SF Bay Area Economic & RE Update (Ongoing)

SF Bay Area Economic & RE Update (Ongoing)

J. MartinPro Member
Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes

I have organized what I believe to be some very valuable information and relationships about the economy and real estate, and will be posting updates about the San Francisco Bay Area marketplace here periodically. I studied a lot of economics in school, and they told me you can't predict real estate prices. ********!!!! Let's lay the groundwork... And a big thanks to @Account Closed for his mentorship and economic

There tends to be a strong relationship between changes in employment and changes in real estate prices. Real estate prices in the Bay tend to go up when unemployment is falling. And they tend to flatten or go down when unemployment is rising. This tends to happen in regular cycles.

The relationship between changes in employment and changes in real estate prices becomes more obvious when we look at percent change in employment, and the rate of change (second derivative, but don't get bogged down in the terminology..)

This is interesting because:
1) The relationship appears meaningful
2) You can see a deceleration in employment gains (lower growth rate) while real estate prices are still increasing (at a decreasing rate). In other words, you can see the slow down in growth before real estate prices flatten or drop.

Coming out of a recession, look how job growth goes from it's worst (about 5% job loss in worst year) to 2% job loss the next year, 0% the following year, then 2% gains, then 4-5% gains, then starts lessening again to 3%, 2.5%, and tends to drift back down towards 0% again, before going negative.. But you can also see that home price appreciation

starts slowing (although still appreciating) as job growth slows.

Now what if there were some sort of way to predict how employment was going to change..?

What if there were a more local index that showed the way the economy and employment is and will do? Turns out, there’s one of those too!!!

To me, the picture becomes more clear. In the SF and East Bay Area, employment gains, economic activity, and real estate price appreciation peaked in 2012, and has been on a decline since. If you look at the prior two cycles, you can see each of these indicators reach a peak during the middle of the cycle, then decelerate (grow at a decreasing rate) as the expansionary phase of the economic cycle comes to an end. You can see the leading index for CA, economic conditions for San Francisco – Oakland – Hayward , changes in employment, and real estate price appreciation all grow at decreasing rates, until they approach zero, as we go into a recession…. I’ll post more for Silicon Valley, San Jose, and Santa Clara later.

Do you disagree with me? Is this information valuable? Too little time frame? Meaningless? Stupid for thinking we can predict how real estate prices will change over an economic cycle? If it were this obvious or easy, wouldn’t everyone already have figure it out, and we wouldn’t be talking about efficient market hypothesis? Does this change your perspective on real estate price appreciation and its predictability?

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Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
8y
Originally posted by @David S.:

@Account Closed. Thanks for the summary.

A $3M offer on a 14-unit building in "our market"....Surely, this cannot be located in the San Jose Bay area where you are located....Can you add any additional detail?

David,

I've been living and breathing real estate since 1999 and went all-in in 2009 when I recognized the opportunity. Thankfully my wife was supportive and gave me a thumb up to quit my W2 then. At the time, real estate was so cheap. I told people 2/1 condos in San Jose were being auctioned off at the courthouse steps for $117k-$135k. People looked at me like I was an idiot. These were selling for $400-$425k at the top of the market in 2006. Now, they're selling for $400-$450k a piece.

People have been giving me the same look when I tell them we buy 6 to 8-unit buildings for $1.2M in San Jose. @Johnson H. says I walk for millions. My partner and I hold hands and go for a walk in our market looking for buildings that need help. We write down the addresses, reach out to our agents and tell them to contact the owners. Then we submit our offers. We get deals here and there using this method. In fact, we're negotiating to buy a building with this method. Wife is ready to sell while husband is unsure of what to do with the proceeds.

@Bac Nguyen is correct. We only farm in one zip code. That is 95112. Our targeted markets are 2 blocks around SJSU and 1 block radius around Japantown. Anything between SJSU and Japantown is a tweener for us. We have passed on many tweener deals. In hindsight, they're great deals. @Account Closed, it's like direct marketing. You miss 100% shots that you don't take. That's what I remind Johnson. That's why I keep swinging. It's good to know that Wayne Gretzky said it. I like this quote of his just as much "A good player goes where the puck is while a great player goes where the puck will be."

This is MY QUOTE and I don't care who said it first. I came up with it a couple of weeks ago and installed it on my Tesla the day the frame came in. This has essentially been true with my life. Some of my friends believe I should be the "exclusive owner of the plate frame." I've ordered it for a few close friends and would love to give you one if you're interested. It's a good daily reminder IMO. 

