This article is talking about Oakland, California, but these conditions exist up and down the coast. Thornberg has been one of the more level-headed bubble analysts:
http://ww2.kqed.org/news/2015/02/18/is-the-bay-area-in-a-bubble-and-will-it-burst
An excerpt:
“This is not a bubble,” says Chris Thornberg, an economist in Los Angeles.
Though he’s just one guy, we called him because he has the dubious distinction of having predicted the 2008 market crash. His colleagues used to call him “Dr. Doom.”
He says that the money flooding the Bay Area isn’t built on speculation like the last boom.
“These are people with real money, with real incomes,” he says. “They have enough money to live in whatever cities and neighborhoods they want, so if there’s not enough high-end housing, they’ll just gentrify lower-income neighborhoods.”
And while the growth may slow, it won’t stop, Thornberg predicts. He believes the solution is a matter of adding to the housing supply. As more units come on the market, prices become more reasonable for everybody, he says.
But others argue that without policies making sure some of the housing is affordable, it’s not going to make any difference for middle-class and poor people.
“That’s completely wrong,” Thornberg says. “The evidence tends to suggest that for the most part, when you start layering rule after rule after rule on real estate developers, ultimately you end up simply hurting the supply worse.”
So what should Eaton do?
Thornberg’s answer? Buy now. Anything you can get.
A lot of this “real money” has been from tech companies who have survived with the “achieve growth until we can figure out how to turn a profit someday strategy”,i.e. Pandora, or “circumvent all taxes / lawsuits until as long as possible” i.e. Uber, Air B+B.
Many of these companies, like Amazon, have survived via VC funding and continuous issuance of new shares. If interest rates ever do rise, the easy money speculating on a major pay-day will go elsewhere.
If you’re one of the early employees in these firms, you’ve been able to cash out. The majority of the folks working in the bay area, your nurses, teachers, civil engineers, have not seen the wage growth to sustain the rise in housing costs.
Money has been flowing into the Bay Area on speculation, it’s just been primarily focused on profitless tech companies with a secondary effect on housing.
Brian,
I work in tech and can promise you that VC money is just one part of the equation. There’s all kinds of established companies that pay huge and aren’t tied to VC’s in anyway.
There’s so much money flowing in San Jose that most companies can’t hire people fast enough. If you have the skills the amount you get paid is equivalent to the .com days.
What I do know is that in SF/SJ is that there’s a clear divide between the haves and have nots. The have nots are the majority and try to capitalize on it through gov actions and laws. Unfortunately for them the haves have more money than time and are slowly winning out.
I think he has it right,
The solution is to build more housing (ease restrictions).
Maybe better public transit to the burbs and exurbs
One thing in San Jose is they tend to put it all in one place as well, it would be better if they opened more satellite offices as well.
Never understood the resistant that.
This is EXACTLY the answer. BUILD MORE HOUSING. I tried to build on a vacant lot last year a single family home but stopped because of the difficulties and the fees. It is too hard. The only way housing will stabablize (let alone come down in price) is to increase the supply. So simple.
Gentrification of downtown LA is moving right ahead:
http://www.latimes.com/business/realestate/la-fi-0219-property-report-grand-20150219-story.html
If Whole Foods is making that big of a commitment in that formerly dicey area, they must know there’s some major plans afoot for repopulating downtown LA with the trust-fund enabled millennial hoard.
I posted this in August 2006:
“Christopher Thornberg, who says the Southern California housing market is a bubble beginning to pop, has left UCLA Anderson Forecast to strike out on his own.”
“Look at what your house was valued at three years ago and what it is now. Is it really worth 70% more? The answer is no,” he said. “There is no way you can justify the math.”
http://www.latimes.com/business/la-fi-thornberg15aug15,1,4462297.story?coll=la-mininav-business
Didn’t “The Maestro” Greenspan say during one of his Senate hearings that we don’t know it’s a bubble til after it pops?
Maybe he had something with that comment.
What we currently have is sure as heck a bubble, but very different than the last one or previous ones. When it pops, and it will, the consequences will be profound.
At some point in the future we all may wonder how it wasn’t seen for what it was…
“Gentrification of downtown LA is moving right ahead:”
It’s more a fad that will fade in my opinion, it works for a small minority of single and childless millennial’s, but only a very small percentage will fit even, downtown is just not that big LOL.
They are great rentals though, so investors could lead the charge.
I think you’re right on the money, Jim…
“With so little new construction, once-struggling condo projects are rebounding. When developer AEG opened its luxury Ritz-Carlton Residences at L.A. Live in 2011, downtown’s most extravagant condo development remained mostly empty amid a hangover from the economic collapse.
But last month, the luxury project sold out its 224 condos when a Chinese buyer paid more than $4 million for a penthouse, AEG said. Sales surged in 2013, and the final six units sold this year, according to the Agency, the brokerage firm handling sales for AEG.
“The fact that it actually sold out — it’s huge,” said Elizabeth Lande, international estate broker with Engel & Volkers. “It says there are people who could afford to live anywhere, and they are choosing to live downtown.”
http://www.latimes.com/business/realestate/la-fi-downtown-condos-20140612-story.html