“For all of 2008, just six venture-backed companies made their public debut, the worst showing since 1977 when there were also just six VC-backed companies that went public. Preliminary figures show just 260 M&A transactions last year, the first year since 2003 that were less than 300 venture-backed acquisitions.
Venture capitalists unable to cash in on their investments spells big trouble for the entire venture community and the broader Bay Area economy. The venture business is an engine of growth in the Bay Area, which traditionally gets about a third of all venture dollars invested.”
∙ Venture-backed IPOs last year hit 30-year low [San Francisco Business Times]
∙ Sequoia’s Take On The New New (And Quite Local) Economy [SocketSite]
∙ From Underwater To Unemployed (And Sorry, But It’s Just Starting) [SocketSite]
What? You mean like the fortunes of the state of Michigan are tied to the auto industry? But the Bay Area is “different”!!!
bdb,
“But the Bay Area is “different”!!!”
well, it is different. houses in detroit can be had for $100.
sf will probably never sink to that level. our population is not as locked into the entitlement/welfare mindset.
of course looking at west oakland re does give pause…
It is not as if an IPO is the only way for VC’s to cash out- it may even be the least cost effective way. There was a great commentary in the wsj a few weeks ago:
“Washington Is Killing Silicon Valley”
http://online.wsj.com/article/SB122990472028925207.html
Microsoft and Google have already started trimming contingent staff (aka Contractors); expect that to continue for the next few months. Microsoft will start the FTE layoff ball rolling after contingent staff is cut to the bone; watch other tech companies follow.
“our population is not as locked into the entitlement/welfare mindset.”
Really? Have we tried to repeal rent control or Prop 13 lately? Has it been successful?
Is not the attitude that SF is “different”, a “world class city”, “everyone wants to live here” and because of all that “real estate can never go down.” not an entitled attitude?
The one thing that makes me want to move out of SF more then anything is the ridiculously provincial attitude that seems to permeate many of the residents here.
It is often asked on here why SF is compared to NYC, London, Chicago, Tokyo etc it is because the residents of SF breathlessly describe SF as “world class” putting SF in league with those other cities. So if you want to call SF world class it better live up to it. But, as it has been pointed out by many on here, SF does not live up to comparisons to those other world class cities making it much less “different” then some on here seem to think it is.
Way to clip what the guy said, insert “real estate can never go down” and follow it up with ye ole tried und true “SF isn’t a world class city” shpiel! Excellent use of socketsite buzzword terminology. I give it an 88 out of 100 on the troll-o-meter.
bdb,
“Is not the attitude that SF is “different”, a “world class city”, “everyone wants to live here” and because of all that “real estate can never go down.” not an entitled attitude?”
good point. of course real estate, like berkshire hathaway, is affected by the business cycle so i would never say that anything is immune from ever going down.
i agree that calling sf ‘world class’ is much hype but for me there are no good alternatives. london and paris are nice to visit but
have no coast to surf. sydney and capetown are cool but too far from the rest of the world. so cal has no urban possibilities and the surf is small and crowded.
sf offers a small town feel (7miles by 7miles), a beautiful urban environment with antique houses, a liberal population, good weather, proximity to wine country, ski country and surf country, good jobs,schools and hospitals, organic food and international flights to everywhere. i cannot think of anywhere else that comes close. indeed, everywhere is different but sf is different in more ways than anywhere else.
VC money is really more of a Peninsula/South Bay thing, and, as such, doesn’t matter for SF.
BDB has a point. You cannot really use the “entitlement/welfare” argument to compare SF with Detroit.
Detroit hasn’t found its place in the 21st century yet. SF is at the forefront of innovation. This doesn’t mean SF can withstand any storm but it’s in much better shape than most as it keeps attracting new talent.
Of course San Francisco does not belong to the same league as NY, London, Paris, Tokyo, not in size or wealth or cultural importance.
What is does have in common with the great cities of the world is people. Many of the very same people come from those cities or move to those cities. San Francisco has an urban style which appeals to that kind of person.
We have a number of friends in those four cities, and they all have the same reaction to SF: it is a very lovely and livable city, with a good quality of life. These people have visited or worked in other important US cities, but they see SF as better than Boston or Philadelphia or Chicago or LA or Miami.
So the frequent comparison comes not from seeing SF as equal to the great world cities, nor from San Franciscans imagining that their city is equal, but from a sense of shared urban appeal. Aside from good weather, not more than that. Not much, but more than enough for a lot of us to stay for a lifetime.
On the other hand, when possible, we go to those other places for weeks or months.
foolio,
maybe, but its another part of the perfect storm.
@paco:
I disagree. SF has *already* weathered the storm, while inferior cities like Miami, Phoenix, Bayview, and the Sunset have all gone underwater.
Great post Paco!! Makes me psyched to be here.
Now, if only prices would come down so I could stop renting…
you know, I had a long post about how I do love SF but why all the things paco said could be neutral to negative for many others, but then I realized it was just a stupid pointless post.
My point in mocking the “different” attitude is to deflate the idea that somehow SF is immune from economic and market forces,despite all the evidence that shows SF has been hit just as hard as other cities.
I am sure residents of Detroit, before the collapse of the auto industry, Philadelphia, before the collapse of steel, Tokyo, before the collapse of Japan, and NYC before the white flight and the crack epidemic of the 80’s all felt the same way.
So again, all those things that make SF “different” for paco were ALL true, and baked into housing prices, BEFORE the runnup in home prices.
Will SF be more expensive then other cities when this is all said and done, likely as it was before (unless tech picks up and moves away like autos did in MI) but does that mean SF prices won’t deflate to fundamental economically supported levels like every other city in the US? Nope, so in that way SF is NOT different or special. Gravity exists in SF just like every other cities and economic fundamentals support home prices in SF just like in every other city.
It would be an interesting thought experiment to consider how SF would transform if prices really could not/did not decline here, regardless of the changing socioeconomic context. Would the neighborhoods start to deteriorate as more families scratched their way into homes at the very fringes of affordability, with no way to renovate or improve them? How narrow would SF’s population demographics become? Would it transform itself officially into a museum for the 1960s/1970s a la Colonial Williamsburg for the 1790s?
The negatives of home depreciation are obvious enough: people trapped in their homes, continued foreclosures, bankruptcies, etc. But if the bulls get their wish and prices maintain at current levels, aren’t there some stark problems associated with price stability, also?
@Mark:
Not really. I think as long as there are people willing to rent all their lives to live in one of the world’s best cities, demographics shouldn’t change too much.
bdb,
you might be right. from an economic point of view you may be wiser to move to west oakland for the cheap rents.
the sf is different argument still holds up compared to las vegas or pheonix or miami. its still hard to build, still governed by rent control, still generates jobs, still is beautiful etc…
prices are down and will probably keep going down. but while many places have crashed real sf has not.
paco you are still talking lifestyle issues and those are fine but the topic of the post, and MY point is …
“But Hey, What’s The Bay Area Economy Have To Do With Real Estate?”
“its still hard to build, still governed by rent control, still generates jobs, still is beautiful etc…”
and AGAIN, that was ALL true and baked into home prices BEFORE the runnup in prices due to the real estate bubble.
Quote: “well, it is different. houses in detroit can be had for $100.
sf will probably never sink to that level. our population is not as locked into the entitlement/welfare mindset.”
But one must remember that Detroit had at least one generation, if not two of retired auto workers already living on pensions before the invention of the integrated circuit and the first fruit tree was chopped down in Silicon Valley.
If San Francisco remains an important place, the day will come when no one remembers the tech industry, just as New Yorkers no longer remember their city as the world center of the the Oyster Industry.
