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Could there be a panic in Bay Area real estate?

By Heraclitusstudent following x   2018 Oct 1, 5:30pm 3,078 views   26 comments   watch   nsfw   quote     share    


https://www.cnbc.com/2018/09/27/bay-area-home-sales-tank-10-percent-in-august-to-slowest-pace-in-7-years.html

Sales down 10%.
Inventory up 20%
Prices still way up.
Many people were hanging there just to take their huge capital gains every year.
As many people start thinking the market is in the process of topping for this cycle, will inventory jump as people rush for the exit?
1   APOCALYPSEFUCKisShostikovitch   ignore (38)   2018 Oct 1, 5:31pm   ↑ like (4)   ↓ dislike (0)   quote   flag        

FAKE NEWS!

There is no reason a parking spot in E Palo Alto shouldn't be worth 313 times the GDP of South Korea.
2   OccasionalCortex   ignore (3)   2018 Oct 1, 5:35pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Panic? WTF? Did the BA 'panic' when the foreclosures were popping up back in 2009? No.

It's not like people can dump real estate like they can stocks.
3   Strategist   ignore (2)   2018 Oct 1, 5:35pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says
Could there be a panic in Bay Area real estate?


As long as there is a shortage, no panic. Just a pause.
People have to live somewhere.
4   lostand confused   ignore (0)   2018 Oct 1, 5:46pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Yeah but now you have the new tax law. Not a new tax expert. Say you sell your 1.3 million crap shack and notched a 1 million dollar gain. State tax takes what 13.5% which you cannot deduct against federal taxes anymore-well except the 10k? So what happens-is it still lucrative as a buying investment?
5   OccasionalCortex   ignore (3)   2018 Oct 1, 6:07pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

lostand confused says
Yeah but now you have the new tax law. Not a new tax expert. Say you sell your 1.3 million crap shack and notched a 1 million dollar gain. State tax takes what 13.5% which you cannot deduct against federal taxes anymore-well except the 10k? So what happens-is it still lucrative as a buying investment?


Yeah. Kinda puts paid to the 'panic' part in a 'market'. In fact, they have every incentive to hold on to it and hope that the federal tax laws change back to the olden days when the rest of the country subsidizes the asset capital gains riches of the comparatively well off states.

What is 'Panic Selling'
Panic selling refers to wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic selling, investors just want to get out of the investment, with little regard for the price at which they sell.
6   Heraclitusstudent   ignore (2)   2018 Oct 1, 6:10pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Strategist says

As long as there is a shortage, no panic. Just a pause.
People have to live somewhere.


That's true but they may tell themselves that's it's a good idea to rent for some time if prices look shaky.

Or they might think it's not worth it to live here, but were hanging on while the market was going up.

Part of the low inventory we had for some time is that people are not moving because they think they have a golden investment. And they were proven right for a while. But everything has a price. Even living elsewhere. At some point you need to sell.
7   Heraclitusstudent   ignore (2)   2018 Oct 1, 6:13pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

The fed has taught people there are big up cycles and big down cycles as well, and you need to be on top of that cycle.
8   Hugolas_Madurez   ignore (4)   2018 Oct 1, 6:15pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Why not? 7 years is a pretty long run for our lottery RE economy.
9   Strategist   ignore (2)   2018 Oct 1, 8:11pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says
Strategist says

As long as there is a shortage, no panic. Just a pause.
People have to live somewhere.


That's true but they may tell themselves that's it's a good idea to rent for some time if prices look shaky.


If more people think it's a good idea to rent, rents will shoot up even more. One way or other, if there are not enough homes for people to live in, there will be a price to pay.
They could move out of state, only to be replaced by even more people moving in.
Look at Hong Kong. Home prices take 5 steps forward for one step back, even though their affordability continues to decline.
10   NoYes   ignore (2)   2018 Oct 1, 8:17pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Smash and grabbers aren't worried
11   BayArea   ignore (1)   2018 Oct 1, 8:27pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Until I see a price decline, it’s all water under the bridge...
12   ThreeBays   ignore (0)   2018 Oct 1, 9:24pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Prices did soften by 5-10% or so since the summer peak, and the number of for sale signs are up. I would buy now, before the next up swing starts in January.
13   Heraclitusstudent   ignore (2)   2018 Oct 1, 9:29pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Strategist says
They could move out of state, only to be replaced by even more people moving in.

There are cycles in the BA economy as well.
How many billion dollars companies do we have that have been living from raising cash?
You just go into "purge the rot" mode, and a lot of people will go away - at least temporarily.
We've seen that movie before.
14   Heraclitusstudent   ignore (2)   2018 Oct 1, 9:31pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Strategist says
rents will shoot up even more

True but rents, while high, aren't nearly as expensive as the purchase price in the bay.
People factor future capital gains expectations in their decisions to buy.

Even if prices were to go down by 15%, when the price is $2 millions, that's real money.
Even if you have to pay $60K in rent in the meantime.
15   curious2   ignore (0)   2018 Oct 1, 9:40pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says
Could there be a panic in Bay Area real estate?


Not unless a giant earthquake knocks down Casa de ZucknChan among other decisive structures. SFBA companies have achieved escape velocity, and the founding CEOs will stay put because they can. That implies the companies will retain critical mass here. Salesforce tower will inspire imitators. SF continues to refuse to allow enough construction to solve the supply shortage, and demand will not go away soon on present trend.

