Since 2011 or so, the housing market has recovered, but the recovery has been very uneven, with already expensive regions such as the Bay Area not only recovering to their old highs, but blasting-off to news highs:
The disparity is especially obvious when comparing Salt Lake City to the high-IQ capital of the world, Palo Alto:
Home prices in Palo Also are up 100% since 2008 versus most regions, which are still below the 2005-2007 highs. Prices in Palo Alto have gone up so much, the 2000′s ‘housing bubble’ looks like a blip. You can barely see it.
Is Bay Area real estate a bubble? I don’t think so, because of huge foreign demand, private equity, newly-minted tech millionaires and billionaires (as part of the post-2008 wealth creation boom), and the scarcity of homes in these much sought-after regions.
Atherton has the highest median property value of any region in America, with Menlo Park and Palo Alto not far behind. The entire Bay Area real estate market has been white-hot since 2012, coinciding with the huge public offerings of Facebook and Twitter and the 40+ percent gains in the S&P 500, and shows no sign of cooling. Inflation-adjusted prices will keep rising for years, even decades, to come. There won’t be another 2007-09, at least not in your lifetime (unless you’re like 5-years old and reading this blog). Why is Bay Area real estate doing so well?
1. Silicon Valley’s meritocracy rewards high-IQ and the best and brightest more so than anywhere else in America, making Silicon Valley attractive to tech investors and tech entrepreneurs. Anyone with a good idea and some coding can become a millionaire overnight and a billionaire within a couple years. Coders strait out of college, or even without college, can earn a solid six-figure income – even tens of millions upon the company going public or being acquired, and a lot of this money finds its way into the local real estate market.
2. Rich, high-IQ foreigners need somewhere to put their fortunes, and the Bay Area real estate market offers among the best combination of rate of return and stability.
3. Stanford is a magnet for intellectualism, making the entire region more valuable. There is a positive correlation between the IQ of residents and real estate prices of said region.
4. Enormous capital circulating in that region from foreigners and newly minted millionaires & billionaires in the web 2.0 boom & stock market boom. It’s a like a free market feeding frenzy there, of people becoming instantly wealthy despite some insisting that the American dream is dead and America is in decline.
5. America still center of the universe, and Silicon Valley is the center of America, with Manhattan a close second. Everything that is important in the world is going on there. Tesla, Google, Facebook, Snapchat, Uber, Apple, etc – all in Silicon Valley.
6. America is an economic safe haven, especially since 2008 and 2013. Other countries are rife with a combination of either inflation, deflation, stagnation and corruption – America has none of that. Real GDP growth of 2-3% may not seem great, but it beats all other g-8 nations.
7. No currency risk. Adjusting for the strength of the US dollar, US real estate has outperformed pretty much all other countries, with Bay Area real estate posting among the highest returns. Other countries may have seen bigger percentage gains in their real estate prices – but when adjusting for the post-2011 strength in the US dollar, the results are actually inferior. It doesn’t do much good if real estate is rising 50%, but your country’s currency falls 50% against the dollar. The gains cancel out. But gains in American real estate are in dollars, so there is no currency risk. People with homes in the Bay area saw a net-worth gain of 20-40% in a 2-year period between 2012-2014 as other currencies plunged. Had you kept your money in Euros, for example, you would have lost 40% vs. a gain of 40%.
Here are some of those Atherton homes for sale, if you got a couple million lying around. I actually think homes in the $1-5 million range are better investments than the super-expensive ones, since cheaper homes are easier to sell and prices are easier to track.
This is also part of the post-2008 ‘hollowing out of the middle’ theme, of the financial and cognitive elite running circles around everyone else. Now couldn’t be a better time to be smart, especially if you live in the Bay Area, as the wealth opportunities from the web 2.0 boom are abundant. If your IQ is average, the opportunities are probably less plentiful, sorry. When you look at the massive performance of stocks and high-end real estate over the past eight years, versus flat inflation-adjusted wages for most workers, 'captital' is kicking labor's butt, but this is just the system/economy that we have, maybe not the one we want.