The Golden Horseshoe

70 thoughts on “The Golden Horseshoe”

  1. I feel the astronomic rise in housing prices is caused by one of the same forces that has caused our depressed wages –our global economy. Now, an owner of of house or condo doesn’t only have people in his city (and some American folks who want to relocate) as his potential buyers. Now his universe of buyers includes super-rich people all over the world–China, Russia, the middle east. Naturally, the more potential buyers, and the more money they have, the higher the price is going. I don’t see this changing anytime soon.

  2. If you like Toronto, but wish it was smaller with a 90% off price tag: Milwaukee WI.

    I have complex emotions when I go to Toronto since it’s easily recognizable as basically a bigger, nicer version of Milwaukee but has instituted most of the policies that I support around transit & restricting sprawl about 25 years ago. It’s clear they’ve pivoted faster than any other great lakes city from industrial to knowledge economy. Whereas on the US side of the border, most of our cities pivoted from industrial economies to debt-fueled suburban growth ponzi-scheme, which began imploding around 1997 and didn’t recover for basically 20 years.

    Building greenfield subdivisions with the same set of nation stores 3 miles closer to the core, while there’s 150 years of industrial decrepitude scattered across the region… it’s not the way to modernize an economy & retain a globally competitive workforce.

  3. I’m 45 a teacher, married, with a child. We rent in Fullerton, Ca., and I don’t think I could ever a afford to buy here. The American Dream of owning a craftsman home is fading fast. This reality hurts me everyday. Maybe it’s time to evacuate California for Utah?

  4. Your friend should move to Winnipeg. I understand why people put up with the insanity in California. It’s a beautiful place with nice weather. But, staying in Toronto when it’s too expensive to live there and the weather really isn’t any better than the other cities in Canada? No comprende.

  5. Ah, Johnny. It’s a horrible thing to realize that the only thing holding together a system is a sense of intertia and a generalized miasma of complementary delusion and resignation. I can almost hear the strains of the internationale through your prose, which is a stunning development through the years. I trust that you, of all people, realize that we’re playing a toxic game in a rotten system. The real question is how to we wrestle the means of production of necessary housing units from an unaccountable class of plutocrats who *truly* don’t care of half the country is starving? Outside of an IRL reproduction of Les Miserables, that is.

    1. History runs in long slow repeating cycles. We’re at the end of one segment and the beginning of another. Transitions are bumpy.

      I’m not so quick to blame any particular group for our present circumstances. Plutocrats? Sure… they exist. And yes they have infinitely more money and power than the average guy and don’t want to give it up.

      Refugee immigrants? Well… no one likes hordes of unwashed peasants showing up at their doorstep.

      Left wing? Right wing? Meh. Two sides of the same coin.

      I’m not a believer in any particular “solution.” I think things will crash and new systems will emerge chaotically. My job is to stay out of harm’s way long enough to adjust to the new thing whenever it becomes established.

  6. Always housing prices are going up, just like the stock market. A permanently high plateau is upon us .

    The interesting part is the human folly of never believing a bubble could be a bubble.

    Fueled by Chinese desperation, Vancouver housing became a trading chit instead of living space. Now, what happens when the full impact of the new Chinese investment policies is felt, and the Chinese nationals have to repatriate their funds….something that can’t happen according to the Solons, but might just be in the cards.

    When collapse happens, it often is an insignificant additional change that precipitates change.

    Meanwhile, here in Phoenix, this time it is different, yet again.

    Phone calls from the flipper class keep pinging my cell.

    So, here we go again, held hostage to insanely low rates of interest that are used to justify insane leverage- what could go wrong?

    Someday this war’s gonna end…

  7. A relative of mine and her partner recently bought a little 2bdr shack in Richmond, CA for 500k. This house sold for 295k in 2015, 205k in 2002 and 103k in 1997.

    For those not from the Bay Area, Richmond is known locally as a low-income / high crime city with the worst schools. That’s a one-sided portrait but there’s a grain of truth. It’s considered very affordable.

    I begged her to wait or move out of state. They have good jobs but they’re not unique to the Bay Area. Her kids are grown. They’re in their 40s and the world is their oyster!

