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What San Francisco Housing Reveals About The Fourth Global Liquidity Bubble

Tyler Durden's picture




 

A month ago, when we reported on the signal America's "most important housing market" is sending we said the following:

When it comes to critical housing markets in the US, none is more important than San Francisco.

 

Courtesy of its location, not only does it reflect the general Fed-driven liquidity bubble which is the tide rising all housing boats across the US, but due to its proximity to both Silicon Valley and China, it also benefits from two other liquidity bubbles: that of tech, and of course, the Chinese $25 trillion financial debt monster, where since the local housing bubble has burst, local oligarchs have no choice but to dump their cash abroad.

 

It is no surprise that during ever single previous bubble peak, San Francisco home prices managed to post a 20% annual increase, starting with the dot com bubble in the year 2000, the first (not to be confused with the current) housing bubble peaking around 2005, and then the European sovereign debt bubble.

 

Which is why, while today's Case Shiller data was widely disappointing across the board, indicating a significant slowdown in price gains (and on a sequential seasonally adjusted basis, practically a decline), the one market we paid particular attention to was San Francisco. What we found is a red flag for everyone waiting to time the bursting of the latest housing bubble. Because after an unlucky 13 months of posting consecutive 20% Y/Y price gains, the San Francisco bubble appears to have finally burst, posting "just" an 18.2% price increase, the lowest since January of 2013.

 

So, has the global coordinated credit bubble burst?

The answer is still unclear. But what the chart below shows is quite clear: the relentless appreciation in the San Francisco housing market is over, and after rising by 18.2% in April, in May the San Fran market posted a mere 15.4% Y/Y price increase: the lowest since 2012. And while the Fed's liquidity injections continue, if only for a few more months, and the second dot com bubble is clearing raging as the recent ridiculous Zillow-Trulia deal confirmed, it appears that the "?" bubble (as defined) is now well in its deflationary phase. Any attempts to restore the upmove will certainly require trillions more in fresh liquidity.

 

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Tue, 07/29/2014 - 09:33 | 5017257 LawsofPhysics
LawsofPhysics's picture

The Fed is still printing 45 billion per month.  My guess is that "tapering" will become more "measured" as the Fed continues to try and jawbone for a bit longer.

Same as it ever was...

"Full faith and credit"

 

same as it ever was...

Tue, 07/29/2014 - 09:36 | 5017264 smlbizman
smlbizman's picture

?= wwIII

Tue, 07/29/2014 - 09:45 | 5017297 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

It is hard to call the European SD bubble and the current bubble different bubbles. They are one and the same. The current version is nothing more than a desperate attempt to defend the last debt binge before defaults start piling in.

Tue, 07/29/2014 - 11:41 | 5017949 Boris Alatovkrap
Boris Alatovkrap's picture

Thus is road to slavedom. Forward soviet.

Tue, 07/29/2014 - 12:27 | 5018150 Deathrips
Deathrips's picture

I live in Southern California.

My good friends just bought their second starter home, with a 1 year old they needed "security". The first time around with a  home that was bought in 2006 and after going 30% upside down they were forclosed on in early 2009. It was sad...they moved in with 20% down and spent another 10% fixing up the place to their liking. Essentially all their savings....mid 30s.

Fast forward to yesterday when they closed on a second first home. After 3 years of living with mom and dad they saved enough for a 10% loan and on subprime credit closed on a 1500 sqft SFR for 500K+. We talked months ago and discussed the driving force of any financed market..payment. They understand that interest rates go up and purchasing power go down.

They then explained to me that a home is a form of forced savings? That the ex-onomy is back on track and their realtor told them to buy before they are priced out of the market. The then casually reminded me that silver had done nothing but go down since 2011 and I was a buyer who lost silver purchasing power. (I bought before that i have average price of 18$ (well, before the accident))

Its sad. They are going to get creamed again. I tried to tell them. I had been in that industry for 10 years + and refuse to work in it since 2006. Theres just a point where there's no logic, no reasoning, no common sense, just a regurgitated lie that "qualifies" as reasoning. Maybe thats why the call it regularly scheduled programming.