“and AGAIN, that was ALL true and baked into home prices BEFORE the runnup in prices due to the real estate bubble.”
Untrue. Google hadn’t had their IPO before the run-up in prices began. That alone explains why SF is different. And to all those doubters who think Google is done, don’t worry. There will be the next Google, and the next one after that, and so on. And they will all be based in the Innovation Mecca in SF, because SF is different.
Great posts today, Foolio.
Back to the thread topic …
So foolio without VC funding for the “next google” how is the next google going to happen?
If the VC funding dries up what will keep prices above traditionally economic supported levels?
Look, I am not saying SF is going to become cheap, I am saying that SF RE prices will return to their economically supported levels, LIKE EVERY OTHER CITY IN AMERICA.
Thanks. I’m home sick today. Maybe it’s the cough medicine. 😉
umm about 75% of google employees are holding stock options that are underwater, I don’t think they will be putting down 20% on 1 million dollar houses anytime soon.
As for the city comparisons IMO SF is not even close to any European city in terms of living conditions or culture. But then again it’s not as racist. IMO it certainly is not special enough to warrant such a price premium, I’d expect SF prices to be comparable to San Diego in a year or two.
I love how people will continue to live here (like they are physically chained to this City) while bitching about how much world classiness it lacks compared the “truly great cities”… [Yawn]
I have lived in SF, London, Chicago, Houston, and Austin. Every place has its own charms and its own drawbacks. Just because YOU don’t value what SF has to offer doesn’t mean that someone else doesn’t. I’m not going to engage in that pointless debate but the FACT is that a lot of people do want to live here despite your unmet expectations.
Renting a moving truck is pretty cheap these days. If you hate SF so much and its “unjustified” expense, there are multiple freeways that will lead you out of town to greener pastures. Stewing and posting on blogs won’t make your misery go away… But if you do leave it might make life for the rest of us better.
Heard from a friend visiting from Newport Beach recently while giving them a driven tour of the city…”If San Francisco is so wealthy, why does it looks so poor, dirty and shabby?”
Agree with BDB, SF will never be cheap, but PACO, I can get surf, organic food, antique craftman homes, and liberal politics at my vacation home in Laguna Beach. SF is not the only option out there. Oh, and for the price of an upper floor 1bd in 1RinconHill, I can get a 3bd cottage overlooking Victoria Beach (where Skim Board was invented) in South Laguna.
The latest Fed forecast indicates further GDP declines in 2009 and unemployment rising “significantly” into 2010. Probably nothing newsworthy there. Think SF will be able to escape this trend?
Some December SF sales figures are now popping up (can’t vouch for any as I don’t have MLS access). They indicate 125 SFR sales with a $710k median. How far back do you have to go to see either number so low (for December on sales or any month on median)? Condo volume at 91 and TICs at 29. SF Schtuff shows that sales volume is about 1/3 the 2003 level, and inventory is starting to climb again with the holidays over. Only one direction for prices to go unless the law of supply and demand has been repealed. Lots of supply and very little demand.
wow “dave”,
that sounds like the fox news approach…”why do you hate america?”
bdb has a valid point.
Oh well. SF already had more than its fair share of robots and pirates. Recent developments will surely add to the formerly low populations of zombies and ninjas. Then we will be the butt kicking coolest city on earth.
/pulls over hybrid car and rolls up the windows in anticipation of an impending fart
What? Foisting a speculative investment on an unsuspecting public is no longer viable in today’s market… who would have thought? Which came first, the housing bubble or the VC/investment banking bubble?
Hold on… VC doesn’t impact SF? That’s baloney. IPO transactions are huge money makers for investment banks and little/no tech IPO’s does indeed impact the many investment banks with tech practices based in SF. Bankers that used to earn $500k+ that are now unemployed or will see their bonuses dwindle to almost nothing will not be buying overpriced condo properties. I agree that most of the impact will be felt near Sand Hill Road, but I think SF will be hit on the margin.
Just assume sarcasm if you see Foolio’s name. It’s only one note, but he can hit it. Because I have to admit the cities of Bayview and the Sunset quip was a good one.
This whole thread is a joke.
If you guys seriously think that innovation in general is over, and that new ideas and new companies — broadly speaking — will no longer be tenable.. then that’s just a joke.
IPO’s ARE PLANNED EVENTS THAT CAN BE POSTPONED UNTIL MARKET CONDITIONS IMPROVE!
Maybe they will improve in 2009… or, at worst, 2010. But that doesn’t mean that innovation and new ideas, as we know them, are done forever.
What a joke.
Isn’t this a website for people who look beyond the 1-2 year timeframe!?
San Francisco has always been pretty expensive, even back in the 1840’s. That too has been baked into the equation, and VC did not exist then either. It will probably continue to be more expensive that other cities regardless of what new sources of revenue come and go and become part of the equation. It will have cycles like everything else but based on the differences mentioned above and quality of life issues, it clearly has much more to offer than most other American cities and hence the higher prices relative to the rest of the country. Why is there such a big argument about this other than splitting hairs?
This whole thing was a credit bubble. It was just as easy for VCs to raise money on a wing and a prayer as it was for people to buy homes using no collateral than their own pulse. Once the companies were funded, it was just as easy for companies to sell stock and buy startups, and for other people to buy stock in other startups when they went public.
Those days are over. For everyone. The system relied on investors being able to assume that the person buying from THEM would have easy access to credit. Investors can no longer assume that will be the case.
Therefore, everything will revert back to fundamental values and cash will have real value again.
The government can hand out cheap and easy credit, but everyone knows there is a finite amount of time that can continue. Because today’s buyers cannot rely on tomorrow’s buyers having access to that cheap credit, the only thing it makes sense to use cheap credit for these days is for consumption, not investment.
That’s not to say that there aren’t lots of opportunities for smart, rational investments based on fundamentals. But VCs or banks just handing money out like candy because next year there will be even more money available to buy whatever they are buying today no longer works.
Everything is back to fundamentals. Housing, business, you name it.
So many people still don’t get it.
First, nobody is saying innovation will cease. They’re saying that innovation as a source of windfall wealth has disappeared for the time being. You can invent a pea-sized cell phone that automatically plays Warcraft while you sleep, and has great reception on Mars. Stellar innovation. Is anyone going to pay for superfluous entertainment during a recession? As I said on the other thread, Google isn’t going out of business. But they’re also not likely to pay $1.65 billion for the next start-up they find interesting. Big difference. Automotive innovation continues at many car makers, but car sales are still off 30%+ for most of them. So profits fall and people lose their jobs while innovation continues. These concepts are not mutually exclusive.
Yes, San Francisco has always been expensive, but it was never as expensive as during the recent bubble. If every other city on the planet is becoming significantly cheaper, doesn’t it stand to reason that San Francisco will as well? Home prices here can fall 20% across the board, and we’ll still be more expensive than other cities. So the “it’s always been expensive here” point is moot.
uh.. I don’t think anybody rational believes SF housing prices will completely collapse – or decline more on a % basis than other markets for that matter.
The notion many on here are trying to dispel is that the Bay Area is somehow “different” and is therefore immune to a steep decline in housing values. The worst is yet to come, in my view, and a struggling IPO market is just a drop in the bucket. Just wait a few weeks when local hardware and software firms begin reporting Q4 #’s and providing 2009 guidance. Layoffs and investor dissapointment will be abound!
And to the poster that mentioned splitting hairs, I think a 30%+ decline in asset value on an “investment” that was leaveraged 5:1 is not splitting hairs to most people. Luckily margin calls do not exist in the home lending market…
I have lived in NY, Atlanta(ughh), Nashville and LA.
