The Bursting Of Silicon Valley's Real Estate Bubble Has Now Spread To San Francisco

Tyler Durden's picture

"It's not the absolute feeding frenzy that we had for the last three springs before this one. By any definition for the rest of the world, it's still a very, very strong market. It's just not as crazy hot as it's been." That's how Patrick Carlisle, chief market analyst at Paragon Real Estate Group in San Francisco describes the recent housing market.

A Paragon report that was released last week shows that home prices in San Francisco have cooled significantly. In April and May, the median price of a house rose 2% from the prior year to $1.38 million, which pales in comparison to April and May of 2015 which saw a 23% increase from the prior year. As Bloomberg reports, the cooling is most notable at the high end of the market where there were a record 95 homes on the market for at least $2.5 million at the end of April, up 42% from the prior year. Luxury condos - defined as $2 million or higher - saw inventory climb 44% to a high of 75 units, and sales of all luxury homes declined from January to May for the first time since 2010.

The slowdown should come as no surprise, as we have pointed out quite often over the past several months, the second tech bubble has burst. As the layoffs and consolidation continues, coupled with venture capital pulling back, things will continue to get worse for Silicon Valley. As Bloomberg notes, venture capital investments in Silicon Valley fell almost 20% in the first quarter from a year earlier to $4.9 billion.

Also, for those paying attention, earlier this month we reported that Chicago-based REIT Equity Residential cut guidance for the second time in two months due to recent under performance in the company's San Francisco portfolio, something the firm hadn't noted in it's prior guidance warning, which means conditions have started to deteriorate rapidly.

Recall also that in May we said that the Silicon Valley real estate bubble has also burst, as the Palo Alto luxury home market cooled to the point where one real estate consultant declared that "the peak is behind us."

 

While optimism persists from those such as Danville, California developer Gregg Nelson who said "There's not an adequate supply for the level of demand. The prices are hindering what would otherwise be a lot more sales", we'll just continue to point out the facts - which are that the second tech and housing boom for Silicon Valley has come to an end.

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Stanley Kubrick's picture

But, but, but...my Realtor told me prices only go up!!??

Chris Dakota's picture
Chris Dakota (not verified) Stanley Kubrick Jun 17, 2016 9:34 AM

They said that in 2007 too.

I said that I couldn't give away my SF property in the 90s.

They said "It's a whole new paradigm"

It wasn't .

I said last May was the top of the market, I wanted to sell my other half wants to ride it down.

Ramesees's picture

Where are you going to live when you sell?  

Houses Depreciate's picture

Rent for a small fraction of the cost. Then buy later after prices crater for 65% less.

chopd livr's picture

naw man, i sold last spring, and my rent is higher than my mortgage was by 1K. that's why i'm watching the rental market.

Houses Depreciate's picture

Now stack on your losses to depreciation, taxes and insurance and rental rates becom half the monthly cost.

walküre's picture

What about the Chinese bazillionaires and their spoiled rotten broot? Are they no longer interested either?

JRobby's picture

Realtors, stock brokers, bankers, insurers, all prostitutes

No one will be insulated from the next one. The foreign money will amplify the effect as it is just another derivative effect in an over leveraged world.

Quantum Bunk's picture

Just move to Vancouver. Still on their post WW2 run.

ParkAveFlasher's picture

I don't see the significance of 8 days to 16 days for a $5MM house. 

nibiru's picture

Those poor millionaires normally are used to getting their money quickly - for those rich cry babies it means a lot

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) ParkAveFlasher Jun 17, 2016 9:41 AM

It now takes 16 days to sell a house for $5MM in cash.  I'm not sure how flippers will manage those types of extended working capital terms :/

CorporateCongress's picture

Yeah, wake me up when it hits a 1000 days

CorporateCongress's picture

Yeah, wake me up when it hits a 1000 days

dogismycopilot's picture

One swallow does not make a summer.

WTFUD's picture

one swallow doesn't make her a hooker.

Onan_the_Barbarian's picture

But suck one cock and you're a cocksucker for life.

DontFollowMyAdviceImaDummy's picture

it's really very simple - fewer IPOs of any SF Bay Area / Silicon Valley company worth anything = fewer millionaires.

 

there's not enough new dumb money left to buy the already hyperinflated properties.

NaiLib's picture

Does this mean Chinese money is running dry?

tgatliff's picture

Exactly... They are just waiting for the PBOC to panic again and send another $1T of credit their way...

carbonmutant's picture

The Chinese have moved on to other markets...

MilwaukeeMark's picture

A hurricane starts out as a few drops of rain.

SHEEPFUKKER's picture

Now I can pitch a tent in someone's backyard for less than 1000$/month. Forward!!

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) SHEEPFUKKER Jun 17, 2016 9:37 AM

Can I sublet a corner in your tent for $500/month?

chopd livr's picture

no, he's gona install a Starbucks there

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Jun 17, 2016 9:37 AM

Its the law of large numbers in action, gets harder and harder to get those large percentage increases.  Might be interesting to track the dollar amount changes instead, at this point a 2% increase might still be $2 million increase in asking prices

dogismycopilot's picture

I miss Steve McQueen's SF.

The actor who was a real man. Not the dead gay fashion designer you fucking idiots. Google 'Bullit' for a clue.

