is San Francisco immune from housing bust?
I was just talking with relatives of mine in San Francisco and from the way they talk it seems as if there must be some kind of anti-recession bubble around their town. "Everyone" they know is doing remodels, and they had to struggle like mad to find a contractor who could do some minor work on their home before the end of the year.
They also tell me about friends of theirs who have recently sold homes bought just 4 years ago for big profits (they live in the Pacific Heights area).
These comments just seem so completely disconnected from what I have been reading of the California real-estate market. Is it just that housing problems are highly localized and that some areas (like San Francisco) will chug right along through the bust without experiencing nary a hiccup?
They also tell me about friends of theirs who have recently sold homes bought just 4 years ago for big profits (they live in the Pacific Heights area).
These comments just seem so completely disconnected from what I have been reading of the California real-estate market. Is it just that housing problems are highly localized and that some areas (like San Francisco) will chug right along through the bust without experiencing nary a hiccup?
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Applying the theory that the apple rots from the outside in, prime areas in SF are probably still relatively ok. Same as close in Seattle areas are doing OK while outlying areas are feeling it.
But i'd imagine these areas are at best flat - and more likely slightly down, so "OK" is a relative term.
It seems to me that public transportation has both helped and hurt in the bay area. Every time I read about the exurbs of the bay area I am shocked at how far people there are traveling each day. The hardest hit exurb areas seem to be 60-100 miles from San Francisco, that would be similar to commuting from Bellingham to Seattle. Places I consider deep exurbs here like Marysville, Smokey Point, Orting that are about 30-40 miles from the city would be considered a relatively close in suburb there I am sure.
San Francisco won't escape this either, regardless.
Where would people in Manteca be commuting to?
My point, poorly made as it was, was that just because someone lives in the Bay area doesn't mean they work in downtown San Francisco.
No, San Francisco isn't immune to any interest rate changes. However, I rather doubt that we will see "skyrocketing" interest rates in the US anytime soon. As the credit crunch continues we are more likely to see even more enthusiasm for buying US treasuries, which will keep rates low.
Even mortgage rates will likely stay low, but that might not be too helpful. Instead of significantly higher mortgage rates I predict we will see a continued tightening of lending requirements, with ever higher down-payments and credit scores being required. If you can qualify for a mortgage you'll get a good rate, but increasingly large percentages of the population will be shut out of the mortgage market altogether.
Jim Jubak had an interesting (and opposite) view to this today. In summary, if/when foreign investors lose faith in US debt obligations, they will require higher interest rates to loan us money. He based the "losing faith" event on the collapse of Freddie and Fannie.
I'm not a bond expert or anything, but here's how I think it would play out. First, government bonds would require higher rates to attract outsiders. It seems like higher rates on T-Bills and the like would eventually push other rates up as well.
Fannie and Freddie will never collapse, so this is something people can just stop worrying about. The government will NEVER allow the GSEs to default on their outstanding debt.
My current thinking is that the credit contraction will continue to drive investors (both foreign and domestic) towards buying sovereign debt of developed nations (including T-bills) which will keep over-all rates low around the world. We might well see some inflationary blow-ups in developing nations (e.g. take a look at what's happened in Vietnam over the last 6 months), but that would be a side show to the deflation occuring in the developed nations.
Here's the Jubak's Journal I referred to.
He agrees they are "too big to fail", but the catch is they are pretty huge for the government to take on as well. Taking over those corporations would be the same as increasing our national debt from $9 trillion to $14 trillion immediately. Read his article, but the basic point is we absolutely can't let them fall without debtors treating it like the US Government reneging on the debts and we run the risk of increasing our national debt by 1.5x overnight.