QuickLinks Real Estate Economics Trends It Must Just Be Because We’re “Bearish,” Why Else Would We Care? November 21, 2011 ∙ S&P Posts Worst Losing Streak in Two Months [Bloomberg] ∙ Kostin: S&P 500 May Fall to 1,100 [Bloomberg] ∙ Ciao? [SocketSite] Recent Articles Woot Woof! Is That The Fat Lady We Hear Singing Over At CitiApartments? Comments from “Plugged-In” Readers Posted by Longtime Lurker 5 years ago It’s totally because you are bearish, lol. Even the serious doomer sites I check out from time to time are kinda “whatever” on the recent slide. We were flirting with 10,000 just a few months ago, so it’ll take a little more to make this front page drama. Unless you’re you guys, of course. But it’s all good – love you Socketsite!! Reply Posted by eddy 5 years ago The markets have a very high correlation to the velocity of properties in SF. Especially in the high end. One must wonder if the person that is now in firm contract on 2550 Green, which is “fixer” listed at $9.5 for 5888sqft (1600/psf), must be seriously second guessing their decision to make that offer. I jest, a little. After reading and commenting on the site for 5+ years now, this headline is the closest I’ve seen the Editorial Team come to openly stating a position. “Bearish” [Editor’s Note: That was intended to be tongue-in-cheek, but cheers. And as always, thank you for plugging in.] Reply Posted by A.T. 5 years ago I was pretty bullish on stocks until late summer (a little too late), and right now I’m just in fear mode as it appears a lot of others are. Europe is in chaos and is unlikely to act right unless the U.S. basically demands it. But the deficit commission charade shows once again that the U.S. – including Pres. Obama – is unlikely to do anything about anything until, at the earliest, after the 2012 election which is a whole year away. And China can’t/won’t help because its own bubbles are now unwinding. I think the Fed will do what it can, but it does not have the tools to do everything. The saber-rattling by the U.S. in the Pacific and by Europe in Iran certainly isn’t helping to calm the markets. MF Global losing $1.2 billion of client money is further rattling nerves. The only bright spot (I hope) is that our business is pretty counter-cyclical. Reply Posted by ex SF-er 5 years ago As I said some time earlier in the year (and also years ago), the major problem evaluating markets these days is that the markets are moving largely based on political and Fed considerations, and not to classic supply/demand philosophy. Thus, the only way to evaluate future equity and RE valuation would be to evaluate political probabilities. Often, a gridlocked government is relatively good for equities and RE because it leaves everything stable. there are no new changes in the pipeline. however, a dysfunctional/broken government is another thing. It leads to hordes of uncertainty, which negatively affects the economy (both “real” economy and also the investing economy). What seems relatively clear to me: 1) we have a massively dysfunctional govt that is not operational. so does the EU. (the “troika” and the individual country governments) 2) the only thing the US govt can agree on is cuts to the lower/middle/working class people. (both Dems and Repubs agree here) 3) they do not agree about what to do about the affluent and the uber rich. (increase or decrease taxes… etc). 4) the Eurozone is imploding 5) “austerity” is the predominant political philosophy across most major players. 6) austerity leads to GDP contraction. I am willing to be proven wrong of course, please point me to a case where govt cuts led to increase in GDP. austerity may or may not lead to improvement in deficit or debt calculations (up for debate, it depends on how austerity is done)… but the GDP will be pressured by austerity. we can see what austerity does to a country, just look at Ireland and Greece etc. Thus: in an era of politcal collapse and austerity derived pressure on GDP, it is unlikely that future real equity/RE valuations will do well. all that said: nominal valuations are another thing all together. Unfortunately for us all, we live in exciting times. it’ll be interesting to see how this unfolds. only a fool would take on debt to buy anything in this environment IMO, but you may find some good deals in various investments if you can buy in cash. price depreciation in the things you want and the things that require debt… and price appreciation in the things that you need and the things that are bought with cash. but this has been my outlook and my prognosis for years. Credit bubbles are like this, they take years and even decades to deflate, always with a lot of pain. there is no question there will be massive pain… the only question is who will bear most of the brunt of it. (creditors? debtors? affluent? working classes? etc) Reply Posted by A.T. 5 years ago Re ex SF-er’s last sentence, I read something recently that addressed this in a way that had never occurred to me. Where there is a massive sovereign debt (whether it be that of Greece or the U.S.), there are a number of options – default, higher taxes, slash spending, print money – but they all lead essentially to the same result, and the only difference is which present groups bear the burden of debts incurred by past generations. In the U.S. and throughout the West, I’m betting that the banks and affluent are not called on to bear that burden. Reply Posted by Not Bashing 5 years ago The trend certainly is that the affluent and the banks never foot the bill. And as we all know, trends do tend to persist…often times much longer than any (thinking) participants believe they will. I don’t know what the catalyst will finally be to reverse this…so it seems