 

In their closing pictures with baby and all, cue the realtor...in a prius, with an O sticker. They listened to a moron. Their choice.

 

Sad Really....

RIPS

Tue, 07/29/2014 - 13:34 | 5018478 Fuku Ben
Fuku Ben's picture

Ask them

Would you take out a loan for 500K, fly to Vegas and drop it all into a slot machine and risk their lives and future on it? (Hint: There odds of it paying off are exponentially better than their current choice)

When they tell you you're crazy ask them to research the list below. #3 Optional depending on whether they are so far gone they would turn you in to the D HSS (Dept. Hmlnd Schutzstaffel)

1. The chance of amajor house leveling earthquake for Socal within 30 years is now 99.9%
2. The chance of a housing bubble and or economic crash, especially in that area, in America within 30 years is 100%
3. The chance of them dying young from starvation, disease, non-self inflicted gunshot wounds, in a FEMA camp or some other miserable way to die within 30 years is 100% as the fiat system is altered or collapses.

If they refuse to leave the cesspool that is Socal their best bet for their future safety and survival is to stay liquid, stay mobile, save their savings to arm themselves and make a plan for what to do to get the hell out of there when the SHTF.

If you really want to help your clueless friends out. Don't waste your breath on them any more. They are hopeless for now anyway. Start buying untraceable 80% lowers and finish them up. Then join a militia and make sure your friends can get in when the time comes. This will be your gift to them, you and your family and they will be eternally grateful.

Tue, 07/29/2014 - 09:45 | 5017306 power steering
power steering's picture

Same sex marriage bubble

Tue, 07/29/2014 - 09:47 | 5017316 _ConanTheLibert...
_ConanTheLibertarian_'s picture

which often end suddenly.

Tue, 07/29/2014 - 10:02 | 5017397 TahoeBilly2012
TahoeBilly2012's picture

I miss the City in the old days, pre Zuckerberg.

Tue, 07/29/2014 - 11:33 | 5017895 sodbuster
sodbuster's picture

Man, that chart is gay!

Tue, 07/29/2014 - 11:42 | 5017954 Boris Alatovkrap
Boris Alatovkrap's picture

There is no gay chart in Russia!

Tue, 07/29/2014 - 09:51 | 5017338 disabledvet
disabledvet's picture

I agree...replace the "extraordinary measures" with a war.

Ukraine versus Russia and Israel versus the Middle East sounds about right to me.

I still think defaults are on tap in a big way should the (5th? 6th?) housing bubble blows in the last 30 plus years. Government finance simply cannot be run this way.

Tue, 07/29/2014 - 09:39 | 5017282 kurt
kurt's picture

The Dollar is backed by the full wrath and credit of the Federal Reserve System.

Tue, 07/29/2014 - 09:58 | 5017370 LawsofPhysics
LawsofPhysics's picture

"The Dollar is backed by the full wrath and credit of the military industrial complex and millions of debt slaves..." - fixed.

Tue, 07/29/2014 - 09:36 | 5017262 Cognitive Dissonance
Cognitive Dissonance's picture

"Get back in there and turn those machines on." - Yellen no longer Gellin'.

Tue, 07/29/2014 - 09:52 | 5017343 GetZeeGold
GetZeeGold's picture

 

 

All I know is someone owes me......one dollar.

Tue, 07/29/2014 - 10:20 | 5017438 turnoffthewater
turnoffthewater's picture

CD,

No need for Gellin Yellen. It's been proven that a chicken can ring a bell if there is a reward. So I'm sure that a monkey can be taught to enter 0's and 1's on a keyboard. But I do like the way you think

Tue, 07/29/2014 - 09:37 | 5017265 i_call_you_my_base
i_call_you_my_base's picture

Why is there a '?' on this bubble? It obviously should be marked 'QE'.

Tue, 07/29/2014 - 09:37 | 5017267 401K of Dooom
401K of Dooom's picture

Wait until there are no more people who can obtain one to two million dollars in financing of one form or another to purchase a "closet" in Frisco or one of the other ocmmunities.  Then the bubble will burst.  Oh and wait until the underclass gets upset about their benefits not giving them their expected lifestyle.  A receipe for disaster that I have not seen in a long time.  I'm ready to watch this on pay-per-view.

