bay area

The real home sales & recession link trend to watch for – Chinese Buyers

Posted on by Srihari Yamanoor
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Of late, the buzz about using home sales as a predictor for the next recession has been turned up. First, there was the hue and cry about home sales slowing in LA. Then, there was a more obscure discussion about yield curves. While both may carry some relevance, I am not fully sold on these trends. These are trends from the past. They may still work. But we live in some truly crazy times. Things that oughtn’t, are indeed topsy-turvy. And, of course, for people who are paid to put down, “I told you so” placeholders, there are no luxuries in waiting to put down the flag, a la General Fremont of California.

For me, there are no such pressures. Plus, given how places like the Bay Area, LA, Seattle and others have such overheated markets, a little slowdown barely makes the mark. Hell, prices are still going up in the Bay Area, because somewhere out there, there are enough people foolishly falling for the real-estate gimmicks. Did you know, there are “homes” looking onto I-880 now? Unlike before, that is. They have even stopped pretending the barriers matter. I have to wonder who wants to insure properties against a runaway fuel truck. More importantly, who the hell wants to live a stone’s throw from the I-880?

So, I was holding out for what I have known is a trend that has cost many of us our dream of a home, including, yours truly. Non-resident, cash-holding Chinese individuals who only match the greed of real-estate firms in their alacrity to buy up homes. I wont repeat all the horror stories of how a house would go into the market,and hours later be sold for twice or more, in all cash transactions. While the US did nothing, at least countries like Australia and Singapore, and territories like Hong Kong tried to do something.

All in all, during the last week, I participated in more than one conversation about people who took one or two articles as dogma, and started salivating at the idea of being able to buy homes again. I have had at least two to three counterpoints, which I will highlight here:

  1. A LOT, and I mean a LOOOOOT of people are sitting on cash, what they consider to be sufficient for the 20% down, when the market slows down, so they can buy homes, especially in the Bay Area. The problem is, should the market slow down even a lot, people will immediately rush to buy up homes, and you will have an up-spiral in weeks, days, hell, even hours! Sorry if that pricked your dream-balloon, but there, you have it.
  2. Even before the news about Seattle trickled in, I wanted to see if there will be a slowdown in the foreign buyers’ trend. Consider the scenario where home prices fall by 50%. You may have 20% to put down and are thinking of putting in an offer. How would it matter, if someone can, as usual, outbid you, and put down 100%?

Now, on to the Seattle, Chinese-buyers thing. Word has it, because the Yuan has cheapened against the USD, the Seattle home market might at least be slowing down. Good news, you say? Well, let’s break it down:

  1. This is a temporary trend, for now. What if the Chinese and US Governments did settle their trade disputes, then what?
  2. Apparently house prices in and around Seattle have “soared” 45% since August 2016 (this is why I am always amused by people imagining they can be the next Silicon Valley). And adjusted for inflation, to the average Chinese rich guy rolling in dough, it now represents a 54% post-soar price increase. Yeah, that 9% is really going to slow them down, you think?

So, what are we looking for?

I say, this temporary slowdown is a notable trend. We need to see if this will become a long term trend. What, if anything could cause this, is hard to tell. You also need to make sure another cohort, or a group of cohorts don’t swoop in and start gaming the market.

Like greedy real-estate builders have been doing.

Then, you need for the inventory to actually hit the market. The ONLY thing that will permit that is a true recession. Yeah. Who really wants that?

Whether we like it or not, I believe that only a recession will turn off speculators of many kinds, at least for a while, and the economics of the recession will force properties to become available again.

But, you see the problem right? A meaningful slow down in speculation by the Chinese and everyone else is directly tied to a recession, not just tariffs and exchange-rate volatility or manipulation.

So, we can sit here and watch home-sales trends and argue about mechanics seven ways to Sunday, but the truth is, we won’t necessarily be able to use home sales rates as much of a predictor. We’ll still have to keep watching and keep probing.

References:

  1. The slowdown in the Seattle Market: https://www.cnbc.com/2018/08/02/seattle-housing-market-is-under-pressure-as-chinese-buying-dries-up.html
  2. Australian Taxes to slowdown speculation: https://www.ft.com/content/16859cde-31f7-11e6-8825-ef265530038e
  3. Image, Courtesy, Pexels: https://www.pexels.com/photo/space-needle-656195/
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Can anything hurt the Bay Area RE Bubble? We are about to find out: The Cisco Edition

Posted on by Srihari Yamanoor
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Foreword: It is NEVER good when employees lose their jobs. I am never happy when this happens to anyone.