SF is definitely the place for me:
1. proximity to outdoor and sporting activites: Biking. running. skiing. surfing
2. i can walk everywhere
3. it is the world hub for my industry
4. views, hills, parks
Those things are important for me
However, it is not world class in several ways:
1. culturally does not lvie up to aforementioned cities
2. crime is more of a problem here than aforementioned cities
3. homelessness, alcoholism and drug abuse is higher here than aforementioned cities
Due to 2 and 3 espcially, i think many parts of the city are way overprices.
@anon:
“The worst is yet to come”
“Just wait a few weeks”
“Layoffs and investor dissapointment [sic] will be [sic] abound!”
Another day on SS. Bears making their gloomy predictions. What the bears don’t realize is that SF *is* different. Well, at least true SF, which is at least a good 15-20 sq mi of the 49 sq mi area.
It has been proven so. Other cities and other asset classes continue to get hammered daily, and yet SF stands. How much more proof do you need?
crime is worse in sf than LA? SF is culturally inferior to Atlanta and Nashville?
Foolio,
Go ahead and cling to your so called “true SF” market prediction. Madoff investors also bought into the promise of a riskless investment – turned out they were very wrong.
My guess is your 15-20sq mi enclave will shrink into a one block or one street enclave in about a year or so. Maybe you’ll find one comp that isn’t down 30% to prove your point.
Good luck!
“Heard from a friend visiting from Newport Beach recently while giving them a driven tour of the city…”If San Francisco is so wealthy, why does it looks so poor, dirty and shabby?”
We get this same comment from our friends who visit from all over, from great and small cities. There is a systemic problem, reflecting what the Chronicle now calls the “ultra-liberals” but it will be a long time before this is solved, regardless of the price of housing in SF.
“Foolio,
Go ahead and cling to your so called “true SF” market prediction. Madoff investors also bought into the promise of a riskless investment – turned out they were very wrong.
My guess is your 15-20sq mi enclave will shrink into a one block or one street enclave in about a year or so. Maybe you’ll find one comp that isn’t down 30% to prove your point.
Good luck!”
Sarcasm nakedly reveals what an impediment to communication it can truly be?
OR
Snother sarcasm bastion jumps the shark?
@ anon 2:30 PM
Save yourself some time and from carpal tunnel responding to Foolio, he/she is being sarcastic ( and I’m loving it). Either that or he/she’s being held hostage by a radical splinter group of the SFAR and we need to call the police. 😉
Perhaps a more effective means of communication involves correcting other’s [sic] admittadly poor [sic] gramar.
😉
I recently purchased a condo in SOMA and based on the price I paid ($750/sqft for 10th floor view of FiDi), I’m sure this is the bottom for SF real estate.
Given the recent declines, why not buy low and sell high in a few years?
“crime is worse in sf than LA? SF is culturally inferior to Atlanta and Nashville?”
#1 YES. Per capita crime is significantly higher in SF than LA.
#2 partially yes. SF is definitely culturally inferior to Atlanta. More museums, nightlife, arts and entertainment in Atlanta than SF.
However, when i said aforementioned cities, i actually meant those mentioned earleir in the thread..e.g. Paris, Tokyo, London, NYC, LA.
However, rereading it does sound like i was referring to Nashville, atl, NYC, LA.
But mostly it is true for these as well. Culturally Nashville is not superior to SF, but the others are
Homeless problem, drug addiciton and alcoholism. SF is the worst
Crime. SF is worse than all those cities,except ATL
The point of my message was that I love SF for reasons that are special to me. I also am constantly bothered by other systemic issues
It’s true. I did correct the grammar in a post in which someone called me an “idiot” and suggested I had a CC education. Only because I thought doing so ironic and funny. Not because I care about “then” versus “than” on a blog from a stranger. I actually am a trained editor, tho, both for copy and content. Did it for years, print and online both.
Bottomed Out if you don’t mind my asking (and congrats on the price and purchase by the way)was the $750 psf for a new building or existing?
Guys, please do not suggest that SF is culturally inferior to Paris, Tokyo, New York, or London on anything but a PER CAPITA basis.
Yes, those cities are anywhere from 10 – 20x our size, so of course they offer more restaurants, museums, etc.
Pound-for-pound, no city in the world holds a feather to us. We are the Sugar Ray Robinson of cities 🙂
However, if you guys can name a sub-1 million city on this planet that offers half the cultural value of San Francisco, I’d like to hear it…
Let’s not forget that:
*SF metro has the second best culinary offerings in America, as recognized by Michelin, an unbiased foreign source.
*SF has a top three opera in America (along with NY, Chicago), and a world class symphony.
*SF metro has 2 of the finest universities in the world. (http://www.guardian.co.uk/education/table/2008/aug/22/internationaleducationnews.highereducation1)
*SF has been the epicenter of some of the most important cultural movements of the century.
*SF was the home to some of the most important writers/poets of the century (Steinbeck, London, Kerouac, Ginsburg, birthplace of Robert Frost)
*SF has one of the maybe ten most internationally recognized landmarks, and several UNESCO sites for a city this small.
*SF has leadership in a major high-skill field (Technology, Biotech) — which inherently draws a very diverse population.
Can we please get off this “SF is good but not great” discussion that has dominated SS for weeks. Get over it. Get off this site if you think SF is 2nd-tier.
These comments on SF’s lack of culture are very suprising to me. I do agree with the general close mindedness of the SF populace and fully recognize the city’s shortfalls but SF has been and continues to be home to many cultural movements (Beats, Hippies, 70s counter culture, street culture, music, etc). Having lived my whole life in what would describe as major US cities (SF, NYC, BOS) my suggestion/comment is if you think SF is lacking in culture you should rethink how you are defining culture and maybe recognize that you are not really that into living in an urban environment (which is totally ok). In my opinion, SF has the second best culture in the US only to NYC which has a far deeper and broader art/creative community. You can say what you want about museums (vs. CHI) but have any of you on this post ever stepped out to a local gallery? Culture is not just defined as something you can buy a ticket to. Just my two cents after reading all of these posts on how SF is lacking in culture.
I just don’t understand why people get worked up about such subjective, meaningless things. Prove to me that my kid isn’t cuter than your kid. Just try and prove it, I dare ya!
The focus of this blog is San Francisco real estate. The topic of this thread is how a pullback in VC funding will negatively affect the local economy and drag home prices down further.
I love living in San Francisco, and don’t want to live anywhere else. I agree with all the great things you guys have said about San Francisco. I enjoy them myself, as does anyone else who lives here. And guess what? You can enjoy all of these fabulous things by RENTING. You don’t need to own to be able to go to wine country, eat at good restaurants, or surf.
That said, home prices in the city and most surrounding areas are still inflated beyond fundamentals. I expect them to continue falling, regardless of the amount of opera houses in Paris. A slowdown in tech will contribute to that fall, regardless of the amount of alcoholics in Nashville.
Can we please have another 100-comment thread comparing Chicago to SF again, peppered with comments about Berkeley’s world class-ness (or lack thereof). And then another, and then another, and then another. I would like to read the same comments over and over again.
Anyway, San Francisco looks shabby on the outside, and there is a large mental disconnect from what I expect an interior to look like based on the building’s exterior and what it normally turns out to be in SF. I don’t have that problem in other parts of the country, and I’m not sure what causes the discrepancy here.
I also think San Francisco is particularly appealing to a minority demographic– upon which the ‘arugula eater’ stereotype is based. We (myself being one of them) tend to dominate city culture and politics. Unfortunately, we also tend to be obnoxious about our opinions, which means if you aren’t buying them, it’s extremely irritating, much the same way I find a rabid, in your face Christian obnoxious.
