of it. It’s all good.

        • Jan 20, 2020 at 11:55 pm

          Zantetsu,

          OK, now you got me hooked. So I checked. I actually only deleted one (1) of your comments, on January 7, when you attacked a commenter personally. So that was almost two weeks ago.

          I see no comments of yours of “yesterday,” neither in the trash, nor in the spam folder, nor anywhere.

          The last four comments, posted on the 18th (US Time), are here:
          https://wolfstreet.com/2020/01/17/give-me-a-growing-environment-its-easier-to-run-the-railroad-csx-ceo-jim-foote/

          If you posted yesterday (Jan 19, US Time), those comments never made it for whatever reason.

        • Zantetsu
          Jan 21, 2020 at 2:20 am

          Not sure Wolf. I distinctly recall laying in bed on Saturday morning and making three or four posts in one of the stories, and they are all gone. I guess it wasn’t *yesterday*, it was two days ago. The long weekend got me confused on days.

          Anyway, no big whoop. My posts were not that interesting.

      • wkevinw
        Jan 20, 2020 at 6:23 pm

        Wolf’s post is typical of what the average local does/used to do: find some nice things to do that are reasonably priced (sometimes free!).

        There used to be so much that it was convenient, etc.

        We used to go to Jack London Square to get SF quality dining for a very reasonable price. Now it’s just another expensive place.

        https://alamedainfo.com/jack-london-square/#bwg32/954

    • MarkinSF
      Jan 20, 2020 at 10:05 pm

      You don’t need air conditioning in SF. In all my years here I’ve never known anyone living in the city that had air conditioning.

  23. Ennio Rantone
    Jan 20, 2020 at 2:04 pm

    How is your short position working out? Go find your face without eyes.

    • Jan 20, 2020 at 2:05 pm

      Markets are closed today :-]

      In total, my SPY short is down about 3%. Shrug.

      • FinePrintGuy
        Jan 20, 2020 at 5:45 pm

        Two words: “running costs”.

        New roof, kitchen, bath, fences…these are 5 figure expenditures in the Bay Area and have to be done more often than you think…The realtor doesn’t mention that when cooing in your ear about how wise you are to be buying.

        Oh and woe betide you if a foreign investor buys next door and lets the place rot. Nesting vermin and squatters are in your future!

      • Cas127
        Jan 20, 2020 at 5:58 pm

        Wolfe,

        Re Rantone – it is almost always the people most desperately uncertain of their own position who most feverishly track/trash the risks undertaken by others.

        The concept of longer term investment is ironically lost on the Bull Forever crowd here.

        My only fear is that markets can stay irrational longer than I can stay liquid…there is probably a post in the most cost-effective ways to go short.

        One interesting note – despite the explosion in the ETF universe – the shorting tools there are mostly very flawed from a long term perspective.

      • VintageVNvet
        Jan 20, 2020 at 6:06 pm

        Wolf, replying to your comment replying to Zantetsu above with no reply button:
        Really appreciate the general level of informed comments on this site, and I encourage you to delete any and all offensive comments, etc., at your choosing, including some of mine that probably were off topic.
        I get SO discouraged at the personal attacks on some sites that I delete them from my faves.

        Thank you

  24. Jim
    Jan 20, 2020 at 2:04 pm

    The reason foreign money flows into US is beyond mere drive for ROI. For many it’s diversification of assets, protection from seizure, bankruptcy, a way to reduce living costs while kids go to school in US, etc.

  25. michael
    Jan 20, 2020 at 2:30 pm

    Once housing price appreciation reaches a negative number we will see the end of the speculation on homes. There were people buying late into the Housing Bubble 1.

    I also see the in the south bay area from Sunnyvale to Fremont full of new apartment/condo construction and completions. This supply will ultimately weight heavily on rental prices.

    Add into the mix the headwinds of California implementation of rent controls and the initial step of overturning proposition 13 in November there is lots of downside potential.