Wife's sibling told me I should get DREAMER for my license plate. I may do just that. ;)

See this reply in the discussion

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  • Investor · Bay Area, CA · Member since 2014 · 165 posts · 45 votes
    8y

    @Account Closed. Thanks for the summary.

    A $3M offer on a 14-unit building in "our market"....Surely, this cannot be located in the San Jose Bay area where you are located....Can you add any additional detail?

  • Johnson H.Pro Member
    Investor · San Francisco, CA · Member since 2010 · 910 posts · 889 votes
    8y

    @David S. Minh makes offers on what he wants to pay. What the potential seller wants could be a different story lol. Like Minh says “You miss 100% of the shots you don’t take.”

  • Notes Investor · San Diego, CA · Member since 2012 · 109 posts · 51 votes
    8y

    @ Minh Le & Robert C - Thanks for the summary and much appreciated you guys take time and shared the info. 

    So, between Bruce Norris, Jim Glassman and Tod Spieker. In short, they don't see we going to have a blip/correction in the near future, right? 

    However, Minh, as you mentioned, the stock market has been up since Trump took office. In some news outlet, one of the reasons is the Trump administration will spend billion dollars on US infrastructure and plan to slash the corporate tax rate from its 35% to 20-15% as it would boost earnings and thus lift stock prices. 

    But, as we all know Trump needs to pass the health-care bill and use the health-care budget savings to finance the tax reform. Well, the health-care bill did not pass. Thus,  not sure how he going to fund the tax reform! Also, he needs to make friends with the GOP senators to get their votes - to pass any bill.

    Let say, what if the tax reform is not passed ... then what happens to the US economy, the stock market, the RE market?

    PS: Minh, look forward to meet up with you next week.

    Cheers,

  • Notes Investor · San Diego, CA · Member since 2012 · 109 posts · 51 votes
    8y

    @ David S - Just so you know Minh Le ONLY buy in San Jose. Actually, only in one zip code :)

    Cheers,

  • Investor · San Francisco, CA · Member since 2016 · 338 posts · 444 votes
    8y

    @Bac Nguyen, Jim Glassman was definitely the optimistic one. He thinks that the economy is doing well and it will continue doing well, thus the "top of the 9th, but will go extra innings" analogy. Tod was more cautious, and he said he's not buying right now cause everything is too expensive. At the same time, he doesn't think anything big is going to crash the market unless the big tech companies take a hit (Google, FB, Apple, etc.).

    Regarding tax reform, Jim was giving his opinion under the assumption that tax reform would never pass, saying it's politically impossible to do if they are trying to stay revenue neutral. Tod doesn't care about the tax reform as far as how it effects real estate unless it targets 1031 exchanges or depreciation expense (as Minh alluded to). So, according to them, US real estate will be just fine if the tax reform does not pass, because it will just be status quo. 

    That's what I heard. Regardless of what they think, we probably simply need to look at our local economy to decide how things will turn out. I agree that tech problems here will create real estate problems, but there's no way of predicting what could be catastrophic enough to shake the big companies or when it might happen IMO. 

  • Real Estate Investor · Redwood City, CA · Member since 2012 · 272 posts · 399 votes
    8y
    Originally posted by @Johnson H.:

     Like Minh says “You miss 100% of the shots you don’t take.”

    I thought Wayne Gretzky said that?

  • Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    8y

    I agree our tech industry will have the most immediate impact on our local economy and RE. 

    BUT, on a national level I'm cautious. Guys like Jim glassman are basically corporate bank economists, so they're paid to be optimistic and help sell more bank product. 

    As @Bac Nguyen said, the stock market went bonkers assuming trump would spend big bucks on infrastructure as well as cut corp tax rates, which of course aren't  happening. Stock market now is like the road runner cartoon running off the edge of the cliff.........once he looks down, boom down he goes! Basically there's no there-there and unless trump can pass something (anything?) the market will be the first thing to indicate that the sh*t hit the fan. Tread cautiously imo.  

  • Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    8y

    This is good work looking at past data. But one can predict near future based on raw basic data.