However, as long as that minority demographic is willing to pay a huge premium for housing, prices are unlikely to implode. SF is special in the sense that there are few cities in the country appealing to that demographic, and I believe there are more of them/us than places to live here. That is, the argument that ‘at some point, if prices get cheap elsewhere, people will move’ doesn’t hold as much water in SF, because the price differences have to be more extreme than otherwise.
Amen to the 100 comment thread dig above! Perhaps it’s a sign of the slow RE market, but there have been far too many of these lately. I’m ready to unplug until March.
Good idea.
I unplug until March.
Fortunes come and go, but that is not totally random. All of the rust belt had great circumstances and creative capital that fled for a number of reasons. In the current environment the San Francisco Bay Area is accumulating creative capital. This could easily wane at some point, but for now there is no sign of that.
There are a lot of issues with VC money that are specific to that system. A good place to read about that is TheFunded. VCs continually poison the well by messing with founders and CEOs, and everyone but them sees the problems with that. Founders now aim to sell out directly and skip VCs at almost any cost. The accounting may be a factor in there, but there are many reasons nowadays why running a public company sucks.
The boring urban comparisons tend to be started by obnoxious comments that claim that the price of real estate in San Francisco is based on it being the reigning queen of American cities. If you want to flame a thread, claim that housing is expensive here because “everyone wants to live here” because of our “culture” or beautiful architecture (ugh!) and views.
Give me real facts for why housing prices should be so high here (salaries, rent control, nimby’s vs. growth and density) vs. (weather, museums, diversity, or close to skiing and wine country) If Chicago had the Tech jobs we had, it would be more expensive than here, even with the snow in winter, and humidity in summer.
FWIW, worked for several years in Europe at a very diverse office that included Asians, South Americans, Australians, and more. Almost to a Tee, the one city first on their list to visit in the US was SF.
Oh, of course San Francisco is not superior to other cities and will decline by just as much as Phoenix, Las Vegas and Miami. I mean just compare the majestic dirt and shrub lots in Phoenix and clearly you’ll notice the deficiency that San Francisco’s victorians have against these plywood and stucco wonders. Seriously, who doesn’t want to live in a state that elected a former sports caster that looked like he had Down’s syndrome to the Senate? Living in a state of constipated John McCain’s is a freaking blast. Or how about Colorado? What’s not to like about a homophobic homogeneous white population that enjoys shoveling snow for 6 months? So fun! And Atlanta, let’s talk culture! The Coca-Cola museum and the CNN studio tour rock in terms of “things to do” in the Hotlanta area. They totally make up for the city’s complete lack of traffic planning. Such a joy. Let’s not forget how cool it is to live in the middle of suppressed racism. Or maybe Chicago? Such a kick-ass time to live in city where you can get wasted until 4am and then fight the freezing temperatures in the winter. Love it!
Clearly these places have an advantage over SF and I just can’t understand how San Francisco maintains a valuation lead in good times and in bad. I’m so darn frustrated about it, I’m going to jump on Case-Shiller’s data because, you know, all the major newspapers totally publish it. Newspapers and the media in general clearly have a sharp understanding of the market and definitely do not chase public hysteria with dubious sources. I mean thank god they had all of those analysts from investment banks talking about all those great B2C stocks back in the day!
Speaking of that, isn’t it amazing how much San Francisco’s real estate absolutely cratered in 2001? I mean here was a recession that centered directly on tech companies and it clearly wiped out the real estate market. I remember all of those bankrupted homeowners wandering the streets asking for handouts. I hope they faired okay in the intervening years.
Unfortunately, San Francisco has a glut of quality properties and not enough millionaires. Clearly, we’re in the bottom of the tables when it comes to metro area wealth. I like to use averages that incorporate dichotomous surrounding cities just to help lift the stats of poor San Francisco. It broke my heart when I saw the Gettys, Larry Ellison and Sergey Brin all at the food shelter the other day. I gave them an extra sesame roll. Larry really liked it, he says he loves sesame seeds.
So, in light of all of this, I think my best move is to bitch about how overvalued SF real estate is here on SS with all of my buddies in attempt to correct valuations to where they clearly should be. The fact that the house two doors down from me just sold at a 15% premium on a sq ft basis to my place which I bought in 2007 means nothing. Clearly that person doesn’t understand that renting is so fun! I love loud neighbors and throwing my money away to land owners every month. This one person told me about tax deductions on interests and I ran from that guy. Clearly another Wall Street scammer!
tipster,
you said,
“Everything is back to fundamentals. Housing, business, you name it.”
and,
“the only thing it makes sense to use cheap credit for these days is for consumption, not investment.”
are you serious? that’s your idea of fundamental business sense?
Hey Sorta New…
I don’t think that you understand that you don’t have a right to send people who disagree with you on the internet away.
SF is an ok place with plenty to do. However, from the time I’ve spent in major cities around the world and country, it really is a big town in comparison. You can (and I have) walked edge to edge for some exercise. That can be good or bad, depending on how dedicated you are to which detail in pointless assertions of “X is better than Y”. If you’re confident, you don’t need to eliminate dissent to maintain your position.
And everybody who doesn’t get it, Foolio is clearly trolling.
The VC story is a huge surprise. Oh wait a minute never mind, I started talking about the dearth of VC funded IPO’s months and months ago.
The argument always tends to deviate or devolve for whatever reason, but for me the argument simply is:
1) SF is a great place
2) its real estate rapidly appreciated during the worldwide credit bubble just like most everywhere else in the world
3) now the credit bubble is deflating
4) and thus worldwide RE will likely depreciate.
the rest is just fluff. Sure, SF will always cost more than Detroit. Sure, it’ll always be cheaper than Manhattan. Sure, people will always love it more/less than other areas. But none of that has to change for SF RE to lose value.
We’re only 1 year into this recession, and only a few months into where we’ve admitted we’re in recession.
as far as I can tell, there is no end to this recession in sight yet (there will be an end, it’s just not visible at this time to me)… there has been no meaningful fundamental changes to our US/world economy that would justify optimism for short term (5 years) future asset valuation.
As we’ve all realized by now, govt is a powerful influence in times like these. in fact, it seems to be THE MOST important part of our economy right now. and Our govt will undertake a radical shift in just a few days (Obama in power).
Thus, we’ll have to see what his administration does in order to figure out ramifications on RE in SF and other places.
Will Obama favor assistance to luxury markets like SF where everybody is rich (by many SS poster’s claims)? or will he favor assistance to downtrodden locales like the rustbelt? Will he help govt flow money to industries like High Tech and BioTech etc (which would help the Bay Area)? Or will he push more for infrastructure projects or energy projects (which might not).
eventually the credit markets will thaw and we will exit recession. This hasn’t happened yet. Credit events typically take years. Consumer led recessions typically take years. we already know that the mortgage reset/recast problem will take years (another 2-3 years).
Thus, SF RE will be under pressure for years.
Regardless of how special SF is, SFers still have to be able to pay the mortgage. We’ve already seen that credit events significantly impact “the real” SF… just look at the # of transactions post-credit event and compare it to pre-credit event.
the real question is how significant the impact will be.
I stopped predicting RE forecasts for the most part a while ago, once it was clear that we would basically socialize our economy. Now that we have essentially a state-run/communist credit system who knows what the idiot politicians will choose to do? clearly they’re willing to destroy our entire economy and currency to prop up failed businesses. who’s to say they won’t destroy us further to give million dollar handouts to rich SFers to buy crappy condos?
I’d guess that the best thing going for SF right now economically is that they have Feinstein, who is connected and powerful. she and Barney Frank and Chuck Shumer should be able to suck tons of money as they feed like piggies to the taxpayer’s teat. and bring those spoils to their populace.