Cisco, which hasn’t been doing well for the longest time, has decided to layoff 14,000 employees or more, globally. Since they are local, one can assume at least a small, yet significant number of those layoffs will happen here.

So, not all jobs will be lost near Milpitas (or Smellpitas as it is usually called, a quaint local “cultural” fact), where you can bid (not buy, mind you) a dumpster sitting on a lot for about 1 Mil and upwards. Of course, this new level of madness is brought to you with the notion that along with Cisco, Google, Samsung and Apple  and sundry’s employees will be endowed with never ending wealth and therefore should be the only ones able to afford living (if you can call it that) in the area. Throw in a BART station and the dumpster’s asking price went up to 1.5 Mil. If you think, I am joking, go to Realtor.com and search for houses around 95035. Of course, as with all things evil, the real estate bubble just grew from Smelpitas to San Jose, Fremont, Tracy and Stockton, and she hasn’t really stopped yet.

For months now, people have been hoping that this craziness will quiet down eventually. Let’s see…

  1. Well, Yahoo! went boom-boom, and nothing.
  2. As also mentioned before, Twitter, GoPro and a few others have not been doing well, and still nothing.
  3. Dropbox’s supposed 2017 IPO has been met with the loudest snores..
  4. Apple’s stock and outlook are really terrible right now, with vague promises of better crap..

All this, and yet, Real Estate prices have only gone up, up and away. For example, in Hayward, somebody wants $399,000 for this (there’s more, if still on sale, go have a look-see at some of the other pictures). It is so bad, they didn’t even bother taking good photos!

2016-08-17_1308

 

Absolutely nothing has slowed down the madness so far, which begs the question:

What WILL it take for Bay Area Real Estate to meet Reality?

We know, that from greedy developers, to mindnumbingly greedy Santa Clara City Officials and beyond, there is just an absolute sense that reality is for suckers. Unabated construction, most times, absolutely meaningless in terms of actual, future growth (and adjustments, that will come) is rampant. Communist style, ugly, matchbox dwellings go up everywhere with enough idiots who want to buy them, preyed upon on by new and increasingly bizarre lending practices (if you work at Google or Facebook or some of the other cat and ephemeral p0rn sharing sites, you can get a loan for up to to $2mn or so, with zero down, I kid you not!).

This has left out the “rest of us” who have still the desire to work in a world that doesn’t believe in “sharing economies” where we all serve as each others’ taxi drivers du jour. AND it leaves out the rest of us, who have to do real jobs of designing, cooking, delivering and you know, things that are not glamorous enough for Silicon Valley to even recognize, without a heavy priced, newly minted, monthly billing “start up” that does the same thing telling investors there are billions in feeding and fattening software engineers catered lunches.

In all this, of course, we have been trying to see WHAT can actually make a difference. And, I have to wonder if individual failures and downturns like that of Yahoo! or Cisco are enough to even make a measurable dent. It also appears that these occurrences are happening out of sync with each other, that the bubble is still able to grow and feed on itself. For instance, right in Milpitas is a “storage solutions” company whose acquisition completed in May. One has to only wonder if that will also result in “cost savings” and other measures, which could potentially have a cascading effect. However, even that will just be another blip, and people will move on, just tacking another $100,000 or more to their insane bid.

It is becoming nearly impossible to predict the kind of business/finance related disaster that it will take to cause this bubble to burst. It appears that multiple events need to trigger right next to each other on the time scale for a true dent to appear in Bay Area’s housing madness. One of these surely could be the election, leading to an indecisive or absent lead for Democrats in the Senate, or worse, a Donald Trump Presidency.

Thus, I have to conclude that even Cisco’s seemingly massive layoffs  are not enough for Bay Area RE to start its slow descent towards normalcy.

And, that, is just scary.

Reference: 

  1. http://finance.yahoo.com/news/cisco-systems-lay-off-14-012523261.html?utm_content=bufferfe449&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer 
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Silicon Valley is apparently bleeding talent, mainly due to real estate and cost of living

Posted on by Srihari Yamanoor
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city-cars-traffic-lights

The blog post I am about to quote, from WSJ, along with a video from NBC, only talks about US-born talent, but anecdotal evidence that I have shows that even foreign born talent is not going to stay in the area much longer, assuming the trend continues. I mean, I am one. I swore to myself I would never live outside the Bay Area in the US, and after shifting my gaze from a house in the Peninsula to one in San Jose and then Hayward all the while watching prices meaninglessly appreciate, I decided I might just abandon the whole idea and see if there are other places across the country.