    The costs of housing in the SF Bay Area have risen to such a level that it is expensive and difficult to lure professionals to the Bay Area even as the exodus picks up momentum. Since 2010, San Francisco and Silicon Valley were powerful job-creation machines, producing enormous employment increases. With this housing cost as a constraint. Home prices increase have finally stalled. Many rental units are vacant as many more condos and apartments constructed. As some companies are getting bought out, there is redundancy and companies are not shy to let go some of their best employees. In East Bay, there has been higher unemployment since 2017 beginning.  With the fire in Solano County you bet it is chaotic for months to come.

    To recap what was described, a renter needs to earn $50/ hour ($104,160) to afford a basic 2 bedroom, 1 bath apartment. A home owner needs to earn $92 per hour ($191,380) to buy a median priced tract home I South Bay. Only a smaller percentage of wage earners(12%) can now afford a place called home here.

    When the interest hike starts and if the high oil prices are returning one immediately see a recession. It can be anywhere from homes have a longer marketing time, prices drop slightly to no increase for 1-2 years etc.

  • Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
    8y
    Originally posted by @David S.:

    @Account Closed. Thanks for the summary.

    A $3M offer on a 14-unit building in "our market"....Surely, this cannot be located in the San Jose Bay area where you are located....Can you add any additional detail?

    David,

    I've been living and breathing real estate since 1999 and went all-in in 2009 when I recognized the opportunity. Thankfully my wife was supportive and gave me a thumb up to quit my W2 then. At the time, real estate was so cheap. I told people 2/1 condos in San Jose were being auctioned off at the courthouse steps for $117k-$135k. People looked at me like I was an idiot. These were selling for $400-$425k at the top of the market in 2006. Now, they're selling for $400-$450k a piece.

    People have been giving me the same look when I tell them we buy 6 to 8-unit buildings for $1.2M in San Jose. @Johnson H. says I walk for millions. My partner and I hold hands and go for a walk in our market looking for buildings that need help. We write down the addresses, reach out to our agents and tell them to contact the owners. Then we submit our offers. We get deals here and there using this method. In fact, we're negotiating to buy a building with this method. Wife is ready to sell while husband is unsure of what to do with the proceeds.

    @Bac Nguyen is correct. We only farm in one zip code. That is 95112. Our targeted markets are 2 blocks around SJSU and 1 block radius around Japantown. Anything between SJSU and Japantown is a tweener for us. We have passed on many tweener deals. In hindsight, they're great deals. @Account Closed, it's like direct marketing. You miss 100% shots that you don't take. That's what I remind Johnson. That's why I keep swinging. It's good to know that Wayne Gretzky said it. I like this quote of his just as much "A good player goes where the puck is while a great player goes where the puck will be."

    This is MY QUOTE and I don't care who said it first. I came up with it a couple of weeks ago and installed it on my Tesla the day the frame came in. This has essentially been true with my life. Some of my friends believe I should be the "exclusive owner of the plate frame." I've ordered it for a few close friends and would love to give you one if you're interested. It's a good daily reminder IMO. 

    Wife's sibling told me I should get DREAMER for my license plate. I may do just that. ;)

  • Investor · Belmont, CA · Member since 2016 · 44 posts · 40 votes
    8y

    I would make the lower plate fonts smaller so it says,

    IF YOU CAN DREAM IT,

    YOU CAN WORK HARD AND ACHIEVE IT

    Not claiming exclusivity. Is you see this please take it and use it on your plates! :P

  • Notes Investor · San Diego, CA · Member since 2012 · 109 posts · 51 votes
    8y

    @ Minh le -  I will buy one of the plate from you. Or, we can start a side business - trade mark the phases and selling plate :)

    Cheers,

  • Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
    8y
    Nice Minh. Congrats on the new drive. You are living the dream!

    "Wife's sibling told me I should get DREAMER for my license plate. I may do just that. ;)"
    Lol, don't do it. ICE might mistakenly arrest you :-D

    Originally posted by @Account Closed:

    I've been living and breathing real estate since 1999 and went all-in in 2009 when I recognized the opportunity. Thankfully my wife was supportive and gave me a thumb up to quit my W2 then. At the time, real estate was so cheap. I told people 2/1 condos in San Jose were being auctioned off at the courthouse steps for $117k-$135k. People looked at me like I was an idiot. These were selling for $400-$425k at the top of the market in 2006. Now, they're selling for $400-$450k a piece.

