Flat decades and tech saturation


#1

What is your investment strategy if Bay Area housing price will be the same in 2028 as in 2018?

Price may has some small ups and downs in the middle, but not wide enough to trade.

Also there’s the possibility of technology saturation. Google and Facebook may become something like Intel and HP. And no new tech company will replace them. Will Bay Area be worse than NYC and DC? DC has the government so they will never become Detroit. NYC has Wall Street, they are also safer.


#2

Why would this necessarily have to be? I mean, did anyone actually thought Salesforce would become the force that it is now? My god, it is taking over my work neighborhood like gangbusters. Millennials in their skinny jeans running amok and driving up rice plates to well over 10 bucks!!!


#3

Wall street lays off more people than the tech industry. I believe that FinTech will eliminate most of Wall street jobs. Look up companies like Addepar, Betterment, Wealthfront etc. I was told that FinTech is growing in SF because there is resistance from older employees in the finance industry in NY.

I had a Facebook account in 2007 itself but had no clue it will become what it is today. There is no way you can accurately predict next 10 years in tech industry, but if you can then you can make a killing in the stock market. Nvidia was 1/8 of its current price just 3 years ago. Did you predict it? I did by the way and I say I just got lucky.


#4

Also a plug for stock diversification?


#5

Now I am just scared of stock market. :smile: I may change my opinion after the elections.


#6

Never bet against BA housing.
Good analysis from Quora

As a lifelong Bay Area resident, employed in the tech industry since the 90s and a homeowner of a couple properties, I’ll provide my somewhat non-objective take here:

  1. The dot com bubble and implosion in the early 2000s didn’t impact the rise in real estate values in the Bay Area. While there was a noticeable outflow of folks who moved elsewhere, housing values did not go down.
  2. Housing values did go down during the Great Recession, most notably in “bedroom communities” (e.g. Vallejo, Fairfield, Pittsburg/Antioch and Tracy) a decent drive from the “urban core”.
  3. Prices in more desirable areas of the urban core (e.g. Palo Alto, wealthier areas of San Francisco, etc.) did also go down, but not as significantly as the rest of the nation.
  4. The amount of buildable space within the urban core, which was already limited to begin with, only decreases as time moves on.
  5. Tech has become an integral aspect of most everyone’s daily life for the majority of the residents of this planet.

The last point is the most important one IMO. I used to hear folks locally talking about how we’ve been in another tech bubble for way too long, and when the inevitable implosion occurs, housing values will go down similar to what happened in the Great Recession. When that happens, they’ll be ready this time around to buy properties for a fraction of their current values. My first response is to ask them this….“in 2001 after the dot com implosion, did you have a smartphone?”

Of course the answer is no. So the follow on question I then ask is “do you currently check your Facebook/Instagram/Twitter/online banking/Amazon/email accounts/news feeds/message forums on a regular basis throughout the day?” Usually by now, the light comes on in their eyes that life in 2018 and beyond is markedly different than life was in 2001 (dot com implosion) and 2007–2009 (Great Recession).

The next question I ask is “do you think companies in the Bay Area reporting net profits in the billions of dollars annually, such as Apple/Google/Facebook/Oracle to name a few, are going to wither away and die like the negative earnings dot com companies of the early 2000s?” Of course the universal answer is “no”. Following that up, I ask if they feel that well paid folks like software developers and IT engineers/admins are going to be laid off en masse, and the remaining folks will get paid in the 5 figures for annual salary instead of the decent six figure salaries that they currently receive. The answer is inevitably a “no” or “highly unlikely”.

I then ask if they believe that every economic downturn is as significant as the ones prior. For those who do feel that the next downturn will mirror the last one, I ask them how many times we’ve had a Great Depression and a Great Recession. While the mantra of “past performance is no guarantee of future results” is trotted out for predictions of potential positive upticks, I would argue on the flip side that history has shown that significant economic contractions are not as frequent as people believe them to be. It simply hasn’t been a bubble bursting every time there’s a downturn. IMO there have been “balloons”, which can pop or can also leak and lose air (both slowly and rapidly). Usually, people agree that’s been the case historically.