    • sierra7
      Jan 20, 2020 at 7:53 pm

      Michael:
      Coming down the 680 corridor (North Fremont) it is amazing how much apartment construction has been going on. I’ve been told that it is because of the “new” Bart station not far away. Have three of my sons and a granddaughter that work in construction companies based in Fremont (sons at same firms for more than 30 years) that say they’ve never experienced the backlog of building that exists today in the area. (I “escaped” San Jose area 20 years ago and never regretted it) But, it is desirable/almost necessary for the young; they have to go where the jobs are. Sometimes it is brutal. Have another granddaughter that is now working for Tesla; at least $18 hour job; 12 hour days and even if rotating schedules they are fairly consistent. Previous jobs at Wal-Mart/Target/FedEx(sac) were terrible. Living remains the big problem…sharing houses; single bedrooms going for around $700 month. It is what it is and many young are really trying to build their lives around this kind of situation.

  26. Michael Engel
    Jan 20, 2020 at 2:59 pm

    1) Certain assets, like SF RE can go up or freeze, for
    for few months, while the stock market is turning south..
    2) After floating in the air, they collapse, injure badly,
    never recover, or limp back very late.
    3) Watch out for Boing earning report on Jan 31.
    4) The big banks asked for higher rates and the Fed
    gave them x4 rates increase in 11M.
    5) The market plunged, after one quarter the Fed start cutting rates, while market makers loaded tons of stocks at wholesale prices.
    6) The biggest killer whale of the DOW is Boing. On Mar 8/ 11
    market makers Boing inventory had an unexpected accident.
    7) Boing is still hanging on support, for 7M, floating in the air,
    thanks to strong tail winds from the bull market, gov military orders and friendly media.
    8) Market makers Boing asset got almost a year to cleared and the markdown might start before the end of the month.
    9) This is my personal opinion and I get it wrong many times.

    • nick kelly
      Jan 20, 2020 at 3:19 pm

      If Boeing can fix the Max the stock might go boing

  27. Michael Engel
    Jan 20, 2020 at 3:15 pm

    One interesting comment few days ago : a friend had a large realized capital gains, his SS will be cut by 700/ M.
    That capital gains came from buying at 40K, many decades ago,
    selling for 2.4M.
    If so, it might apply to the stock markets, farms and every other asset class.

    • Petunia
      Jan 20, 2020 at 4:40 pm

      Capital Gains are not considered income for SS income limit purposes. Your friend must have income from wages of some sort.

    • ft
      Jan 20, 2020 at 6:28 pm

      I sold my house in Sunnyvale CA in late 2017, and, after all the exemptions/adjustments, paid tax on approx 280K of capitol gains. Dec 2018 I got notice from SS that the monthly amount they take out of my SS for Medicare would increase by over $300/mo for 2019. For 2020 it reverts back. So, it’s a Medicare cost increase, not a SS benefit reduction that happens in this kind of case. Your starving bank acct can’t tell the difference.

      • Citizen AllenM
        Jan 20, 2020 at 6:44 pm

        $3600 more, after making a quarter Mill in profit. Har.

        Small beer.

        No matter, did you pay California the exit tax? A U-Haul rental and a cheap house in Las Vegas?

        • ft
          Jan 20, 2020 at 7:52 pm

          The quarter mil is just a number, not a real gain. Bay Area is home. The proceeds from my ratty 2br1ba overpriced Sunnyvale home bought a freshly remodeled 4br3ba home in a roughly equivalent but cheaper Union City (East Bay) neighborhood to house my growing three-generation household. I found a way to take my old property tax basis with me so, except for the capitol gains tax and the one year hit on my SS checks, it was a free move.