Feinstein is awful and is now spending her time burning bridges. Housing will rise or fall on its own, not because of what high powered politicians or the Fed does.
The Bay Area has eBay and PayPal and Apple and Google and HP and the bulk of the interesting startups in biotech and nanotech and energy and much more, but none of that is really interesting and what matters is some noxious old bat in DC? Are you really sure about that?
Yes, it is all about paying the mortgage. The concentration of millionaires in this area is also unusually high. It doesn’t make sense to say the market is about fundamentals and then ignore the fundamentals.
Housing will rise or fall on its own, not because of what high powered politicians or the Fed does
Really? so govt sponsored/supported/subsidized moretgages have no role?
The Federal Funds interest rate has no role?
The TARP and the various lending facilities have no role?
The constant bailouts of the banks by the government has no role?
The stimulus checks coming from Washington have no role?
hahahahahahahah, I must not understand much about the global economy.
by the way: I didn’t say that the ONLY thing going for SF is Feinstein… I said I GUESSED that it could be the best thing right now for SF real estate.
I also think that tech has a lot to do with SF Real Estate. Just as it did in the year 2000… so I see no reason why RE values in SF should fall lower than 2000 values based on the current strength of the aforementioned companies. that is, unless tech craters with the severe recession.
Did you see the comment where someone pointed out to you that the Internet industry alone is probably 10 times larger now than it was in 2000? Tech had a lot to do with the local economy in 2000 tho, agreed. But moreso now. I mean, was your mom using EBay or Google back then? Mine wasn’t. And people didn’t even think Internet advertising would work. That’s why half the startups failed.
Again, to me the question is where did bubble stop and new local economy start? There seems to be a preoccupation with 2000 on this website. Why that year? Solely because the Internet bubble wasn’t yet popped, it did six months later, and then the next bubble came along?
The internet may have grown since the dotcom bubble, but there was a lot more high tech wealth generated by employee stock options and stock purchase plans back then than now. People talk about “Google millionaires” but Google’s market cap is only $100B. Compare that to some dotcom bubble market caps:
Cisco $550B+ (now $100B)
eBay $70B+ (now $19B)
Yahoo $130B+ (now $18B)
Intel $500B+ (now $80B)
Oracle $260B+ (now $89B)
Sun $190B+ (now $4B)
Siebel $60B+ (sold for under $6B)
And real estate was more affordable back then.
fluj:
I could say that I use the year 2000 because money was flowing like CRAZY into the Bay Area in that year. The following will tell you why I could make that claim. (it is a lie, however. See way below and I’ll give you the real reason why I use the year 2000.)
yes, the internet is more profitable these days compared to in 2000. but does it funnel more money into the SF economy today than it did during the dot com bubble?? I would argue that.
in the late 1990’s any old company could slap a “.com” on their logo and rake in hordes of cash. money flowed into these useless companies and became salaries and bonuses galore. SF and bay area income soared. there is no doubt in ANYBODY’s mind that there was a dot com bubble. and it was focused on San Francisco. all that money went to SF… and transformed it. I honestly stopped counting the numbers of instant millionaires that I knew back in 1999…
yes, the internet is bigger now, but the technology is not as “novel”. the margins are tighter. It’s old news. sure, there are advancements, and the tech is cooler… but that doesn’t necessarily translate into ECONOMIC boost.
as example: Apple BOOMED with the iPod. Amazing technology. Groundbreaking really. Apple also got a bump with the iPhone. but not as much. The 3G iPhone? sure, a little bump… but nothing like when the iPod came out. Diminishing returns my friend. The new iPods blow the pants off the old iPods. but they sell for CHEAPER and the margins are LESS. same with a lot of other tech in SF. (all IMO… techdefender will come and tell me how I’m wrong… but s/he’s been behind the curve for some time IMO)
There have been only a few big time NEW money makers in tech. and I don’t disagree, they are giants (Google, Youtube, Facebook, etc). But some of those companies made tons of money for a VERY FEW numbers of people (like Youtube). and Google’s impact on bay area seems to be waning. I know first hand that the salaries are not what they once were, and many of the options are nearly worthless. Google isn’t minting any new millionaires these days. they are, day I say it, silently contracting by letting contractors go.
thus, the secondary reason that I use 2000 is that there are few things that exist now that didn’t exist back then. And RE was significantly cheaper back then. So if something hasn’t changed from 2000 to 2009, then it can’t explain why RE has risen in value since 2000
SF in 2009 is VERY different from SF in 1991. so SF should be way more expensive than it was in 1991. and even 1995. but not really 2000. and certainly not 2003. nor 2006.
the thing that HAS changed since 2000 was the acceloration of the worldwide credit bubble, of which the RE bubble was but a side-show. That’s why farmland in Iowa doubled and tripled in just a few years. And resort property in Puerto Vallarta boomed. And Miami more than doubled. And Las Vegas bubbled. And yes, San Francisco too. you see, SF is special, but its recent RE runup was not special. in fact, it was ordinary. SF went up just like almost everywhere on earth (except for the Rust Belt)
but it’s worse than that. it’s also why Commercial Real Estate boomed. And the Stock Market took off. And Venture Capital and Private Equity boomed. And why Commodities boomed. and so on. You see: EVERYTHING was affected.
So you see, I REALLY use the year 2000, because that is the year when the last bubble ended, and it was JUST before the Federal Reserve embarked on a FOOLISH campaign of reckless monetary and fiscal policy, partly feuling the worldwide credit bubble. They started in 2001, and they “succeeded” in 2003 (these actions work with a lag). Then they tried to reverse course in 2006-7, but it was too late. In other words, 2000 is when I date the expansion of the worldwide credit bubble that essentially started in 1980’s, worsened in 1990’s and exploded in 2003 due to actions done in 2000-1.
as you’ve known for some time (we used to argue it a lot), I’m a macro guy. but that macro stuff sure is something IMO.
I’m sorry. but when it comes to RE, no place is immune to the deleveraging of the worldwide credit bubble. Not even SF. or Manhattan. or Paris. nowhere.
I’ve been trying to tell you this for 1.5 to 2 years now. but most people either weren’t listening, or didn’t understand, or thought I was an idiot, or all of the above. a pity really. because the current downturn was easily foreseeable to anybody who stepped back and looked. and we could have avoided a lot of this pain had someone important actually done so.
SF didn’t double, tho. Only the southeast areas now being hardest hit doubled. And granted, they saw runups that were unlike almost anything else. Meanwhile the local economy completely underwent a sea change. Lots of money was made in 2000, sure. Tons. How much of that left in 2001/2002? It wasn’t even until 2003 or 2004 that the Internet was somewhat mature as a viable revenue source. One that is never going to reverse.
(Also, side note, the new Ipods are better? My new Classic suuuuuuucks. I’m on number three. Lovely gift. I use it all the time. But jeez. Why have a moving part in a portable? terrible design.)
I don’t know man. I’d put 2004 as the critical year. The year which, if it is all truly to be given back, is ground zero. It’s amazing when you look at it in the SFARMLS, going back. That’s when the SF r.e. really broke north. Sure the credit bubble was unpopped. But it also squarely marked a new SF workforce era, IMO.
ex SF-er, Ha! Im certainly behind the curve on a lot, but come on, the ipod was only amazing/groundbreaking on a “novel” level- the technology had been around for years. That kind of touches on one of my themes- we probably haven’t heard of the stuff that exists today that will shape tomorrow. Oh, and on a macro level, we are all floating through space, do you realize?
