
SF Bay Area Housing Crash Continues (2006) - epa
http://www-formal.stanford.edu/selene/housing-bubble.html
======
ChuckMcM
That was Awesome! First lets have a look at his points in the context of 8
years later, what happened?

#1 This author misses that house fundamentals in the bay area are tied to
wealth generation, not income levels. A place like Facebook goes public and
several thousand people are in a position to buy a million dollar house for
cash. Depending on who you ask Google pays their top performing engineers in
option adjusted terms between $300 and $400K/year.

#2 Interest rates are a function of economic activity, a crappy economy and
you get low interest rates. At least now the Fed has stopped "promising" to
keep them low.

#3 Adjustable rate loans can force the unprepared to sell their houses, that
has always been true.

#4 The 'massive job loss' has been completely eradicated, the bay area is
employing more people than it did in 2000.

#5 The salary declines must not be in tech, it used to be you had to be
management to make $100K now you just need to be a senior engineer.

#6 The population loss from the dot com bust exodus was pretty impressive, but
its also history.[1]

#7 The stock market has recovered, the NASDAQ had been adjusted, its over 4400
today.

#8 The leverage argument I didn't get. If you own a house you can't pay for
you aren't "bankrupt" you are "out of a house" (that is the thing about
secured no-recourse loans) and that sucks, but its not the end of the world.
Lately prices have been crazy again.

#9 Shortage of first time buyers. The weird thing is that _somebody_ is buying
those houses. A lot of them are buying for the first time, so where did they
come from?

#10 Speculation - I'd love to see real numbers on this today, in 2006 I could
see the problem but I think the mortgage meltdown took a lot of those people
out.

#11 Moving and 'retiring' is fun, and the older I get the more folks I know
have taken this route. Those folks are leaving behind houses which are being
bought up.

#12 Trouble at Fannie and Freddie. Boy was that spot on. I am still wondering
what will be the final resolution of that mess.

#13 Love the business week quote, it was made without an understanding of the
underlying mortgage mechanism that was about to embroil the world in the
greatest financial meltdown since the Depression.

So it is helpful to compare this authors fears and their outlook with what
actually happened in the 8 years since they wrote this. Yes there was
something amiss in the housing market (the unholy love child between
derivatives and sub-prime mortgages) and that did come to roost and did blow
up. But _once_ it blew up, the system has adapted. If you believe that the
economy was "too good to be true" because it was being manipulated in this
way, is it now more true? Less true? We will continue to see reverberations of
that event in finance going forward, we appear to have avoided for now a
similar melt down in commercial real estate, and many trillions of dollars
have been "lost" back to the future where they belong. Good things have
happened too, and eventually your grand children will read about this in their
history books like we've read about the Great Depression. The tragedy would be
if we failed to learn anything useful from the experience.

[1] [http://www.sfgate.com/news/article/Bay-Area-is-fastest-
growi...](http://www.sfgate.com/news/article/Bay-Area-is-fastest-growing-
region-in-state-5442241.php)

------
debt
I know this sounds crazy, but I don't want to buy in CA because we're running
out of water. There seems to be no long-term solution besides the desalination
of ocean water.

There are towns[2] in California here people have paid off their mortgage, yet
might not have running water in a year.

[1][http://www.mercurynews.com/science/ci_25013388/california-
dr...](http://www.mercurynews.com/science/ci_25013388/california-
drought-17-communities-could-run-out-water)

[2][http://www.newsweek.com/what-happens-when-town-runs-out-
wate...](http://www.newsweek.com/what-happens-when-town-runs-out-water-227929)

~~~
paulbaumgart
What's wrong with desalination? Israel does it:
[http://www.haaretz.com/life/nature-
environment/1.596270](http://www.haaretz.com/life/nature-environment/1.596270)

And San Diego will too, soon:
[http://carlsbaddesal.com](http://carlsbaddesal.com)

~~~
Afforess
Super-expensive and massive energy requirements. Its the least efficient way
to produce water. Also produces brine-salt waste which is nasty to process or
dispose of.