For the folks who still feel that the next downturn will represent a buying opportunity from a real estate perspective, I ask them at what point will they try to “time the market” (i.e. what percentage off of current values will prompt them to buy). The far majority of respondents have said “hmmm, that’s a good question, I haven’t thought of that”. There have been responses falling into the 30% to 60% range off of current highs. That prompts me to ask “do you think you’re the only smart person who is planning to buy Bay Area real estate whenever prices go down?” I then point out that besides the considerable numbers of individuals who have enough personal wealth to convert a portion of their investment portfolios to cash to be players in the real estate market, there are numerous nosebleed net worth individuals as well as huge institutional funds both domestically and globally that are also ready to swoop in should prices in the Bay Area decline by a certain percentage (my guess is no more than 25% off of current levels would trigger an influx of investor demand).

Tech is the industry most intertwined within every other industry of note on this planet, and unless you think that we’re going back to paper and moving away from automation, tech will continue to be an embedded part of billions of people’s professional and personal lives. The Bay Area is still the center of the tech universe. Combine that with a temperate climate, easy access to various types of nature pursuits (hiking, skiing, boating, fishing, surfing, golf, etc), plenty of cultural activities, top-notch educational institutions and a relatively open mindset to people from a variety of backgrounds, and you have a metropolitan area that will always be a dream destination for people globally to aspire to move to. Short of a calamitous natural disaster (ahem……earthquake) or a global pandemic (ahem….zombies), the demand to reside in the SF Bay Area will the far majority of the time be higher than the supply of affordable housing to accommodate


#7

It was that way after 1987. After the stock market tanked 30%, it took ~3 years home prices rose up slightly. Around 1992 the home prices tanked again until 1997. With inflation adjustment a median SFBA home price over 10 years increased from $320K to $370K (+15% during 1987-97). Earlier, Apple had 3 major layoffs. The worst year was in 1970. When Lockheed, the largest county employer let go 12,000 employees. Walter Cronkite showed how rough it was. Local new cab drivers many had PhDs driving on Tully Road. The joke was to go to to Stanford Plumber School instead engr. school to get a life lasting skill.

The weak redundant business will eventually be weeded out as unfit. Innovators and business people all believe in the future and accept the roller coaster Silicon Valley business cycles along with potential rewards and risks.


#8

Will 2018-2028 a repeat of 1987-1997?

It could be worse due to low inflation today, and already low interest rate.


#9

Can not say.
Nice homes in Santa Maria, CA 2400 sf asking 320K. Closed a 4 plex deal $500K with $4K net flow, Stockton. Only this area the housing market is that crazy…


#10

@Elt1, awesome analysis! We should keep this post in a separate sticky thread because this question comes up every other day.


#11

Copy and paste and put wherever. Not my content but is well said.


#12

Those who are in RE and stock since 2000 didn’t think is likely, they ain’t see nothing yet.
When you think is least likely, the Black Swan strikes.


#13

So many people waiting for the bear market is a contrarian indicator. Any downturn will not be deep.


#14

So far I haven’t read a view that is different from your. :grinning:


#15

:smile: True. But there are a good number of people waiting for a downturn. That’s the contrarian indicator.


#16

I believe in black swans :stuck_out_tongue:


#17

When is downturn… nobody know but it is certain to come…
When everybody believe it is not deep…


#18

Very few people are pessimistic in terms of housing market. People are really optimistic.

Stock bears are at control for the short term, but we can still have major rallies. We may have new highs for Dow and SP500


#19

I thought lot of people on this forum are pessimistic about the housing market.


#20

Only @tamato. I’m not pessimistic, I’m realistic :rofl: I have a low expectation and have a healthy dose of concern.