    But ultimately, a combination of a strong family and friends network, existing employment, desire to live close to public transportation, fear of even cold climates & renter’s fatigue led to this decision.

  8. Basic question from an interested if amateur observer: Where does this money come from? How does a person come up with $325,000 for a down payment? How many people even in high-salary San Francisco make $390,000 a year (390,000/12*.28=9100)?

    Who is buying these properties, and what are some common scenarios?

    1. Check out The Housing Bubble Blog, as I said. It’s a financial mania that is also hitting housing (again).

      Inequality has put a whole lot of money in very few hands around the globe. But it also has meant there are few reasonable investment opportunities because it has created a global crisis of demand — who are you going to sell to?

      So one-third of all the investment grade bonds in the world carry a negative yield. Give me your $10,000, and in ten years you’ll have $9,800 instead of less.

      So one option for a higher yield in theory is lend mortgage money to those who can’t possibly pay it back. Zero down loads, no doc loans, loans with a 50 percent debt service to income ratio — at low interest rates. It’s insane.

      It’s why the stock market bubble has inflated to insane levels. You know the acronym they are using to tell people to buy stocks at inflated valuations? TINO. There Is No Alternative. Stay in cash? What is “cash” anyway?

    2. My friend Sarah has a base salary of about $250K. But each year she’s given stock options from her company that’s worth about another $250K. These are the so-called Golden Handcuffs. The stock takes a few years to vest before it’s available to her. The stock rolls in gradually over time. If she were to quit and move to another company she’d be leaving about $1M in unclaimed stock on the table. It’s the stock more than her income that allows her to pay $1.8M for an ordinary condo in San Francisco.

      Where does her company get its stock value from? it borrows money at zero interest and buys its own shares back. What could go wrong?

      1. Thank you for the response. My husband is an executive in a tech-adjacent industry who did a long stint at Amazon so we’re acquainted with the stock grants model. Definitely a golden handcuffs situation, and not amenable to other lifestyle things that people tend to like, such as time with one’s children. A bit off topic but: obviously I don’t know anything about the work experience of people like your friend but I can say that when my husband was in that kind of compensation structure, he went days without leaving the office (slept under his desk) and he lost points in a performance review because he did not answer his phone during his father’s funeral. Not sustainable for most people for the long term. A lucky coworker of his (not married, no kids, no close friends or community ties so footloose and fancy free) hopped off the hamster wheel at an opportune time, doubled her money on the house she’d bought with one of those stock grants, cashed in when another one vested, and now roams with her camper happily unemployed with a couple million in the bank. Even someone who only had cats to come home to didn’t want to live that way forever, and she wasn’t shackled to a $9100 monthly obligation.

        Sadly for our long-term wealth building, my husband’s time at Amazon with the big stock grants came when he was married to his previous wife and they largely went to paying off their graduate school debt and to paying cash for her mother’s retirement condo, which was of course in the MIL’s name so untouchable in their divorce. Oh well. It’s only money. And at least he hadn’t gotten roped into a seven figure mortgage. Now he makes a good salary; not like the Amazon days and there’ll be no seven figure home in our life, but now he has children and needs a life beyond making Bezos a few more bucks to throw on the pile.

    3. It’s the Chinese. They’re everywhere. They bought a house on my street for cash and rented it to interstate marijuana traffickers. The realtors are helping them. This is the elephant in the room that nobody wishes to name.

      1. China is facing a bigger demographic aging issue than the U.S. To head it off, any in China’s new middle and upper classes have been working like donkeys and saving like crazy. Meanwhile, Americans have been living beyond their means, importing more than the export, for years.

        As a result, all these people in China have all these dollars saved they need to invest somewhere. What do you expect them to do?

        China’s trade surplus is going to be disappearing soon, as its population aging. But not our trade and budget deficits. Good luck financing them when the Chinese need to start cashing in those dollars to pay for their old age.

        The problem is debt used for consumption. Without it, neither the 40 year trade deficit nor the big increase inequality would have been possible. I’ve got nothing against anyone anywhere in the world, but what has gone on is unsustainable and I’m afraid it might come crashing down on all of us.