Serious question- does anyone know of actual statistics that show realized stock option gains for non-insiders at acompany or a good way to arrive at that info? I know everyone has ‘that’ friend at google but it would be interesting to see actual numbers.
Tech Defender:
sometimes we argue past one another. You typically argue about continued innovation in tech, from the technological side. And I don’t disagree with you. Tech is making rapid advances every day.
I’ve been arguing about tech advances as it relates solely to the financial markets.
For instance, when the internet was “invented” it did not cause a significant economic impact initially. Many years later, (irrational) hype spread about the economic impact of the internet (the 1990’s), and this is when the largest economic impact was seen. now, there is still economic optimism and interest in tech, but it’s not like the heady days of the dot com bubble. There is money, but not like before.
Remember when Google came out… people were hoping for a resurgence of the dot com boom… it never happened. Basically, the economic impact of internet-tech is waning. That doesn’t mean it won’t bring in huge profits (it will). Rather that we are seeing diminishing returns compared to the 1990s.
same with the iPod. Yes, the technology of the iPod was not groundbreaking for a techie. but the financial impact sure was.
we probably haven’t heard of the stuff that exists today that will shape tomorrow.
I agree here too. And there is no reason to assume that tomorrow’s groundbreaking stuff will be centered on San Francisco. (SF may be involved in it, but centered only in SF again?)
I’ve limited my argument to the internet/software/computer based tech because that’s what is centered on the Bay Area.
but there are few inventions that are groundbreaking, and those come around happen once in a generation. automobile, TV, computer, internet, etc. It would be highly unlikely that our world will see another invention with the economic impact of the internet anytime soon.
so yes, there will be much innovation in Bay Area centered tech. but that doesn’t necessarily translate into continued economic well-being. Just as there is continued innovation in cars, but the car industry is suffering (even the Japanese). And continued innovation in Pharma (but that’s a mature industry). and continued innovation in Medicine (but again, it’s mature). see?
People bring up Google as it is the unquestioned powerhouse in the Bay Area right now.
Often, you can get the information you seek by looking at the Corporation’s financial statements. But it’s laborious.
Last I heard (from an ECONOMIC analysis), over 60% of all Google Stock options were worth nothing. And all stock options given in the last 3 years are worth nothing as well.
over 75% of Google employees were hired after Oct 2005, and thus over 75% of Google employees have worthless stock options.
so they’re working on salary alone. And we all know that Google salaries are good, but not enough to buy you that sweet google-pad. you need the options for that.
unverified overview, but these same numbers have floated around many info sites and are consistent
Ex-Sfer,
You keep ignoring the fact that the Internet wasn’t profitable in 2000-2001. You brush off tech’s potential as “Economic optimism” remains? What, like a vast and finally realized new revenue stream that came into being in the last four or five years, and continues to grow?
“When Google came out, people were hoping for the resurgence of the dot-com boom?”
No. When Google came out, Google learned from the mistakes of others, and succeeded. Employing an internet advertising model that countless others had abandoned.
You point to cars, as if Detroit didn’t sail along for 50 years or more.
You say that tech was all here. It wasn’t. Look at Seattle, and both its relative economic strength and r.e. resilience so far too.
I don’t know man. I feel like you’re really stretching to reduce tech’s significance out here, and I also feel as if you picked the wrong time frame.
fluj, you’re the one missing the point. We all agree with you that Web 2.0 has turned out some profitable companies, including Google. But as Anonanon aptly demonstrated, and as ex SF-er further illustrated, the real money that could afford $1,500,000 homes came from stock options, IPOs, and buyouts, not wages. That is all over now. Google is now just one of thousands of successful Bay Area companies whose employees earn decent 5-figure salaries, and whose managers earn in the low 6-figures. That cannot support anything close to the housing prices seen in the bubble years, which is one of the reasons why Bay Area housing prices are now crashing as fast as anywhere in the country (and the world).
I understand that point. The point is this, basically. “Stock option money bought all the big and/or expensive properties around town.” And I’m sorry, but it is not true.
If stock option money didn’t buy the big and fancy homes, where did the money come from? Please explain, since clearly income has not dramatically increased.
I don’t know entirely, nor does anyone else who posts on this website. I’ve personally seen too many different backstories to even think about getting into. Few of them involved stock cash-outs or the like. Many, many of the involved family money. But people’s stories are infinitely varied.
So, sure some of it did, without question. But all of it? Or better, reducing everything so simplistically to the “Stock options” metric? Current values don’t even sync up with the big stock option cashout period. Like ex-SFer said, that was circa early 2000. We’re discussing post 2004’s market.
I also disagree with imposing affordability indices. “This person makes high five digits, so he/she can afford this.” I mean, you just never really know. Now, is there a lot of money left over for (insert life activity here) if strict guidelines to salary/affordability metrics are applied? That’s what’s really argued here.
But there is a pretty logical explanation for the post-2004 run-up in SF prices. It’s the same thing that caused the bubble everywhere else — cheap, easy money handed out to borrowers with little or no money down and incomes too low to support the purchases. Nothing else seems to have changed in the 2000s (and as has been pointed out here, the big money flowed in before the relevant period, not during it). I’ve never seen anything indicating more “family money” post-2004, or significantly higher household incomes, or anything else that could explain such price increases. That easy money is now gone (and the re-casts are soon to slap those who borrowed it).
“the real money that could afford $1,500,000 homes came from stock options, IPOs, and buyouts, not wages.”
Was ‘affordability’ ever an issue during bubble years? I speculate that the average bay area employee that enjoyed stock option gains would still not have been able to put 20% down. Is it possible that the effect of no more stock option gains is slightly overblown (since there is already a credit problem)? Not saying that it doesn’t have an effect, just questioning how much emphasis it deserves.
“It would be highly unlikely that our world will see another invention with the economic impact of the internet anytime soon.”
I now realize you don’t mean it this way but it almost comes off like “Everything that can be invented has been invented”
“cheap, easy money handed out to borrowers with little or no money down and incomes too low to support the purchases.”
Sure. That is what you, ex-SFer, and others think. It doesn’t jibe with other areas getting hosed faster and harder. But that’s because we took out Alt-A’s and Neg-Am’s, right? Not just subprimes like every single human being in San Diego, Miami, and Vegas.
“Nothing else changed in the 2000s”
It has been clearly pointed out over and over again that a sustainable revenue stream was tapped by numerous Bay Area companies in the 2000s, and its name is the Internet. This is ongoing, and growing. Not a singular event such as an IPO.
“I haven’t seen any family money charts”
Nor would you, or anybody else for that matter.
In a nutshell I disagree with such finite perameters: You can only afford this because you only make that, never mind that there’s other money.
You can’t afford this because the dot-com bust happened. Everybody’s gonna get crushed by the re-sets (even though interest rates have been pro-actively maniupulated down).
The internet sounds like a great thing for San Jose, where they have companies like Cisco and eBay. Still, real estate prices there are tanking pretty badly.
“The internet sounds like a great thing for San Jose, where they have companies like Cisco and eBay. Still, real estate prices there are tanking pretty badly.”
Good point. Do you dispute SF’s becoming more of a bedroom community for such places of work? or Americans in general becoming more urban? or SF being the most urban city in the West?
All I’ve ever really said on here is that none of this is so easily reduced. Numerous forces came together. Not just credit bubble. Not just tech boom. And not everywhere equally.
Anonanon has it exactly right. Fluj, you posit that “a sustainable revenue stream was tapped by numerous Bay Area companies in the 2000s, and its name is the Internet. This is ongoing, and growing.”