[http://en.wikipedia.org/wiki/Desalination#Considerations_and...](http://en.wikipedia.org/wiki/Desalination#Considerations_and_criticism)

~~~
scythe
Even these costs pale in comparison to the annihilation of the Colorado River
watershed. Desalination would make California produce much more expensive; it
might severely hurt the lettuce industry. But it would save the environment of
Arizona and northern Baja. Also the energy required to desalinate all the
water in a LA house is less than that to heat one in Detroit.

Especially since the rise of solar energy (and tokamak fusion and geothermal)
means that electricity is going to mostly get cheaper and cleaner in the
foreseeable future.

~~~
paulbaumgart
Exactly! And as "natural" water becomes more scarce, prices will rise,
incentivizing investment and innovation in desalination, making it more and
more efficient over time.

~~~
Afforess
Desalination has a fixed energy cost that can't be "innovated" away. It
requires at minimum, 1kwH/m^3, in a completely 100% energy efficient system
(such a perfect system does not exist).

That is the base energy required to boil the water away. Chemistry isn't like
software, you can't innovate away the laws of physics.

~~~
paulbaumgart
I don't think our statements are incompatible (there's plenty of room for
optimizing capex, even if opex has clear physical limits), but that reminds me
of one of my favorite Simpsons quotes:
[https://www.youtube.com/watch?v=6vxHkAQRQUQ](https://www.youtube.com/watch?v=6vxHkAQRQUQ)

------
lavamantis
Articles like this should have "expiration dates." Everything in there was
true at the time, but past performance is not always an indicator of future
performance.

~~~
Domenic_S
Right. It only becomes true when prices soar very very quickly. It's been my
experience that rents stabilize with buying cost over the course of a couple
years. For example, in the article:

> _It is possible to rent a good house for $1800 /month. That same house would
> cost about $700,000._

That situation is no longer true. That situation only became true in the
mid-2000s because that $700k house cost $350k the year before. The landlord is
in no hurry to bump his rent to $4,500/month because it's not costing him
$4,500/mo like it would if he was buying today.

The rent-vs-buy calculation is dead simple: you will never, ever pay less for
your rental than it costs the landlord to own it. [Edit: but it will cost less
than if you bought that same house _today_ , generally. That's why you can
typically rent in a better neighborhood than you can buy in]. That means as
sales prices increase, rents increase. Then add demand on top of that, as
demand increases so does price.

(Obviously there are other things to consider to determine if owning is right
_for you_ , but I'm talking in an theoretical world).

------
araes
Interesting that two years before the main crash was triggered, this article
went down and identified almost all of points that led to it from a housing
perspective by looking at one of the more extreme housing markets in the US.

\- Prices disconnected from fundamentals

\- Risky "home equity loans"

\- Extreme use of leverage

\- Surplus of speculators

\- Trouble at Fannie Mae and Freddie Mac

I wonder whether similar "canary in the coal mine" approaches could be used
for other large market or societal shifts in the US?

~~~
muzz
Agree with most points, except Fannie Mae and Freddie Mac had their smallest
market share at that time, as private lending was taking market share (and as
we later found out, was driving the subprime lending).

------
muzz
Interesting to note that Zoning is never mentioned.

In 2006, housing was constrained by "Nobody is making land." (#8 in the Who
Disagrees section). Now it is somehow "zoning" that prevents housing from
being built, and availability of land is not an issue but rather ability to
use it. A pretty amazing perception/rationale change.

------
bdcravens
Title isn't title of page, and it's only one item in a list of dozens that is
mostly a discussion of real estate at the time

~~~
dang
Yes. We changed to the article title. (Submitted title was "San Francisco
losing population at the fastest rate of cities in the US (2006)").

------
Havoc
Its all the hipsters fleeing because its not sufficiently underground anymore.

~~~
bdcravens
You're speaking in present tense about an 8 year old article

~~~
chris_va
They were leaving before it was cool.