        1. I do not fault the Chinese for attempting to protect their money, even if most of the rich ones are corrupt Chinese Communist Party officials. I fault my own government and the powers that be for prioritizing Chinese money over affordable housing for ‘Mericans. Call me old-fashioned. I realize we blew-up the bubble of the Early Aughts completely on our own, which is right when I got married. Boomers and The Greatest Generation back then were faulting me for refusing to buy at top, dead-center of the market which would’ve put me underwater for 10 years.

          In summary, I blame us, but I want someone to start looking out for the youth.

    4. The usual sources of such a down payment would come from stock option exercises (combined with savings, and often funds from parents (whether gifts, loans, or inheritances). Plenty of people in SF are spending half their income on housing, not 28%. That’s from young people. An older person might have the down payment from the sale of a previous house. There has also been quite a bit of foreign buying for cash, particularly among Chinese getting money out of the country, though I understand China has cracked down on that some.

      The Bay Area housing market has actually slowed down some, though the hot beds of SF or Silicon Valley remain hottest the longest.

  9. The insanity is most obvious in Seattle when looking at Case Schiller. Since it’s the first city to start crashing, I think the city is the harbinger for the end of this real estate cycle. We’ll know for sure by mid 2020. We gotta see if Seattle’s housing market stagnates on it’s supposed most busy time of the year followed by serious decline. It’s a little odd how it hasn’t declined faster.

    I hope it’s not as big as 08′ and probably won’t. It still will cause serious damage, especially on most of the west coast cities. San Fran, Portland, LA all look scary. I can’t think of reason why buying property in that region. Again, hoping this bubble insanity is more regional than last time.

    Thanks for blogging again Johnny.

    1. Seattle has less of a NIMBY problem with thousands of new apartments and condos being added to the housing stock and several mass transit projects in the works. They recently upzoned a good chunk of the city. It isn’t utopia, and lots of people are getting squeezed out, but it’s not quite the disaster of San Francisco.

  10. One problem S.F. has is that it is surrounded on three sides by water so there’s no place to expand to.

    We lived in Westside LA, San Fernando Valley, Laguna Woods, San Jose, South San Francisco before moving to Las Vegas 5 years ago. There’s lots of room to expand here. Outside of Vegas is just empty desert. Developers buy from a rancher or BLM and build.

    The city and county own large undeveloped tracts in the city and sometimes sells or leases them for development.

    Lots of Californians are moving here. A 3 bdr 2 ba 2,000 sq ft house in a nice area is still available for less than 300k.

    1. What happens to Lost Wages when the water dries up? I see pictures of that dam with half the water behind it than it had 30 years ago!

  11. I wonder if Johnny and those who read and comment here are aware of The Housing Bubble Blog? While I experienced the bi-coastal housing bubble of the late-1980s in young adulthood, Ben Jones started his career in the development boom and real estate collapse in the early 1980s in Texas. And since the early 2000s he has been chronicling the next two housing bubbles and bust in between with links to articles — now from all over the globe, because it is global.

    Based on his year-in-review posts he thinks it’s about to blow, and he’s been right before.

    His commenters run more to the shotgun side of things that the granola side, with many perhaps hoping the bi-coastal bubble markets will fall into the sea, but otherwise I think you’ll find areas of agreement.

    He sees the financial sector and its government backers as behind lot of this. Without lenders willing to do the kind of things described in this post, prices could not inflate that much relative to incomes. Fannie and Freddie now allow up to 50 percent of income to got to debt service on conforming loans! In the 1980s bubbles, private lenders had “stretched” that from the traditional 25 percent of income for the mortgage and 30 percent overall debt service on conforming loans to 36 percent.

  12. From the late ‘70s to mid ‘80s I lived in San Francisco, for a while in the Richmond and Inner Sunset Districts and later in Glen Park. Rents at that time were easily affordable, and while I had a professional entry-level job I was not a star programmer, budding venture capitalist, or investment banker. Rent, car payment, student loan payment, and I still had money left over. Those were the days.

    In 1980 there were about 5.2 million people in the SF Bay Area vs 7.8 million today, a 50% increase in population over 40 years. San Francisco’s population was about 680,000 in 1980 vs about 880,000 today, an increase of about 30%. In the 2010s the Bay Area increased by about 600,000 people, adding almost the equivalent of another city the size of SF in 1980.