But of the big local “internet” companies — Cisco, eBay, Oracle, Google (w/ Youtube), Intel, HP, Facebook, IBM, Brocade/Foundry, etc. — NONE of them is in SF (and all of them have seen their stock prices tank). SF MSA home prices are down over 30% in the last year by the most reliable apples-to-apples index we have. You appear to have some theory that “the internet” has set SF apart from the rest of the bay area. But it just doesn’t fly. If SF is “different,” that isn’t why. Unless you can come up with something else, the only logical conclusion is that it’s not different from its neighboring counties, which is also what plain old common sense would tell you.
See above post re “SF is different,” “not all areas are equal,” etc. You know that it isn’t pandemic. I could cherry pick relatively strong areas in San Mateo and Santa Clara if I was so inclined, so could you if you wanted to argue against yourself, and so could anybody else for that matter. Also see above posts re: stock price is not equivalent to buying power.
But to review, your logic is, “SF is neighboring therefore not different.” That’s not really logical. Because neighboring is not logically equivalent to “same.”
OK, so SF is not the “same,” but it’s not because of the internet after all, it’s just because you say so. You may turn out to be right.
Trip – gotta stick up for fluj here. What he is saying is that the internet makes the Bay Area different overall. Other aspects make certain parts of the Bay Area different from other parts. ie – Saratoga is not San Jose is not Palo Alto is not Fremont is not SF is not Burlingame. Without the internet, we would likely see even larger hits in less prime areas of the Bay Area, as well as larger hits to the prime areas.
anon, if that is what fluj is saying, then I don’t disagree with his premise. Although Case-Shiller shows a 30% price decline in the SF MSA in the last year, so I would disagree with his conclusions.
What fluj certainly appears to be saying is that SF is different from the Bay Area as a whole somehow and will thus escape (at least in part) the severe, area-wide downturn. But we’ve been given no compelling reason why that should be so, although “the internet” was floated as such a basis and then shown to be spurious.
Trip – I thought that he explained what the differences between San Jose and SF (or between Palo Alto and Fremont or between Seattle and Tukwila) with this statement:
“Good point. Do you dispute SF’s becoming more of a bedroom community for such places of work? or Americans in general becoming more urban? or SF being the most urban city in the West?”
I don’t disagree with either of your synopses by and large, particularly anon. And again, to go back to where I started, I think a rollback to late 2004 would be a complete values reset, not 2000. Two thousand was by and large a fundamentally different economic era for this area, credit bubble aside.
Trip, as for “”the internet” was floated as such a basis and then shown to be spurious,” you’re wrong. Nobody proved it spurious here. What? A business is locted in an area therefore all of its employees live there? Just because the companies are located points southward doesn’t change that this city is the area’s cultural lodestone, and that many commute southward from here. Or that the country has become more urban.
Again, it’s not just one thing. If it were we’d be like Miami two years ago.
And I’m sorry but no one has ever properly explained the, “We’re just two years behind the curve, that’s all.” Really? Us? For all that everyobdy detracts against us, and there are many reasons to detract, self importance not the least, behind the curve isn’t usually one of them. All of these loan programs were available, everywhere.
It is not the “internet”! San Francisco price stability is based on a buyers community which has the largest concentration of people with income sources that are “unearned” in the U.S. As Forbes noted last year, San Francisco is the Trustafarian capitol of America. I am most familiar with the northside of the city, and with single family homeowners, most don’t work at all. Daddy or Grandmother made a fortune in Kansas or Salt Lake City, and they moved here to eat arugula and walk to coffee.
I know this does not hold true for Noe or other southern hoods which do have owners who WORK and commute south, but as an example, think of 333 Bush which has a discussion above. I know three owners in that building, all who made their money outside the Bay Area. One owner lives in L.A., Palm Desert, and Laguna and uses his 1.6m 333 Bush pad as a place for his daughter to stay while she “gets her life together”. Another keeps his for when his wife “comes up to shop”.
San Francisco is the Venice Italy of America. Expensive real estate, great restaurants and hotels, nice shops, but not a real city at all.
Our upper bracket housing prices are driven by buyers who collect homes and think San Francisco is a charming weekend destination.
Butt jeff2, there has been no influx of trustafarians since 2004. And this group likely lost a sizable amount in the last two stock market crashes. This explanation doesn’t work.
Jeff2,
Absolutely that’s a factor. I called it family money above.
Do you happen to have a link to that “Family Money Chart” article in Forbes?
Also, even though I don’t mean to do it, I usually wind up talking about the nicer southern parts of town. Because that’s where I’ve done 90% of my business transactions. In terms of San Francisco, I guess that’s mid range.
I wonder if top and bottom will ultimately get hit harder than middle? Middle (think largely gentrified southern parts of town that were not what they are today 10 years ago) has white collar south commuting tech incomes. These folks are able to afford $1 to 2M, arguably, for say Noe, along with perhaps useful 625K superconforming loans and the like for say, the Sunset. Bottom has had subprime, and is unlikely to have the liquid resources to stave off ARM and Alt-A resets if and when they arrive. Top? Top increased nearly as dramatically as bottom, and people can perhaps afford to take losses in sales if they wish to move. So values can suffer if the timing is not right.
Then again, top might just be able to say, “Aw heck. Let’s just let it sit there for five years. Maybe my kid will want to move in.”
How do you know there’s been no influx of trustafarians since 2004, anon? How many boutiques have opened in Hayes Valley since 2004, for example? (I kid. I kid.) But seriously, how would you know that possibly?
Trustafarians may be poorer since 9/2008, but they are still here, still eating arugula, drinking soy au laits, and still buying homes, at least in Cow Hollow and the Marina. Most of the northern “better” neighborhoods do not even get out of bed until 10:30am. When I lived at the corner of Pierce and Green, almost none of my neighbors worked.
I think Satchel is an excellent example of someone who moved here after making his money somewhere else. I still believe the prices in San Francisco and Marin are not driven by jobs, the internet, proximity to Cisco or a Google Bus, but instead are driven by people who move here as a lifestyle choice. As long as we are a desirable residential area, we will be very expensive.
True, jeff2, but I just rent a place! (A very modest one, because we don’t care too much about homes as “lifestyle centers”, but I am fascinated by the bubble.) I’m not a centi-millionaire like many in the Bay Area, but I don’t expect to have to go back to work again ever.
That being said, my tax rate was generally low in 2002 (when I got to SF) through 2007 (one of the many reasons why renting a place was more preferable to owning one, putting aside the fact that I rented a 3000 sq ft 4/4 in Monterey Heights for $3,100/mo). Steady unrealized gains made it easy to time recognition of income. Now that my trading is much more short term and generating unavoidable realized gain, I am seriously considering moving, or at least establishing tax domicile in Florida *where we have family). There is no way a state run as poorly as California is going to get one cent more in tax from me than is absolutely necessary.
Towards that end, renting is also appealing in my particular circumstance, as grandfathered prop 13 means that my current landlord (child of original owner) only pays about $1500 per year in taxes on a house “worth” $1.2M. The effectively “free” public schools in Tiburon (which are excellent) in our circumstances is an added bonus, and again accords with my view that one should take as much as possible from government and contribute as little as legaly permissible. All resources kept from the greedy, inefficient and unjust maw of government are resources that are available to allocate voluntarily to charitable and other uses. I think that leads to a better society overall – limited government whose main functions are to enforce fair rules of play among free individuals and protect indiviudals from coercion by others. We practice what we preach.
Long story short, don’t count on characters like me to support SF housing prices! If circumstances change and the value proposition is no longer there in California, we’re gone!
LMRiM,
Question for you – how many people do you know like you? As in, how many people do you know that moved to the Bay Area by choice, don’t foresee ever having to work again, and rent by choice? I know many people who fit TWO of those categories, but you’re the only person I know (well, in an internet sort of way ;)) that fits all three.
