Wednesday, November 04, 2015

Everyone thinks they are en expert on spotting bubbles these days.

This is a bubble. Oh wait.

No, THIS is a bubble! Well... hold on. Maybe the bubble is in here somewhere.

I spent a fair amount of time getting lost yesterday while doing the conference thing. Who gets lost anymore right? But I stubbornly didn't bring up GPS because I thought there were few places in San Jose I hadn't been.

If you do any driving around Silicon Valley these days, you'd think we were in a building boom. There are a bunch of new high rise campuses popping up all over The Valley. Not to mention two BART stations. The amount of commercial buildings that have had makeovers is very noticeable. And it seems like every city has several new sites for houses or condos. I can't tell which because the stuff they are building these days don't have much of a yard at all. So I can't tell if they are houses or condos just by driving by.

Having said that - this week, the market clearly looks softer than it's been in a while. Even in San Fransisco. I've also noticed the price reductions as far as southern California. I read story after story about the market reaching past the bubble highs. So it's clearly due for a pop. Which I believe is pretty delusional. Real estate basically doubles every decade. We are almost at 8 years and we are just now reaching past bubble highs.

I'd say the softness is more due to deflation finally seeping into the overall economy. Deflation hits real estate too. Companies just can't absorb the earnings hits any longer. People mostly thought the oil price would be very temporary like in 2009. But it hasn't turned out that way. I think companies have fought hard to not lay people off because it is very costly to fire, and then when business rebounds - hire. With commodities getting beaten so badly, I think that changes. Those companies are puking blood at this point.

The reason I bring this up is because I'm constantly trying to find new technology. But all I find is shiny new campuses right now. And while I love shiny new campuses - I'd like it more if there were new technology. It makes you wonder if they are putting most of that R&D money into just the D side for development because people just aren't buying things right now.

It is concerning that mortgage apps are getting really frothy again. Mostly because it shows what a shitshow we are in for the last year of this administration. But when the Fed comes out to say - I'm raising rates, but if I don't we might also have negative interest rates. That tells you the real story. They are preparing you for deflation. Well... preparing is probably too kind.


  1. My neighbor has been trying to sell 2 houses on my street for nine months no luck. He started at $300k a piece and is now at 220k. Apparently it is a short sale. It seems weird to me that something could go for so little while people an hour and a half away are paying 4k a month just for an apt. DF

  2. Uh oh. Seriously? The burbs are softer than I thought. Although I'm
    not that surprised. Someone came into the blog a few days ago from a city in Ca I'd never heard of before. So I am always curious about new towns and like to explore them. The real estate markdowns in that city (S.Ca)were way more severe. For instance a 400k home with a 100k markdown. That is a savage markdown. Even SF sales were down 19.5% yoy. That is a lot of percent.

    I would not want to be caught in this market needing to sell. Been there in 08. I suspect credit is getting really tight. It feels like the market is convulsing a bit.

    I think if a house is on the market for more than three months realtors start ignoring your place. It just becomes too stale. I took my place off after three months and got a renter in there. Even at a loss for a few years.

    If I were that guy I'd call out a property manager to see what he could rent one of those places for. He doesn't have to use them, but at least he can get an idea. He's in a tough position right now.

  3. I've got to figure if the bank is letting him short sell it, that they wouldn't let him sell it for too far below market. My theory is that the mini crash we had in October caused the power brokers to pull back on availability of credit in Sept and Oct is a response to belt tightening. Less approved loans would mean less buyers, especially if they tightening on the lower end of the spectrum. We've seen other commodities fall, maybe housing is next. If real estate has a 25% correction, it would certainly put the country into a recession. Of course his discount may also have something to do with all of the arcade games on his neighbor's porch ;)

  4. I'm not sure how it works. I never got enough people to be candid about that
    particular stage to say I understand it well. Once you are there I'm sure you feel pretty vulnerable. Things all of a sudden get spotty and vague.

    From the buy side it just always seemed like those people eventually walked
    away. I didn't get the impression banks really wanted to work with them. I
    mean, they get the house anyway. The rest is just a technicality.

    Your time frame seems match up with what people are saying when the
    slowdown started. I don't know if I'm completely sure what I think yet. I'm
    guessing the ability to pay back loans in the oil sector isn't helping.

    If it were just your neighborhood I wouldn't think much of it - but it's not. I think your arcade blight is okay for now. Are you running out of space?