    I didn’t find the number of housing units in SF or the Bay Area for 1980, but sometime beginning in the ‘70s development came to be vilified. New single family homes were “sprawl” and policy came to be to restrict their building severely, even though people wanted to buy them. As a result construction greatly lagged population growth. For a recent analysis the San Francisco Bay Area Planning and Urban Research Association (SPUR) states: “What we found is that since 2000, the Bay Area should have added 1.05 million housing units. Instead, only 380,000 units were built during this time — 316,000 market rate and 42,000 subsidized affordable units. This means the region fell short by 700,000 housing units.”

    At about 2.5 average occupants per unit, this is a short fall of housing for 1.75 million people since 2000.

    At present, housing policy for the Bay Area envisions that about 55% of new housing will be “affordable” which means subsidized and rental prices restricted. Every city and county has a quota. Of course, no one really knows where the subsidies will come from. A few affordable housing developers sometimes cobble together the grants and loans to build a project to great fanfare, and a few more units are sometimes squeezed into otherwise market rate developments as a condition of approval. So, the official plan is that most new housing will be unprofitable to build once all the regulatory hurdles are jumped, and we wonder why we don’t make the planned quotas?

    The great conundrum the Bay Area faces is how to encourage the type of construction the planners think people should live in while limiting the type of housing people actually want and builders are happy to build.

    Can’t we just abolish the law of supply and demand?

    1. You’re correct, but blaming planners is not exactly right. The voters demanded limits to new construction. The voters insisted that their property taxes be capped and revenue be shifted to impact fees for new development. Tree huggers wanted to preserve nature and farmland. Others wanted to filter out the riffraff with minimum house and lot sizes. Home owners and rent controlled tenants have always been aligned in their desire to preserve their neighborhoods in amber. So planners and legislators attempt to wedge new units in to places that fight tooth and nail against market demand. Whose fault is it? Everyone’s… And let’s not forget topography. All the flat, dry, easily accessible land near where people really want to live is already developed. Adding density to existing places is culturally verboten.

      1. Over in the UK, The Economist had been beating the drum to replace the Greenbelt with housing. That would solve the problem for a generation, but then metro London would be right back in the same situation, sans Greenbelt.

        Similarly, you could temporarily get a lot of housing in Manhattan and Brooklyn by filling in Central and Prospect Parks. Might cut the demand too — by making the city unlivable.

        The Economist also suggested moving the capital from London to Manchester. That’s more like it.

      2. Those are fair points. However, an analysis of the housing elements (chapters) to most communities’ general plans will lead you to a conclusion that the planners are fully complicit, and perhaps seek the positions so as to be complicit, in efforts to stymie housing. But indeed, the politicians appointed them and the people voted in the politicians.

        It’s actually worked out pretty well for people my age who’ve been property owners for 30+ years. It’s tougher on my kids, nieces, nephews, and their friends who are now in the 30s and unable to afford what we could afford at that age. Sometime in the next 20-30 years they’ll come into pretty significant inheritances and should they remain in the Bay Area they’ll probably do ok when that day comes and they are in their 50s and 60s. Their Hispanic friends are generally not likely to inherit as well as their families often haven’t been here as long. I wonder what sort of effect those demographics will have on the no building sentiment as they come to fully realize that what is envisioned for them is a lifetime of subsidized apartment living with no chance to garner the equity the older generation gained or their disproportionately white peers are likely to inherit.

        Share buybacks, by the way, often aren’t done to boost the options’ value. Companies that do rely heavily on options will often buy back shares to maintain some equilibrium in the number of shares outstanding in an effort to offset price decreases from dilution. Current options of public companies are granted at the current share price, so prices must go up a lot for the payoff to be big. Getting in early before a firm goes public can pay off big, but more often than not it doesn’t. But, the winners happen often enough to keep people trying.

        1. People tend not to factor in forces that are non-human when doing these kinds of extrapolations. We forget that the entire west coast from Santiago to Anchorage is one long earthquake fault waiting to snap. Seismologists tell us earthquakes come in seasons – clusters of events that play out over decades as the continents rub up against each other. Then there are long relatively calm periods.