    People have been giving me the same look when I tell them we buy 6 to 8-unit buildings for $1.2M in San Jose. @Johnson H. says I walk for millions. My partner and I hold hands and go for a walk in our market looking for buildings that need help. We write down the addresses, reach out to our agents and tell them to contact the owners. Then we submit our offers. We get deals here and there using this method. In fact, we're negotiating to buy a building with this method. Wife is ready to sell while husband is unsure of what to do with the proceeds.

    @Bac Nguyen is correct. We only farm in one zip code. That is 95112. Our targeted markets are 2 blocks around SJSU and 1 block radius around Japantown. Anything between SJSU and Japantown is a tweener for us. We have passed on many tweener deals. In hindsight, they're great deals. @Account Closed, it's like direct marketing. You miss 100% shots that you don't take. That's what I remind Johnson. That's why I keep swinging. It's good to know that Wayne Gretzky said it. I like this quote of his just as much "A good player goes where the puck is while a great player goes where the puck will be."

    This is MY QUOTE and I don't care who said it first. I came up with it a couple of weeks ago and installed it on my Tesla the day the frame came in. This has essentially been true with my life. Some of my friends believe I should be the "exclusive owner of the plate frame." I've ordered it for a few close friends and would love to give you one if you're interested. It's a good daily reminder IMO. 

    Wife's sibling told me I should get DREAMER for my license plate. I may do just that. ;)

  • Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
    8y

    @Jason Ong, Thanks for the suggestion. The maker/seller only allows so many letters on the frame. 

    @Bac Nguyen, I got you covered. I have a brand new license plate frame for you. It's on the house. Funny you brought up the idea. I've been thinking of creating some products to sell to the masses. Then take the money and park it in prime Bay Area and San Diego real estate. Now, that would be the dream. Hmm...(thinking). Let's discuss more when we meet. :)

    @Albert Ng, thanks Albert and thanks for the joke too. You got me thinking about it again... ;)

  • Monterey Park, CA · Member since 2014 · 157 posts · 80 votes
    8y

    @Account Closed

    how about Amazon merch to start selling t-shirts?  :)

    not sure if i can post the link here but google it up.

  • Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
    8y
    Originally posted by @Henry J.:

    @Account Closed

    @Bac Nguyen

    how about Amazon merch to start selling t-shirts?  :)

    not sure if i can post the link here but google it up.

    Thanks for the suggestion Henry. Love it and will look into it.

  • Investor · Los Angeles, CA · Member since 2015 · 56 posts · 7 votes
    8y

    And so it begins....

    http://www.eastbaytimes.com/2017/10/20/san-jose-sa...

    With the wildfire, October’s number will be terrible for the North Bay

  • Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    8y

    eerrr...not really: 

    http://www.socketsite.com/archives/2017/10/record-...

    Plus, expect RE sales and construction to pick up dramatically in the north bay. 

  • Rental Property Investor · Orlando, FL · Member since 2017 · 34 posts · 8 votes
    8y

    Which source to believe? Perhaps the State of California Employment Development Department is a more credible source?

    http://www.labormarketinfo.edd.ca.gov/file/lfmonth...

    http://www.labormarketinfo.edd.ca.gov/file/lfmonth...

  • Rental Property Investor · Orlando, FL · Member since 2017 · 34 posts · 8 votes
    8y

    BTW, does anyone know why so many government jobs are being added?

  • Earth · Member since 2017 · 297 posts · 187 votes
    8y

    San Franciso house price keep increasing and have a very tight inventory. 

    Looks like it is very difficult to see a drop in the near future.  

    Housing price will keep going up and up and up.  

    Very bullish on the housing market. 

  • San Jose, CA · Member since 2016 · 17 posts · 2 votes
    8y

    This is an amazing thread with sharp thoughts from great people with discipline, I wish I found biggerpockets way earlier and I wish I knew you guys earlier.

    Just to add some of my thoughts here:

    - I couldn't find any reasonable deals in bay area, so I am actually doing OOS, I wish I could do locally, but probably not the right time for newbie.

    - Most major investment vehicles are all time high (Stock, Bond, House), yet low interest and low inventory can still hold the housing price high. Bay area especially suffers from the low inventory created by high regulation (both by limit land usage and high cost on permit)

    - I do agree as long as tech stock performs well, the housing market should be solid after seeing how my colleagues behave

    - I am curious whether the high income tax and cost in CA can tweak the population trend. The proposed tax reform will just make CA much worse compare with other states for workers earn salary

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