Will gentrification slow down when the Tech Bubble 2.0 pops? (San Francisco: foreclosures, how much)

[BayAreaHillbilly]

Somewhat, however, don't underestimate the effect of hot overseas money (especially from China). That is not related to Dot Bomb 2.0. The hot overseas money would be happening without the tech bubble.

[HappyinCali]

Originally Posted by bmw335xi

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

Maybe. See my other posts. San Francisco, due to a unique combination of geographic, political and economic factors is quite different from Phoenix, AZ

[shooting4life]

Originally Posted by bmw335xi

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

Very few areas saw property values drop by half and that has only happened once in 80 years. If you are waiting for history to "repeat itself" you might be dead before it does.

I can see a small correction (10-15%), maybe 2017. But after a couple of years it will continue to go up. The simple fact is the Bay Area is land restricted, and very little housing is being added while population increases.

I read an article the other day where it said California built slightly more housing last year than the Houston metro area. Think about that for a second.

[mini_cute]

Originally Posted by 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?

Excellent explanation.

In regards to people who think that the SF homes are overpriced and there should be a correction-

I'd like to add that even though it seems the homes are overpriced- run-down, no yard, etc., there may be other variables factored into its price besides the homes physical attributes and obvious things like location. In SF's case- it is access to the high-paying tech jobs nearby and opportunity to become the next tech millionaire/billionaire. So one person who wouldn't benefit from access to that job market because they don't work in tech, wouldn't see the value in it. But another person who does would. Just like someone with no kids wouldn't see the value in paying a premium to live in a good school district.

Old SF = Pay $500 a month for an apartment to try to live the hippie dream
New SF = Pay $5,000 a month for an apartment to try to live the tech start-up dream

Old Oakland = Pay $200 a month for an apartment to live next to San Francisco
New Oakland = Pay $2,000 a month for an apartment to live next to San Francisco AND live in Oakland

[Bonez765]

Originally Posted by mini_cute

Excellent explanation.

In regards to people who think that the SF homes are overpriced and there should be a correction-

I'd like to add that even though it seems the homes are overpriced- run-down, no yard, etc., there may be other variables factored into its price besides the homes physical attributes and obvious things like location. In SF's case- it is access to the high-paying tech jobs nearby and opportunity to become the next tech millionaire/billionaire. So one person who wouldn't benefit from access to that job market because they don't work in tech, wouldn't see the value in it. But another person who does would. Just like someone with no kids wouldn't see the value in paying a premium to live in a good school district.

Old SF = Pay $500 a month for an apartment to try to live the hippie dream
New SF = Pay $5,000 a month for an apartment to try to live the tech start-up dream

Old Oakland = Pay $200 a month for an apartment to live next to San Francisco
New Oakland = Pay $2,000 a month for an apartment to live next to San Francisco AND live in Oakland

+1 for this excellent and balanced comment.

[Bonez765]

Answering the question of the OP. No, it won't. Tech will still be strong for at least the next 2 decades here in the Bay and people want to live in SF for obvious reasons. Mix those two together and you get the current situation. Tech has ups and downs but it's a continuing path in gentrification and ousting all the undesirables out of SF (Manhatinization of SF and Brooklynization of Oakland).

[ttocs99]

Originally Posted by 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.
.

I agree 100%, back when the tech bubble burst and the Nasdaq crashed in 2000, it was all about poorly run tech companies that had no profit margin and were way overvalued because of a frenzy. The Nasdaq isn't fueld by tech stocks as much, the majority of the gains are from Healthcare.

[ambient]

Originally Posted by 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?

Well, naturally. That follows by definition of a regional economic correction.

[ssmaster]

Originally Posted by 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.

The crash of the previous tech boom actually led to a tremendous increase in real estate prices as people moved their money out of tech stocks and into real estate.

[WizardOfRadical]

The tech boom of the 80's busted and the dot com boom busted. Why would a bubble based on smart phone apps and data mining not bust?