          What would a few decades of repeated earthquakes do to municipal budgets and property values in San Francisco, Vancouver, Los Angeles, San Diego, etc? I’m not just talking about the individual losses. I’m thinking about the psychological impact on families and companies considering a thirty year mortgage or a corporate campus in a place that might turn to dust. Banks and insurance companies might just redline entire regions.

          In the recent past whole towns emptied out and died over the fear that black kids might go to all white schools. A few earthquakes could be at least as persuasive. Just sayin’.

          1. Possibly, but to a geologist a cluster of earthquakes might be a big one every 50 years for a few hundred years. And they are likely to be dispersed up and down the west coast of N & S America. More frequent earthquakes around each major city might have the effect you imagine, but who knows? Earthquake insurance already has pretty high deductibles before the insurance kicks in.

          2. We have a generation of Californians who have never experienced a major earthquake. A little San Andreas action will surely shake out the fake San Franciscans right? (crosses fingers) BTW have you done any earthquake retrofitting?

  13. Please young people, do not buy. You are disadvantaged enough by economic and social trends without consigning yourself to permanent poverty to hand over an inflated housing price to some older household cashing in and moving out! Build a new city somewhere complete with everything you like about San Francisco and Toronto. Or move to an existing one and fix it up.

    “The harder she works and the more she saves the more expensive property becomes. She recently consulted a mortgage professional. She’s farther away from owning property now than ever before and she’s decided it’s a game she no longer wishes to play.”

    We were trying to save up to buy a home in Brooklyn in the 1980s bi-coastal housing bubble. Everyone told us WE HAD TO BUY — something — or else we’d be left behind. But I had just had a housing markets class in graduate school for City Planning, compared housing prices to incomes, and said “this can’t be.”

    The bubble burst in 1987. Adjusted for inflation, which was higher at the time and eased the nominal price drop somewhat, the price of a rowhouse on our street fell by 50 percent over seven years. But it took seven years, until we finally bought in 1994, because sellers kept holding out for the inflated prices they thought they deserved. A dynamic that may be in place right now — but without the inflation to provide illusion the are getting just one third lower than the prior high rather than half.

    Friends who followed the prevailing wisdom and bought apartments fared even worse. We are at the very back end of the Baby Boom, and the whole front end was (finally) having children and seeking houses, with fewer Gen Xers coming up to buy the apartments. Those with small units lost far more than half. Several had to sacrifice and save for years — just to have enough money to bring to closing and pay off the mortgage, walking away with nothing.

    At the time I said people had learned their lesson, and this would never happen again. Wrong! That was two bubbles ago!

    The only scenario in which buying is sane is if — an attempt to hide and shift the losses of the Generation Greed era while keeping rich asset and debt holders afloat — the government actually create some kind of massive inflation, in which a house you buy at least provides a place to live. In that scenario, however, the flexibility to pack up and move elsewhere might be even more valuable.

    1. We are broadly in agreement. Every boom has a bust. You can’t time the market, but you can avoid the hysteria during the bubble and prepare to buy the dip after a visible crash.

      1. Yet it still astonishes me how few (not just younger ones) acquire enough rudimentary historical knowledge to understand cycles, including income/price/debt ratios to avoid obvious bubbles. Firsthand observation helps of course. The 1980’s oil bust that hit Texas and the Rocky Mountain region took around four years to grind prices down about 50%. Housing markets seized a couple of years as the gulf between ask and bid was unbridgeable. A new crackerbox condo I examined (but did not buy) in Denver in 1985 for the astounding price of $60000 resold a few years later for $30000. During the five years I lived there my rent actually fell. A basic comparison of purchase vs rent vs income made it plain that renting was the no-brainer low-risk option.

    2. “The minimum wage here in San Francisco is $15.59 per hour. That’s before FICA taxes. Take home pay is closer to $10.”

      Ugh! And thanks to the real Generation Greed consensus hiding behind the tribalist sideshow, others can have low six figure incomes with no federal tax, and get up to $200,000 and pay no income tax (or FICA, of course), on capital gains!

      “What if she’s right? What if things do double again? What if a decade from now the average $1.8M condo hits $3.6M? What if the economy performs as expected? What would the side effects be? She made a pained expression. It’s difficult to imagine how society would hold itself together.”