Tue, 07/29/2014 - 09:46 | 5017301 mastersnark
mastersnark's picture

Long molotovs, short Google buses.

Tue, 07/29/2014 - 15:43 | 5018069 onelight
onelight's picture

It's still a Fourth Turning..

Tue, 07/29/2014 - 09:38 | 5017273 Sudden Debt
Sudden Debt's picture

The reason the housing prices went up is because average wages dropped...

so...

LOWER THE AVERAGE WAGES WITH ANOTHER 30% AND IT WILL BOOM AGAIN!!!

 

Tue, 07/29/2014 - 12:01 | 5018057 Panafrican Funk...
Panafrican Funktron Robot's picture

Rather disgustingly, this would actually work, if you measure the average housing prices as a mean function.  

Tue, 07/29/2014 - 09:40 | 5017281 yogibear
yogibear's picture

The Fed's back-door buying through Belgium and other countries while jaw-boning tapering. 

We are at $17.6 trillion debt and climbing, soon to hit $18 trillion. The Federal Reserve is stuck keeping rates low and buying US debt at all costs.

 

 

 

Tue, 07/29/2014 - 10:47 | 5017628 MarsInScorpio
MarsInScorpio's picture

The point will come when people will say, "There's really nothing left for me to buy with these dollars. Thanks, but no thanks."

 

That is when the music dies . . .

-30-

Tue, 07/29/2014 - 09:43 | 5017289 q99x2
q99x2's picture

? = FED's direct market manipulation software implementation bubble.

Tue, 07/29/2014 - 09:43 | 5017294 tempo
tempo's picture

Tax collection, both withholding and Corp, are up reducing the Treasury needs so the SUPPLY of Treasuries is down. Tapering reflects nothing more than the reduced supply. The net balance still keeps net liquidity to the primary dealers which will keep the SPX higher and higher. If needed another QE program will be put in place but its not needed now.

Tue, 07/29/2014 - 09:44 | 5017296 mastersnark
mastersnark's picture

The graph shows the slowdown can precede a massive runup, 1998 and 2003. Not that I'm buying a house, but maybe we can turn down the EOTW hype to 11. It seems people keep forgetting the printing press in Obama's basement; "No one ever suspects the Yellen Intervention"

Tue, 07/29/2014 - 09:49 | 5017321 i_call_you_my_base
i_call_you_my_base's picture

I guess, if the level (affordability) didn't matter.

Tue, 07/29/2014 - 09:45 | 5017298 Bill of Rights
Bill of Rights's picture

See nothing is wrong with housing and the economy!

Million-Dollar U.S. Housing Loans Surge to Record Level - Bloomberg 

Banks are handing out mortgages of as much as $10 million to the wealthy in record numbers while first-time homebuyers struggle to get loans.

Erin Gorman, managing director at Bank of New York Mellon Corp., said she’s fielding more requests for home loans of at least $2 million than ever before. She recently provided a mortgage of more than $6 million for a client’s purchase of a second property in Colorado.

A Bank of the West wealth management client who takes out a $1.5 million loan and keeps $750,000 in a wealth management account is eligible to get half a point off the usual cost for an adjustable-rate mortgage, Bank of the West’s Kendall said.

Tue, 07/29/2014 - 09:55 | 5017320 The Most Intere...
The Most Interesting Frog in the World's picture

A Bank of the West wealth management client who takes out a $1.5 million loan and keeps $750,000 in a wealth management account is eligible to get half a point off the usual cost for an adjustable-rate mortgage, Bank of the West’s Kendall said.

Oh, that'll end well....

Tue, 07/29/2014 - 10:02 | 5017398 NotApplicable
NotApplicable's picture

That's like free money!!!

For someone, that is.

Tue, 07/29/2014 - 10:02 | 5017404 DeadFred
DeadFred's picture

Considering how much money the bank can conjure out of air and loan out based on that $750,000 they are being pikers on the deal.