BTW, Senator Warren's proposals would have little or no effect. A small infrastructure incentive to relax zoning? Peanuts: SFBA would ignore it. Subsidized construction? Say hello to SF zoning and planning and NIMBYs.

Seriously, nothing short of a big earthquake, war/terror, or total economic collapse would cause a panic in SFBA RE. I wish we allowed enough construction to make housing prices reasonable, but I don't see nearly enough progress in that direction.
16   Heraclitusstudent   ignore (2)   2018 Oct 1, 9:55pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Giant earthquakes should be factored in the price as they are known to happen.
17   curious2   ignore (0)   2018 Oct 1, 9:59pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says
Giant earthquakes should be factored in the price as they are known to happen.


Yes, but they aren't. If a giant earthquake hits, the value of surviving structures could rise or fall, depending on whether the quake reduces supply or demand more. The leaning tower might fall, along with the transit center and maybe the new bridge, but it's hard to guess how many people will stay and compete over the remaining housing supply.

People forget about earthquakes. We've been overdue for a big one for years. It could happen tonight, or 100 years from now, but the longer we wait, the longer people feel like we can wait. That's opposite to reality of course, but it's how markets work in practice rather than theory.
18   BayArea   ignore (1)   2018 Oct 1, 10:36pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

ThreeBays says
Prices did soften by 5-10% or so since the summer peak, and the number of for sale signs are up. I would buy now, before the next up swing starts in January.


Lol, that’s absolutely untrue
19   Reality   ignore (5)   2018 Oct 2, 7:27am   ↑ like (1)   ↓ dislike (0)   quote   flag        

IMHO, the real earthquake will be the self-driving car. If/when people can work/sleep/exercise/shower during their commute on personalized vehicles door-to-door, the value of living in the city center vs. living in the suburbs or exurbs is drastically reduced. That combined with the SJW collapsing public schools in city centers will replay what happened to the relative valuation of cities like NY, Boston and DC vs. their suburbs in the 1955-1990 time period (express highways and "white flight").

The reversion of that trend during 1995-2017 was the result of the college bubble and increasing car insurance cost shoving an entire generation (or two) of youngsters who could not afford cars into the cities (and into late family formation). Aggressive policing and the delayed effect of legalizing abortion on declining crime rate also helped. "BLM," union trash collectors and rent-control have in the past couple years started the trend back in the 1955-1990's direction; self-driving cars will accelerate that process.
20   Patrick   ignore (1)   2018 Oct 2, 7:47am   ↑ like (0)   ↓ dislike (0)   quote   flag        

I actually went looking at houses in SF over the weekend, and was pretty surprised at the large number of houses for sale. Clearly there is some kind of rush to sell at the moment, at least by SF standards.

It was also pretty depressing that even in the best neighborhoods there are frequently bars on the window and perhaps even human shit on the ground.

What we really lack is a source of price data independent of used-house salesmen.
21   Quigley   ignore (0)   2018 Oct 2, 8:28am   ↑ like (1)   ↓ dislike (0)   quote   flag        

curious2 says
Yes, but they aren't. If a giant earthquake hits, the value of surviving structures could rise or fall,


Anything built in the second half of the last century or later will probably be fine if the quake is less than an 8.0 on the Richter. I think we’d need an 8.5 or better to really do catastrophic damage to a major city in California. We have strict building codes that take earthquakes into account. Remember Peru? That was a decade ago in Lima, their main capital city, an 8.0 and they were fine(The most devasting earthquake in recent years was an 8.0 earthquake that struck near the capital of Lima in 2007. There were 519 casualties.). Same thing there, they built for earthquakes. 500 people hurt or killed is a drop in the bucket. Their civilization didn’t break down. Just some older buildings that should have been replaced years ago.
22   Strategist   ignore (2)   2018 Oct 2, 9:34am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says
Strategist says
They could move out of state, only to be replaced by even more people moving in.

There are cycles in the BA economy as well.
How many billion dollars companies do we have that have been living from raising cash?
You just go into "purge the rot" mode, and a lot of people will go away - at least temporarily.
We've seen that movie before.


"Temporary" yes. Anything can happen temporarily. We had a temporary real estate crash in 2008, making it one of the best times to get into real estate.
In the longer run, you can expect a continuation of mega trends where population increases, and hi tech companies flourish.
23   Strategist   ignore (2)   2018 Oct 2, 9:39am   ↑ like (0)   ↓ dislike (0)   quote   flag        

curious2 says
Heraclitusstudent says
Giant earthquakes should be factored in the price as they are known to happen.


Yes, but they aren't. If a giant earthquake hits,


I just renewed my earthquake insurance policy. Most of the potential earthquake costs are factored into the policies. It would still be an unprecedented disaster, but a mandatory earthquake policy would go a long way in mitigating disaster costs.
24   Heraclitusstudent   ignore (2)   2018 Oct 2, 9:46am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Insurance or not, last time there was an earthquake, prices collapsed, as people were reminded they could die any minute, and some decided they would rather be shoveling snow.
25   Quigley   ignore (0)   2018 Oct 2, 9:46am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Strategist says
I just renewed my earthquake insurance policy.


Meh. If a truly epic earthquake happens here and it damages or destroys a lot of properties, a national disaster will be declared unlocking FEMA dollars. Also the insurance companies will go belly up, and good luck redeeming that policy.
Best use would be for minor damage sustained in a moderate earthquake.

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