      And you and I are in the successful cities. How long can they keep this all under Omertà? How long can they use tribalism and scapegoats to distract the losers’ attention from the winners?

      1. It’s not generational. The real estate policies that caused the housing shortage were established in the 50’s by the Lost Generation (now all dead) and the financial changes were done in the 80’s and 90’s, mostly by the Greatest Generation (now almost all dead). There have been people for and against these changes in all generations.

        1. Life expectancy is falling for those under age 60. You can talk about measurement and policies and the rest, but prior generations never achieved having their offspring actually die sooner than they did.

          And when people my age and the even worse off generations to follow reach old age themselves, with the government broke, boy is that going to get one hell of a lot worse.

    3. Young people move to the coast with dreams of making it BIG working in finance or for GloboMegaCorp, but these coastal cities are all a trap. They’re horribly expensive, unsafe, unsanitary (except for New York), bad for meeting a spouse, horrible for raising a family. These cities have “jobs,” but look at the wage data for the past 30 years – the bottom 3/5ths of wage earners haven’t seen a pay raise and the expenses keep rising.

      We need to figure out how to create our own jobs in small towns where we are. Wages are a trap, cities are a trap.

      1. “Wages are a trap, cities are a trap.”

        Only if you buy. You can go there, meet other young people, get work experience and contracts, and then move elsewhere — if you don’t buy and get trapped by falling prices and an underwater loan. Many are starting to do so.

        But in our case, we’re from here.

        1. Rent is $4k a month out here for a family home, or only slightly less than a mortgage. The rent goes to rent-seekers to shore-up our rentier economy.

          Trust me, I’m a “young” guy and have discovered everything the hard way, though it would’ve been much harder if I’d taken the advice of previous generations.

  14. I live in Washington, D.C. And while housing prices here are far from reasonable, this city has managed to avoid the outlandish prices seen in San Francisco by allowing a whole lot of building to take place. The glut of new condos on the market has contained prices, and prices per square foot have actually started to tick down a bit. It is possible for a city to build its way out of a housing crisis. San Francisco could take a few cues.

    1. Washington had all this abandoned industrial land in close proximity to the center, as did Chicago. In Washington’s case, much of it was in the District’s hands.

      So DC could have a building boom without zoning for high-rises in an attempt to get Georgetown town down. Of course if they did have to tear down Georgetown to build more housing, the price of the very valuable and fairly dense existing housing in Georgetown would have to have been amortized into the price of the new units.

      That’s the situation NYC is in. To the extent we could have a building boom, we have had it. So has Boston.

      In my view, both the “build your way out of it” and “more regulation” people miss the point. You can’t build your way out of national (or global) demand locally. If would could build three more Brooklyns and four more San Franciscos, that might do the trick. The problem is, many of the places we used to have where that kind of lifestyle was possible died out in the 1970s.

      Meanwhile a surplus of suburban housing was created. Or rather places. We don’t have a shortage of housing at all. We have a shortage of good places.

      1. “You can’t build your way out of national (or global) demand locally….”

        There’s no need to. Urban (or suburban) containment is a local, not a national, problem. Increasing housing stock will decrease prices. San Francisco will probably always have higher prices than Columbus, but the degree of difference is greatly exacerbated by anti-development forces.

        1. That’s a right wing viewpoint. Here is a comparable left wing viewpoint. If you just provide free housing to all the EXISTING homeless people in San Francisco and New York, homelessness and the attended social problems will disappear there.


          I’m not fan of anti-development forces. But NYC has the most liberal zoning regulations in the country. And in much of the city, if you build new housing that includes some affordable housing, you pay not property taxes for 45 years! All the existing people and businesses have to pay up for all the services required by the occupants of those new housing.

          So why is housing expensive in NYC? More to the point, why is it more expensive per square foot than the NY area suburbs, with their exclusionary zoning?

          1. Supply and demand is apolitical. It does not care about “right wing”, “left wing”, “chicken wing”, or any other label.

            Desirable places are more expensive. New York will always be more expensive; with more exclusionary zoning, it would become Hong Kong. Like I said earlier, anti-development forces lead existing problems becoming worse.