The message here is deeper than either the article or the video. I seriously doubt if the traffic or housing prices are the only reason for the move. With Yahoo! going through a meltdown and many VCs developing less warm feet, if not cold feet altogether, the madness may be coming to some sort of a head here and at least few people must have realized it is time to move on.

Egress

Well, we all know this is just another bubble and it is going to burst, just that, none of us knows when. However you dissect the type and number of people who are leaving or the reasons for why they are leaving, there is a long term problem here. The “hotness” of the Real Estate market here, the cost of living and the fact that 5AM and 8PM are slowly creeping into the “rush hour” category means only bad news.

Ingress

You need to think of everything in unison here. It is not just that a handful of tech workers are going to Seattle, which is also relatively bad in terms of real estate, or to a desert location like San Diego. The exodus is causing us to lose professionals from various fields. The ingress is becoming increasingly unpalatable as well. Ask yourself where your kids’ schools will find good teachers? Or any other non-tech related professional services?

Unsustainable mash-up solution: Soviet Style Housing

San Jose for example thinks it has “solved” the low cost housing problem. For every 20 or 25 meaninglessly expensive housing projects, there is one, just announced, like the “Donner Lofts” with just a 102 units that will remind people of the Soviet Union with its ugly, boxy, industrial look and drab colors that some architect is going to try to fool you into believing is “modern”. Also, I am yet to hear what “affordable” means, and how long it will last, and what 102 units are going to do. The problem is not that Ed Lee and Sam Liccardo summarily lack vision, they also just don’t care.

Sooner rather than later, these types of unsustainable band-aid solutions will also fail. Of course, then comes the crash. If it takes another year or two till the bubble bursts, things will only get worse till then. After that of course, real estate will, I predict, going into a rapid, downward spiral. All those “multi-family, high density” adjective-soup units will either have to go empty, or drop rents, forcing this to become a whole another nasty ball game.

Gaming Housing

Almost everyone who lives here or talks about the problem here knows that foreign buyers, and by that I mean, wealthy Chinese individuals, and institutional buyers are deliberately gaming the market in all cash deals, never making housing competitive enough. Imagine housing having gone up 13% in just a year?

I used to track the housing prices when I was “in the market” and I started getting quickly disappointed. Every now and then, for s*s and giggles, I look up housing, only to find a bunch of run down shacks in a high-crime area in San Jose displayed as selling for, wait for it, $600,000 asking prices. Of course, usually people cough up “more” not less than the asking price.

I don’t know what you can do in a market economy to stop this sort of unfair price gouging, but if this trend continues, it spells disaster for the Bay Area. All one can hope for is that these greedy people gaming the prices also take at least some of the hit.

All problems and no solutions?

This is mainly the problem with the Bay Area. From bubble to bubble, we never achieve balance. I don’t know that a solution can be achieved here. The venture capital industry doesn’t care. The “entrepreneurs” want to sell you garbage just so they can become billionaires. What with accommodating lunatics like Marissa Meyer (and the people who thought a 37 year old engineer can save an me-too-also-ran media company) who bought Tumblr, you can’t really blame them.

Silicon Valley doesn’t have good political leadership. The people who get elected here, mostly want to use this as a launchpad for their political agendas. A great example? Chuck Reed, former mayor of San Jose, who not only screwed the city beyond recovery, but also channeled a very ineffective and directionless successor, Sam Liccardo and moved on to weaken unions and pension funds by siding with Republicans. Because, an insecure retirement is a great attraction when hunting for talent I assume?

In a very ironic way, it might take another round or two of bubbles and actual loss of competitiveness to other areas before something changes. Till then, all we can do is, see if we can guess when the next one is coming down and try to duck for cover soon enough.

For more

This particular post was dedicated to real estate, traffic and talent exodus. Here is another WSJ piece on the valley’s slowdown:

http://www.wsj.com/articles/for-silicon-valley-the-hangover-begins-1455930769

References:

  1. The WSJ blog post: http://blogs.wsj.com/digits/2016/03/03/silicon-valley-residents-leave-for-greener-grass-cheaper-housing/
  2. The NBC Bay Area Video: http://www.nbcbayarea.com/news/local/Housing_-Traffic-Spur-People-to-Leave-Silicon-Valley_-Study_Bay-Area-371126301.html
  3. Donner Lofts Announcement: http://www.bizjournals.com/sanjose/news/2015/01/08/midpen-housing-breaks-ground-on-102-unit-donner.html
  4. Image Credit: https://www.pexels.com/photo/city-cars-traffic-lights-6732/
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