      • Iamafan
        Jan 20, 2020 at 7:09 pm

        Unfortunately home sales could generate an income that will affect medicare part b and d premiums per IRMAA. What one has to do is petiton SSA and appeal to try your luck.

        https://www.ssa.gov/forms/ssa-561.pdf

        I will be hit with a higher IRMAA premium next year so I’m getting ready for it by putting money asside. Medicare uses your income 2 years back for the calculation before it resets.

        • Iamafan
          Jan 20, 2020 at 7:40 pm

          By thq way IRMAA for 2020 can increase your Part B premium from 144.60 to 491.60 per month if you are rich enough.

          Beware.

    • Iamafan
      Jan 20, 2020 at 6:48 pm

      Unearned income is not countable income;
      But that money is countable Resource.
      This affects Supplemental Security Income or SSI.

      Do not confuse this with regular social security.

      https://www.ssa.gov/sf/FactSheets/aianssavsssifinalrev.pdf

      • CreditGB
        Jan 21, 2020 at 12:49 pm

        Welcome to the $491 club, great isn’t it?

  28. Phoenix_Ikki
    Jan 20, 2020 at 6:06 pm

    Well, I guess this new normal of lower or zero interest rate is really nothing new with 700 yrs of hindsight in mind…with that said, perhaps this new insanity is just part of the reality we all have to deal with…

    https://qz.com/1787281/what-700-years-of-interest-rates-reveal-about-the-global-economy/?utm_source=YPL&yptr=yahoo

  29. Citizen AllenM
    Jan 20, 2020 at 6:40 pm

    Real estate has been financialized to the max. Seriously, gearing is insane. The running costs will ensure the boom will bust. What happens when the Chinese are no longer allowed to leave China with their pirate capitalist booty? Hey, renting houses to pay property taxes is a suckerz game. Plus the level of debt inside China guaranteed informally by US property is immense, and not well understood.

    So, when the tide turns this time it will be special. Plus, higher interest rates will price people out of the market.

    But apres moi, let deluge…

    Speculation works until the world changes, then it fails.

  30. Old-school
    Jan 20, 2020 at 7:25 pm

    Just found a 700 sq ft 50 year old remodeled cottage 5 minutes from Holden Beach, NC in a beach shack neighborhood. Everything new, elect, paint, plumbing, roof, floors. Good charactor. No sheet rock. $95K. Taxes $290 per year. Might do it as a beach getaway spot. Property is cheap til you cross the bridge to the island.

  31. CreditGB
    Jan 21, 2020 at 12:56 pm

    I see all the commentary about Chinese touring potential high end real estate in SF area. I’ve also seen reports of Chinese snapping up the infamous Chinese abandoned cities/apartments, paid in full, sometimes 2nd, 3rd, or 4th, purchases with almost all being left unfinished.

    Got some questions about those Chinese touring US for real estate:
    Is SF or LA the only available real estate for Chinese to buy?
    Are there other areas seeing similar return of Chinese traffic?
    What drives them to the US to dump money into real estate?
    Has anyone considered Chinese culture as a factor driving real estate investment?
    Do we have an actual Chinese national commenter who might share some thoughts on this drive to US real estate?
    I’m just a curious guy.

  32. drdj
    Jan 21, 2020 at 1:28 pm

    I wish a few Chinese would come to southern Wisconsin. Recently a 7686 square foot house on a one acre lot sold for $514k. It was five years old, every amenity, finest appliances, four car garage. Granted people here don’t make the money they earn in California, but it isn’t that much less. the price differential must be driven by lure of coastal cities or foreign investor/homeowners.

    • tom
      Jan 21, 2020 at 1:54 pm

      Shhhhhh! The last thing we need is 6 figure badgers living out of there
      cars.

  33. Bill
    Jan 22, 2020 at 2:18 pm

    One thing not mentioned as a factor in the housing market is the 2017 tax law change contained a cap on SALT deductions-makes the net house price higher because you can deduct a lot smaller amount of property taxes instead of the full amount. The property tax rate is approx 1% so will be well over the 10k SALT deduction cap given the sales prices.

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