          2. The suburbs of most metro areas, NYC, Boston, SF, and LA included, could add millions of more housing units each if the political will to do so there. I don’t know that it would pencil out on every lot, but if you add a few quadplexes on every residential block, you can probably get pretty close to doubling the housing supply in the suburbs. No one really wants to do that, but it is very feasible.

  15. “Her monthly mortgage is about $6,700.”

    That is insane. Around here in flyover country, a three-bedroom, two-bath ranch house in a modest neighborhood might sell for $180,000 to $220,000. That’s still a stretch for plenty of people, but $6,700 per month for a mortgage is in another universe.

    I’ve researched salaries for my position in San Francisco just to see what people like me make, and it’s about 20 percent more in salary. The homes there are about 1000 percent more, though. I don’t see how the math works for even middling professionals.

    “I told her I’ve got cash squirreled away and I’m waiting for the market to correct. This insanity can’t last forever.”

    I thought 2014 or 2015 would have been the end of this huge increase in asset prices that we’ve seen since 2009 or thereabouts, but as some Wall Street professional once remarked, “markets can remain irrational a lot longer than you and I can remain solvent.”

    1. Interest rates remain low because the debtor-in-chief is a real-estate investor. People seek returns in stocks and real estate because there’s no such thing as a FDIC-insured 5% CD any more.

  16. Within the next five years, housing concerns will be the most salient thing in American politics. The middle-class on the East and West Coasts is increasingly unable to afford shelter. The real estate Haves v. the real estate Have-nots. The disputes will be absolutely savage.

    If Fly-over America ever revives, it will be because housing is affordable.

    1. I believe that house prices have been increasing pretty rapidly in a lot of the flyover cities with higher wages like Columbus, Raleigh, Ausitn, Denver, etc. I know that my property has increased in value by about 50% in the past 5 years.

  17. $9,100 a month just for housing! I have a friend who claims to live, in a modest neighborhood in Washington DC, on $11,000 per YEAR! She needs no car, because she can walk to work; no car insurance, no registration fees, no fuel or maintenance. Careful budgeting for essentials, plus splitting the rent on a rowhouse with four others, makes it possible.

    Property taxes on my detached, single-family home on a 1/4-acre in Prince George’s County, MD, (just north of DC) are about $400 a month.

    It’s good to hear from you again, Johnny, with your always-perceptive comments.

    1. Well, do the math. In California, my resident friends have told me lenders used to use a higher qualifying number (up to 50% of net pay vs. 33% in the rest of the country). So $9100/month for housing is supported by ~$18,000/month income. That’s a household take-home of about $210K, which grosses up to about $320K. That’s a lot in the rest of the country, and enough to be in the top 5% of households nationally, but I don’t think it’s a lot for tech…especially if it’s two people earning that total.

  18. Partly due to unaffordable unacceptable housing, I took to the road living in a simple van. Over 60, I’m one of the rising number of women in this scenario. Van life was my choice to avoid homelessness and fortunately that life suits me, despite some difficulties. Heat is the biggest challenge in Australia, and now bushfires, yet being mobile is an advantage in the latter case. Theres quite a community of van dwellers in Canada also. As for Canadian people taking to the streets, yes that needs to take place just as much as it does here. People have been compliant for too long.

  19. Without doing a lot of research on the topic, I suspect that the situation in Canada is perhaps more grim than in the US simply because Canada (despite its enormous size) is more urban than the US and has far fewer major cities to choose from. Perhaps 5 or 6? After the top 6 you are down to Winnipeg which is about the size of Boise. Canada feels more like my wife’s native Chile where there is really only one major expensive city to live in (Santiago) if you are an ambitious young professional. All the other much smaller cities in the country are enormous steps down in terms of opportunity and pretty much everything else.

    For it’s entire history, the US has operated as an escape valve for population pressures and economic despair elsewhere. In the 18th and 19th Centuries it was an escape valve for Europe. And a bit later the American west served the same purpose for the overpopulated east. And more recently for generations of Latin Americans.

    I expect rather than reform San Francisco, people will just vote with their feet and one by one move elsewhere for better quality of life and opportunities until San Francisco eventually becomes more or less the American version of Monaco. Europe is full of wealthy enclaves that long ago lost their economic purpose. But linger full of idle wealthy. Perhaps we will see more of the same thing here.