unwise to bet against it. Reply Posted by 47yo hipster 5 years ago OWS! OWS! Reply Posted by polip 5 years ago there is no question there will be massive pain… the only question is who will bear most of the brunt of it. (creditors? debtors? affluent? working classes? etc) bagholders the end of the debt supercycle blow-off top is always the same… I see bagholders… Reply Posted by lol 5 years ago The bag holder will be the middle class. Whatever the path to that, this is probably the end result. This current cycle is the logical next step of the massive wealth transfer through 1) unbearable debt for the lower and middle class – 2) asset accumulation from the heads-I-win-tails-you-lose WS players. The first group got the illusion of wealth through easy credit while the second group was accumulating actual wealth. Now that the debt is due group #2 wants taxpayers of group #1 to pay for it all through fiscal wealth transfer (either through higher taxes on the middle class or fire-sale of public assets). To enable the continuance of the massive wealth transfer we have the “bond vigilantes” going after the weakest links one after another and threatening whole countries in a game of chicken. Fire-sale your assets and all social protection or else. Reagan’s child is coming of age. It was the plan from day 1. Reply Posted by cheez ball 5 years ago these are the most insightful and least snarky/vengeful/gloating comments I’ve seen here. And I’ve been lurking for a while. Maybe because the socket site bear is showing it’s true grizzly colors, and the comment doesn’t directly “bear” on r/e? Reply Posted by Brahma (incensed renter) 5 years ago cheez ball, I think the implicit hypothesis is that the post DOES bear on S.F. Real Estate and that the S&P500 level DOES has something to do with S.F. Real Estate sales. See the editor’s comment in the post linked-to above. The top 1 percenters who buy the over million-dollar trophy homes and second home/pied-à-terre luxury condo unit segments of the market are either making their eventual purchase money in the stock market or they have their eventual purchase money invested there because they’re starved for yield that they can’t get in either the bond or money markets. Even if they are quite risk-averse and they have their money in precious metals or a passbook savings account, they’ll feel better about purchasing if the stock market isn’t dropping 5% in five sessions because of the wealth effects gained from their 401(k) accounts that ARE invested heavily in the stock market. Reply Posted by NoeValleyJim 5 years ago I actually don’t know enough about this specific instance to know how valid this article is, but I have seen this one making the rounds, to justify the claim that austerity budgets lead to prosperity. http://articles.economictimes.indiatimes.com/2011-11-21/news/30424607_1_canada-jean-chretien-budget-surplus My guess is that this is particular to the Canadian experience, but I could be wrong here. I also know that Sweden shrank a bloated public sector in the 80’s to good effect. But this was from about 60% of GDP to 50%, so rather different than the United States circumstance. Reply Posted by tc_sf 5 years ago Unclear yet, but Irish Austerity may yet work out for them. http://blogs.wsj.com/source/2011/09/23/two-sides-of-the-irish-economy-is-the-celtic-tiger-purring-again/ Greece has a whole other ball of issues, so not sure it’s a good test case for the effectiveness of austerity. GDP mathematically includes government spending so cuts to government spending show up as immediate cuts in GDP, but this tells you nothing. Looking at private sector GDP or GDP growth is better to see how things are working out. Reply Posted by curmudgeon 5 years ago It seems reasonable that austerity can work well for individual governments at specific times. Particularly if they are small economies, and no one else is doing it. Then they can generate an investment and export led recovery. But when EVERYONE is going the austerity route, including the big economies, then there is nowhere for growth to come from in the short term, and austerity (though it may well be necessary) will be nothing but long term pain before any green shoots appear. Reply Posted by curmudgeon 5 years ago It seems reasonable that austerity can work well for individual governments at specific times. Particularly if they are small economies, and no one else is doing it. Then they can generate an investment and export led recovery. But when EVERYONE is going the austerity route, including the big economies, then there is nowhere for growth to come from in the short term, and austerity (though it may well be necessary) will be nothing but long term pain before any green shoots appear. Reply Posted by lol 5 years ago The current austerity measures are a stupid idea. You want the patient to shed off some pounds by gradually going back to healthy habits, not amputation! Sure it’s an hyperbole, but the current austerity measures in Greece for instance are so extreme it amounts to cutting both legs and expecting the country to run faster. Reply Posted by Jimmy (No Longer Bitter) 5 years ago Greece is basically a third-world country. No one knows how they even got into the Euro in the first place … Reply Posted by lol 5 years ago Ever been to Greece? Overall my stays in the past 20 years I have spent a good 4 months there. Decent infrastructure and transportation, especially maritime. Very decent healthcare. Good universities. Very educated people. Not a third world country by any measure. Have they gone overboard in over-optimism due to the entry in the Euro zone? Sure. So did we with our “subprime” boom that was not so subprime after all. Their problem is that they