Brutus –
I know only two others out here that fit the bill exactly. My best buddy out here sold an invention to an internet startup in 1999 (was doing contract work in Palo Alto for some of the time, but he was from the Midwest), cashed out his stock/converted it into a lump sum through a derivative structure (after moving back to his home state first), the company went kablooey and he’s been laughing about it ever since. He’s a low-8 figure sort, living in a rented 3/2 up here. We also both know a retired VC living real cheap in Ross in a rented mini-estate. They’re both super-liberal democrats and you can imagine we have lots of fun arguing (but they look to minimize taxes fanatically – worse than me :))
I also know a guy in SF who runs a tech services-type company. I guess he dosn’t totally count because he does own a modest SF residence that he bought in the mid-1990s, and he does work a bit (sort of), but he is looking for a place to rent in Tiburon for next school year. Total Obamaton, but as you might have guessed, fanatical about not paying taxes. I showed him a lot of structures regarding defined pension benefit plans (against which one can borrow – tax free $$) and corp structures that avoid payroll taxes. People voting for taxes “on the rich” really have no idea what goes on (all legal, BTW), and I am just a small fry and probably don;t know the half of it!
There are a number of people on my block in Tiburon who don’t seem to work, but they seem to be living in their dead parents’ houses (on which they pay no tax, basically).
I’m definitely an oddball, and look – if I had $100 million I’d just buy a place out here if I was sure I wanted to stay – but at our current level of wealth we’re totally happy raising our kids and living in these nice houses for basically nothing. If rents doubled, it honestly wouldn’t matter, but so far they’ve gone down for us. We’re obviously not worried about being evicted or anything – we cut our deals in the beginning, are ideal tenants, and 1000% ethical and on the level in all interpersonal dealings. Besides, we’ve got so much more resources than either of our landlords had out here, no one would try to evict us or hassle us.
OK, so now it’s not “the internet” that makes SF different and justifies bubble housing prices here, it’s a recent, significant, inexplicable, and undocumented increase in the number of trust fund babies. And because someone has not conclusively proven that this phenomenon has not occurred, it must be true.
Yet for some reason, even though prices have fallen recently even in prime areas of town (we can debate whether it’s 5% or 15% or 25%) volume has fallen by half and these market-propping trustafarians have suddenly stopped snapping up what are now absolute bargains.
You beat me to it, Trip. If it’s not rich foreign investors, it’s the rich local heirs. In the meantime, prices seem to keep falling across the city.
Anyway, all this posturing about what drives the local economy and justifies bubble pricing led me to do some quick research on who the largest employers in the area are. I found 2 lists for the SF bay area and, surprising as it may sound, not a single name on them seems to be a tech or internet company:
http://www.sfced.org/assets/files/LARGEST%20EMPLOYERS(1).pdf
http://www.calmis.ca.gov/file/MajorER/countymajorer.cfm?CountyCode=000075
I guess it’s the rich service technicians from PG&E that are snapping up the million dollar pied-a-terres.
LMRiM,
Oh, I was just curious if you knew many people like you, that’s all 😉
I do know several people like the first one you mentioned – who own a place in SF, run a company (or something similar), and rent a place in Marin or down the peninsula somewhere so that their kids can go to good schools for free.
Dude,
Interesting links. I especially like the first one – I had no idea that nearly 10% of the population (not the employed population, but total population!) works for the USPS 😉
I’m not trying to side with the trust-fund-kids-will-save-us folks, but how much do total numbers really tell us? In a primarily service economy, low wage employers and government (which lumps all of its various employee-types together) are always going to have the most employees, right?
On further inspection, that first link is hilarious – Gap has 128,000 employees in the Bay Area!?!? The San Francisco Marriott and Hilton are both larger employers than the City of Oakland? Seems a little hard for me to believe…
The Business Times publishes a book of lists every year with some great info, here are the top five Bay Area Employers (don’t ask how I got this):
Company Bay Area Employees
Kaiser Permanente 29641
City & County of San Francisco 27885
State of California 25573
University of California, Berkeley 25500
University of California, San Francisco 18480
The first tech company is HP at 17!!! I was surprised by the relative absence of tech companies in the list. Check out Detroit:
http://www.degc.org/data/Largest-Metro-Detroit-Employers.pdf
The top three are the big three.
“not a single name on them seems to be a tech or internet company:”
I am not surprised at all. This is what is so interesting to me about upper level homeowners in San Francisco. When I lived in Newport Beach in a neighborhood of homes of similar value to Cow Hollow, all of my neighbors worked. As I got to know my neighbors in Newport I also saw they were part of the Los Angeles area economy, some owning companies, others working for various firms.
None of my immediate neighbors in Cow Hollow had anything to do with Tech, or with the Bay Area economy except for one homeowner who grew up in the city and inherited the home from his dead parents. I would say that some of the ownership profiles in San Francisco resemble more the homeowners association of the Bay Villas in Kapalua where my parents own a place than they do afflluent urban neighborhoods such as Lincoln Park in Chicago or Queen Anne Hill in Seattle.
“OK, so now it’s not “the internet” that makes SF different and justifies bubble housing prices here, it’s a recent, significant, inexplicable, and undocumented increase in the number of trust fund babies.”
“You beat me to it, Trip. If it’s not rich foreign investors, it’s the rich local heirs. In the meantime, prices seem to keep falling across the city.”
Trip, Dude,
As long as we can agree that it’s exactly ONE thing, and ONE thing only that has been keeping SF values relatively strong I will keep trying to find out what that one thing is.
You keep taking that one thing and countering with Case Shiller MSA figures.
Deal?
So you guys are telling me it isn’t the trustafarians what did it now?
Oh well. Back to the drawing board.
Prices have fallen across the city! Two years later! by small amounts! News at 11!
Why the lag? Why the resiliency/ relative strength?
Case Shiller baby!
Brutus: I believe the first list provides total employees for the company, or bay area total, rather than total for SF proper. But the company names seem to be correct, as confirmed by TechDefender. Disgusting how bloated our city/county government is…
But anyway, the inheritance crowd mentioned by jeff2 accounts for a few blocks of D7, parts of southern Marin, and some pockets of the peninsula. Which is what, maybe 5-10% of the total bay area housing stock? So again, what is there to support the high prices across the bay area and throughout the city? Kaiser seems to be the largest employer in the area, and the average nursing salary is $65K:
http://www.simplyhired.com/a/salary/search/q-Nursing/l-San+Francisco,+CA
regarding below statement, i take issue with the conclusion.
“It has been clearly pointed out over and over again that a sustainable revenue stream was tapped by numerous Bay Area companies in the 2000s, and its name is the Internet. This is ongoing, and growing. Not a singular event such as an IPO.”
sustainable revenue stream maybe, but not sustainable profit. for the most part the internet economy is still a scheme as many many more “internet” companies have gone under than are still viable or have grown. As an industry, it has only just begun to be cash flow positive and that is because the top 10 companies have kept the industry afloat. While the internet economy may get the most media coverage, it is by far not the largest industry in SF and it is by very far not the most profitable. The same holds true for biotech
Tech is not king in SF
“Prices have fallen across the city! Two years later! by small amounts! News at 11!
Why the lag? Why the resiliency/ relative strength?”
I honestly cannot believe you are still singing this tune. You really are consistent. The captain never abandons his sinking ship
“I honestly cannot believe you are still singing this tune. You really are consistent. The captain never abandons his sinking ship”
Thanks Spence-bot. But the tune isn’t really the same if you look closely at the sheet music. I know that might be difficult, as you made up your mind to don your charcoal-vision glasses some time ago.