    Within how many of the top 50 metro areas of the country do these ridiculous housing conditions exist? Maybe six? In most of the rest of the US it is still possible for say two middle class professionals with sound finances and some money saved to buy a modest place to live. Maybe not their dream house in their dream neighborhood. But most certainly something equivalent to the 1500 square foot SF condo in your story.

    1. What’s strange to me is despite being pretty comparable in population (30-40 million), and having basically 5 cities each of roughly similar ranking (6M, 4M, 2.5, 1.5, 1.5 Canada, 8M, 7M, 2.1M, 2M, 1M Texas) and with Texas slightly more urban (85% versus Canada’s 81%), we don’t have anything approaching their level of dysfunction.

      I live in the single most dysfunctional housing market in Texas and there are still livable homes well under $250k in the city and homes under 15 years old selling for under $200k in the suburbs. San Antonio, DFW, Houston, El Paso, the numbers are closer to half that.

      I came from a cheap town in Florida, so initially Austin home prices seemed high, but my income still rose by more than the cost of living.

      What are we doing all that differently?

      The built environment looks pretty damned similar.

      1. Jane Jacobs may have explained that in _Cities and the Wealth of Nations_. The biggest national cities attract the “hottest action” in the nation. Thus the worst craziness in the U.S. is in Los Angeles, San Francisco, New York and the rest of the sprawl. People elsewhere get to rest a little in the shade. Toronto, Vancouver, are the action cities in Canada. I wonder how things are in Montreal?

        1. I was in Montreal a few months back. I’ve always loved it there. Prices are beginning to rise, but it’s still a relative bargain compared to Toronto and Vancouver. As far as I can tell there are four things keeping Montreal more affordable: French, January, February, and March.

          1. Victoria for quite a long time did not feel the demand pressures that Vancouver did, but that has changed the past couple of years. Still, when I was there recently the prices didn’t seem impossible, …yet. Of course, I think in US dollars while my relatives earn Canadian.

      2. The built environment between Texas and Canada are not very similar at all. Toronto Canada has an average urban density of 11,000 people per sq mile, roughly equal to the more populous parts of Los Angeles. Houston is at 3,500 people per sq mile, roughly 1/3. Because of this, the Canadian cities are more compact, 285 sq miles vs Houston 343 sq miles for example. SA, El Paso, Austin – all even less dense than Houston

    1. Haven’t been to Toronto but, yeah, the Bay Area is amazing. Great people, great weather, beautiful scenery. The people are varied and the culture is rich. And, of course, there’s the chance to get rich which is not available in many other places, most of which are also big and expensive cities.

      1. I know (firsthand, not “know of”) people who have gotten rich in biotech and tech in Indiana, where things cost waaay less. SF is not the only place that can happen.

  20. “$100K, $200K, and $300K above asking”
    “Only buyers who waive the legal right of inspection and recourse are considered.”
    A modest condo for $1.8M with people living in tents and sleeping in doorways closeby.
    It sounds like a bubble fueled by the fear of missing out.
    I personally would be searching to rent a tiny garden flat from a homeowner and waiting for the bust, assuming I was forced to live there.

    1. You’re assuming tiny garden flats are available at any price. That’s not always the case. The problem is the financial markets have disconnected from the real productive underlying economy. Sooner or later the financial markets will crash. If they don’t unsavory social and political dynamics will kick in. Either way… Fun!

      1. And let’s not forget that in the major Global Star Cities (I lived in Irvine for 17 years) a LOT of money has been helicoptered in. As Irvine has become a pretty large business center over the past 3 decades or so, many Americans have now heard of Irvine. In both Chinas, among a certain social and income class, EVERYONE has heard of Irvine.

        That said, after reading Jonny’s original piece, I rolled up my sleeves to add my take…..then began reading the commentary, and found that…..well, everything I was going to say had already been said! LOL. Point is – you should all take a bow. There are relatively few blogs where comments are almost universally insightful and thoughtful, and without much personal sniping. This is one. Of course our host has right of refusal, but I suspect there aren’t many he’s compelled to put on the shelf because of general stupidity or animus.

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