have to repay their debts in Euros, otherwise they’d have printed their repayments and hosed the reckless lenders. Reply Posted by A.T. 5 years ago Yes, that’s crazy to call Greece a 3rd-world country. Its per capita income is higher than New Zealand’s. It does, however, have a huge debt problem (debts racked up to buy German products!), and as lol notes, the real problem is that debt is in a currency they do not control. Reply Posted by tc_sf 5 years ago “and as lol notes, the real problem is that debt is in a currency they do not control.” Greece runs a primary deficit so even with complete default they’d still need to borrow. And their 10-year is at 29% even with euro membership. If creditors got paid back in drachma I’d guess it’d be running even higher. Greece certainly has a third world tax collection and government. Reply Posted by NoeValleyJim 5 years ago Ireland should have just followed the Iclandic model, instead of agreeing to bail out a bunch of foreign creditors: http://www.marketplace.org/topics/world/iceland-strongly-recovering-bankruptcy Greece is not a third world country, expect perhaps in its level of tax evasion. It has one of the worst problems in this area of any country in Europe. Reply Posted by surferD 5 years ago This explains everything. http://youtu.be/I5QwKEwo4Bc Reply Posted by eddy 5 years ago The aforementioned 2550 Green has closed escrow at $9.5M. Anyone have the crack story on that one? Reply Posted by Brahma (incensed renter) 5 years ago tc_sf wrote: Greece runs a primary deficit so even with complete default they’d still need to borrow…Greece certainly has a third world tax collection and government. There was a great article published over the weekend that in my mind shows the utter futility of austerity economics as applied to Greece in the New York Times, Greeks Balk at Paying Steep New Property Tax: Ioannis Chatzis is 86 and lives in a tiny, single room, surviving on a pension that is just enough to pay for food and care for his bedridden wife.But in its latest push to raise cash, the Greek government sent him a new $372 real estate tax bill, incorporated into his October electric statement.Mr. Chatzis says he is being asked to choose between lights and paying for his wife’s medicines, since he cannot afford both on his $720-a-month pension.“This is how we are treated,” he said recently, his face a mixture of fury and despair. “I have nothing left to give. I will not be paying it.”Mr. Chatzis is far from alone in that vow, and it is not certain that the Greek government will do anything about the tax rebels. Another point in favor of economist Nouriel Roubini’s notion that a Greek default and exit from the Euro is just inevitable now. Seems obvious to me that one could possibly economize by resisting payment of taxes, but once a sizeable portion of the country is also doing it, as is the case in Greece, it ceases to become effective. All that money not collected by the government due to rampant, widespread tax evasion that should have been devoted to basic services instead gets devoted to consumption (in Chatzis’s case, necessary and basic consumption, but still) and so the market detects that increase in the availability of consumption funds and translates it as increased demand. In economic terms, the A-D curve shifts right and then the price level subsequently rises, and so people like Chatzis have wound up spending more money on other things than they ordinarily would have. Of course he has nothing left to “give”. Reply Posted by tc_sf 5 years ago “There was a great article published over the weekend that in my mind shows the utter futility of austerity economics as applied to Greece in the New York Times” In my view they have enough country specific issues that they won’t be a good test case for either the effects of fiscal austerity or monetary policy. As the linked article makes clear, a big problem with having a low rate of tax collection is that to raise any significant amount of money you need to collect more from the few people you are able to collect from. Having a high incidence of bribery and corruption makes this hard to do in a progressive fashion since the wealthy and powerful are more able to evade taxation which dumps a large burden on those lower on the ladder. Reply Posted by tc_sf 5 years ago A stat which corroborates the anecdote in Brahma’s NYT piece: “But beneath the apparent calm the anger was still palpable. Trade unionists representing civil servants and private-sector workers said that Papademos, a former vice-president of the European Central Bank (ECB), should expect “sustained battle” against cutbacks that are widely seen as unfair. Hit by a barrage of tax increases and salary cuts, poorer Greeks have seen their purchasing power slashed by up to 70% since the crisis erupted” http://www.guardian.co.uk/world/2011/dec/01/general-strike-greece-calm-eurozone-crisis Reply Posted by Denis 3 years ago Eddy mentioned 2550 Green in this thread…. It’s back at 11 million. 15.7% higher than 2011. Reply Posted by Denis 1 year ago The weird story of 2550 Green continues… It sold in 2014 for 10, then again in January of this year for 10.725.. Anyone know what is happening here? Reply Add a Comment Cancel Reply Comment Your email address will not be published. Required fields are marked *Name * Email * Website The reCAPTCHA response was either incorrect or empty, please try again. Enter the two words in the box: Enter the numbers you hear: Trending Prohibition on Formula Retail Likely for Polk, but with a Big Twist Imprisoned Silicon Valley Insider's Estate Finally Fetches $16.5M Refined Designs and Momentum for a Bold Van Ness Development OMG! 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