Bay Area Guy's picture

I live on the Peninsula, about halfway between San Francisco and San Jose.  My observation is that the market is defintely slowing down.  Houses here, which are typically in the $1 million to $2 million range, are staying on the market longer.  Where in the past, houses have stayed on the market for a week or so, homes in a lot of neighborhoods have remained unsold for three or four weeks.  The other thing I've noticed is that realtors are having far more open houses for these homes, often on both Saturday and Sunday.  At the height of the insanity, houses would be open, at most, only once, and on a Sunday.  Saturday openings were unheard of.  In fact, many homes were selling without an open house.  The change to Saturday/Sunday and multiple weekend open houses preceeded the last crash.

 

The other thing that's a sure sign that the market is slowing is the fact that there are increasing numbers of radio commercials for house flipping seminars that are directed at the Bay Area.  In the last crash, the flipping seminars started in probably between six months and a year before the bottom fell out.  There has been much more aggressive advertising, at least on radio, in the last three months.

 

walküre's picture

Realtors having "open houses" in million Dollar mansions.. with fresh canapes and cocktails.

Now they need to endure more of them? Oh the humility...

May they all go broke and live in card board boxed in Golden Gate park

Houses Depreciate's picture

When it comes to realtors, it's always liquor in the front, poker in the rear.

chopd livr's picture

you mean million Dollar "mansions."  most of these are 1950s-70s ramblers (from 1300sf to 2100sf if ur lucky) on 5K lots, in a drought zone (surrounded by brown)

Bay Area Guy's picture

Agreed.  $1 million here buys you a relatively small (2br/1ba) house that it's need of some repairs on a 4000 square foot lot.  Hardly mansion material.

Seek_Truth's picture

Those aren't million dollar "mansions."

More like million dollar ramblers and ranchers.

JRobby's picture

House flipping seminar promoters should be dragged to death. Leave the remains for the birds and bugs.

chopd livr's picture

agree. i live in the similar area. even the rental prices for homes have stabilized and even dropped some- from around 6.5K+ to 5.8K for a 3b/2bth, and there are more of them on the market for slightly longer- more than a few weeks. 

i have a cop friend who patrols around s. bay, and there's a growing homeless population that camps around a "stream" area (trickle, really)- in one slightly more isolated place, he saw a sharp looking guy w a high tech tent w solar panels working on his mac air- the guy said he has a 100K plus job at a local tech co. but prefers not to pay the re prices, and is happy living out of his tent for free- less commute too.

rhubarb8's picture

I think you are referring to the "unhappy hallow" which is very close to the "happy hallow" children's park in SJ.  The unhappy hallow is a huge homeless camp which has some relatively sturdy looking temporary shelters. 

chopd livr's picture

actually, it was further south- closer to morgan hill and anderson resevoir, but yeah, the unhappiness has been spreading "s.bay" getting more south for commuters

TomGa's picture

Why does this nation allow foreign nationals to purchase substantial amounts of American real estate thereby giving rise to artificial and severe price differentials over what would be the natural price in the true market that's not driven by foreign hot money, all of which has the effect of pricing our own citizens out of our own property markets? This should be considered at least a national security issue. At a minimum, tax the hell out of foreign owners each year with a severe foreign ownership tax. Let's repatriate some of that cash back.

walküre's picture

Have been saying the same for years. The Chinese are buying up what they can with their fake Mao paper. Nobody can verify the origin of any of their funds. The debt bubble in China is huge, so much shadow banking. And on top of all that, their Politbureau just prints money in the basement and channels it to North America and Europe via dubious deals.

Chinese are interested in buying a high tech leading robot manufacturer in Germany.

Shit.

the_narrator's picture

Remember Ross Perot's great sucking sound?  That was all the money and jobs going out the trade deficit.  Now it's 20 years later and we have the great blowing sound of all those dollars we sent to China coming back to buy any and all income producing assets.

JRobby's picture

Banks love inflation 

Banks make billions off of derivatives and their effects which amplify price swings. Wag that dog until it is dead. 

ThrownOffZHTwice's picture
ThrownOffZHTwice (not verified) TomGa Jun 17, 2016 11:02 AM

I'd give you ten thumbs up if I could.

AdolphLustig's picture
AdolphLustig (not verified) TomGa Jun 17, 2016 11:32 AM

The real question is how that got downvoted.

ParkAveFlasher's picture

Foreign nationals is a problem, yes, but an even bigger problem is domestic equity firms buying up fine, older houses, ripping them out, and putting up yardless inflated monstrosities in what were once charming neighborhoods, charging up the price-of-living and debt-addling the suburban generations.

spqrusa's picture

The Real Problem (TM) is the Federal Reserve which prints endless phoney Fiat given to its member banks at nearly 0% interest and loaned to the suckers at 3+% interest.

As they continue to print, it raises prices for everything. 100 years ago an average working male could afford a home on two years of wages. Now we have 30 year mortgages and most people refinance to infinity... Welcome to Amerika.

nailgunner44's picture

Three downvotes for that? Unbelievable! Who are these commie sycophant yellow-scourge apologists on ZH? They need to be wood chipped like the disgusting usurpers that are making America more and more uninhabitable.