Tue, 07/29/2014 - 09:47 | 5017309 froze25
froze25's picture

Well better learn about this Old/renewed technology before the shit hits the fan.  http://youtu.be/logoa5FQSkc

 

Tue, 07/29/2014 - 09:47 | 5017313 Cortez
Cortez's picture

Trulia.com has Chinese captions on its website if that means anything about who is buying.

Tue, 07/29/2014 - 09:58 | 5017366 oklaboy
oklaboy's picture

are those roll over arrows on the chart, or brokeback mountains? just sayin....

Tue, 07/29/2014 - 09:58 | 5017368 poydras
poydras's picture

I can confirm the froth is alive and well in both residential and commercial. Also interesting is that rents are in bubble land as well.

Tue, 07/29/2014 - 09:58 | 5017371 luckystars
luckystars's picture

Its the place to park cash. I know someone selling a 8 million dollar building and there are no lookers, just offers. They buy sight unseen.

Rents sky high because everyone is doing airbnb. Its a false city now.

Tue, 07/29/2014 - 09:59 | 5017380 LawsofPhysics
LawsofPhysics's picture

Whatever happened to that "big currency change" on the 20th of July? 

 

< crickets >

Tue, 07/29/2014 - 10:32 | 5017540 directaction
directaction's picture

Take a look at the Upper Sunset District in San Francisco on Zillow. A typical 1800 sq ft to 2200 sq ft three bedroom, two bathroom home on a micro-sized 3,000 sq ft lot, built in the 40s, is valued at 1.0 to 1.2 million US$. These older homes are considered starter homes in any other city. If you drive through this area it's apparent a lot of them are in need of work, many beat-up and messy looking. This area is nothing special. Again, all of them valued over a million dollars. 

So, is there a housing bubble in San Francisco? 

Tue, 07/29/2014 - 11:29 | 5017865 Dingleberry
Dingleberry's picture

Hot money from China=bubble.

I have been to SF, and could never understand the attraction.

It's nice, but not THAT nice.

Actually quite cold at times, even summer. Homeless people everywhere. Kinda dirty.

They can have it.

 

Tue, 07/29/2014 - 12:48 | 5018250 cougar_w
cougar_w's picture

"Hot money from China=bubble."

100% correct.

I don't see how this ends except in a very massive and painful deflationary meteor hitting SF in under two years. I live in the Bay Area and the amount of money sloshing around is scary as hell. Anyone thinks this is fun or healthy needs to get their head examined; it's hot money, probably the result of shady deals in China, and you want to tie your local economy to events taking place 5,000 miles away under a corrupt command economy?

That's probably 7 different kinds of insane.

Tue, 07/29/2014 - 13:08 | 5018336 Bay of Pigs
Bay of Pigs's picture

It's the same in Vancouver, BC. A million plus for a crack shack.

As you said a few years ago...."they will print until their eyes bleed".

Tue, 07/29/2014 - 10:54 | 5017669 Angelo Misterioso
Angelo Misterioso's picture

pretty funny = on front page of wsj today - VP in Argentina indicted on a charge of bribery and influence peddling related to the takeover of a bankrupt money-printing firm...

the corrupt politician is not a surprise but how does a money-printing firm go bankrupt in this day and age?!

Tue, 07/29/2014 - 12:28 | 5018159 Cognitive Dissonance
Cognitive Dissonance's picture

They were paid in counterfeit bills.

Tue, 07/29/2014 - 11:31 | 5017882 Colonel Klink
Colonel Klink's picture

Fuck Piglosi and San Fransicko.  Let housing burn.

Tue, 07/29/2014 - 11:57 | 5018033 robertocarlos
robertocarlos's picture

San Francisco. Did you drove or did you flew?

Tue, 07/29/2014 - 12:56 | 5018297 fishwharf
fishwharf's picture

I lived and worked in SF for many years, paying outrageous sums for small apartments.  I used to sneer at the suburbs and felt superior to the dweebs that inhabited them.  Then due to family circumstances I was forced to retire early and move to the burbs.  It took awhile to adjust, but now I could not go back to living in the City.  The town I live in now has no parking meters, or any paid parking of any kind, and the police actually investigate petty crimes such as car break-ins and vandalisim that the SFPD can't be bothered with.

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