Will gentrification slow down when the Tech Bubble 2.0 pops? (San Francisco: sales, 2014)

[sf_arkitect]

Anyone think that the expulsion of the city's middle and creative classes will slow down once this tech bubble pops? WHEN it does, will there be a correction in housing prices in the city?

Some people say it won't but that's impossible. That statement goes against the nature of boom and bust cycles of the free market. So it's clearly a matter of when the tech economy goes bust.

[bmw335xi]

The market always has ups and downs, so there will be another housing crash, stock market crash, economic crash etc... Over the long-term housing prices will increase but there will be ups and downs along the way.

[beb0p]

What happened when the last tech bubble popped? Did gentrification slowed down? Nope. It actually sped up despite the pop. That's because the tech bubble was followed almost immediately by the housing bubble. And soon after the housing bubble popped, did gentrification slow down? Nope. It still went ahead but at a slower pace and then picked up again when housing picked up.

What will happen when this tech bubble pop? First of all, do we have a tech bubble? I personally don't think so, at least not yet. Second of all, if we have a tech bubble and it goes bust, we still have foreign investors and lots of pend up demand. Maybe another bubble will immediately take shape after the tech bust, or maybe not. It's hard to predict the future.

Yes there is boom and bust cycle but that cycle could take a long time to play out. Bottom line is no one can time the market.
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[Bluefox]

Doubt it. SF has become mostly inaccessible. (Edited to add: a backyard of the 1%, a parody of the liberalism that once characterized SF.) It would take a true disaster beyond a bursting tech bubble for things to go down. But I think at this point it's fairly obvious that it's an overrated place to live and the Bay Area fortunately still has better offerings for people with creative intellect and others outside the technocracy for whom the city is prohibitively expensive.

[Tulemutt]

Oohhhh! Bubbles!
Bubbles everywhere! So pretty!
I just love bubbles! Don't you!

[bmw335xi]

If the tech industry left San Francisco, the city would burn to the ground because it spends so much money on all these ridiculous programs. I feel like some people think the city just magically creates money out of thin air to support all these programs. You take away the tax dollars and then you can kiss all your welfare programs good bye.

[bay2bay]

Originally Posted by bmw335xi

If the tech industry left San Francisco, the city would burn to the ground because it spends so much money on all these ridiculous programs. I feel like some people think the city just magically creates money out of thin air to support all these programs. You take away the tax dollars and then you can kiss all your welfare programs good bye.

Welfare programs are imported and needed. Perhaps I'm off base on this, but in SF they seem to have multiple programs that seem to exist only to keep non-profits and other do-gooders feeding off the gravy train. I've often wondered how much of the money actually ever trickles down to those deemed in need.

[Fiona8484]

If a crash happens, at best I think the housing market cools down for a year or two before picking back up. I think any correction to the housing market will be minimal (such as a 10% decrease) before sharply going up again. Just my two cents.

[bmw335xi]

Originally Posted by NYinCA2014

If a crash happens, at best I think the housing market cools down for a year or two before picking back up. I think any correction to the housing market will be minimal (such as a 10% decrease) before sharply going up again. Just my two cents.

I'm sure we will see another 50% drop in home values. History tends to repeat itself.

[HappyinCali]

I have thought a lot about this and I think it is a very complicated answer. Long term, I think the answer is likely "no". I also think that any correction might not be that deep. Here is my thinking about it.

- There have been a lot of cash only sales to foreign investors. What happens in housing bubble? A glut of new houses dramatically outpaces demand. As a result, some people who bought last are underwater quickly or forced to sell. This further exacerbates the glut. Throw in a sprinkle of an economic slow-down and people foreclosing and you have a large number of houses chasing few buyers which hammers everything. In SF’s case, it appears that a lot of the sales went to foreign buyers who use them as a way to store money, not to profit. They are also unlikely to have a foreclosure. So, I think that automatically reduces the supply.
- There are no new single family homes being built. It is all condos. So there is literally a fixed # of single homes in SF. There can never be a glut.
- Of course, there can be a glut of new condos and that would impact the broader market. I think it is hard to measure that impact.
- So in SF, we have two things that argue that any correction might be short-lived – lack of new construction and potentially lack of foreclosures, resulting in very controlled supply.
- I think there are a lot of garbage companies with a lot of $$$ in SF. But there are also a lot of real companies. I read recently that Samsung, Ford, GM etc. have opened offices with 300-400 people doing research for future vehicles. These are real companies and real jobs, not driven by VC crazes
- In a stark contrast with the last bubble, you have a lot of companies that are at least making revenues, if not profit. That likely buys them more time to fix themselves. In addition, you have real companies like Google, Facebook etc. Love it or hate, Facebook makes a ton of money. A ton. It is super profitable.

All of the above, I realize, are variations of “this time is different”. It never is. However, San Francisco has a weird combination of geographical (limited land), political (opposition to new construction) and economic (if robots do everything one day, they will likely be invented here) that might prevent a meaningful correction over a prolonged period.

An earthquake (God forbid) will make the problem even worse. Look at what happened to Christchurch in New Zealand after their devastating earthquake. Housing became even more limited and a ton of workers working on the rebuilding came to the city, driving prices higher and higher and higher.

Given the data I see as of right now, it is hard for me to see an extended decline in SF. Of course, extended declines are never foreseen. Didn’t something like 70% of Soviet “Experts” think the Soviet Union was going to be around for another 50 years, 1 year before the collapse?