Can California Keep Her Bling?

 

I used to look at houses in Portland, OR like this 2/2 SFH in one of the most gorgeous neighborhoods, Sellwood, listed at $440K.

And then I would look for somthing similar in SF. And then I would need a very large martini. We all know, even after the martini, that a comparable home is SF (in a comparable lovely neighborhood) would go for twice or three times that price.

Experts in the field offer myriad explanations: SF has limited homes, limited land, high demand, good jobs, California property is worth more… etc., etc.

I am curious though how many of those factors still exist, or can continue to exist as the economic climate changes.

The Chron estimates that Bay Area homes lost $202 billion in value in 2008. Agreed, the Bay Area includes areas much harder hit by the slump than SF, but SF is not impervious to these problems. Maybe they aren’t horrible yet, but conditions aren’t as crazy-good as they used to be (right? We can agree on that at least?); could they get worse?

It seems that California itself is losing value. The S & P has already lowered her credit rating , tying her with Louisiana,  and may lower this rating again if the budget crisis can’t be solved– a phenomenon we have no real optimism to witness, unless we relish our tax refunds being issued as IOUs as part of the solution. From the LA Times:

“Should the state not enact timely midyear budget gap closing measures by February 2009, or should the state’s cash position weaken significantly compared with recently revised state cash flow projections,” the rating firm warns, the ratings on California’s long-term debt could be lowered, S&P said.

That could drive more investors away from California bonds, forcing the state to pay higher interest rates to borrow. Municipal bond yields in California and elsewhere have been surging in recent weeks as state budget troubles have deepened.

As for the prospect of borrowing to plug budget gaps, S&P warned that without “meaningful budget adjustments on the revenue or expenditure side,” California may face “constrained investor appetite” for its short-term notes.

In the meantime, Prop 13, once meant to protect the housing consumer, is now a very big part of the problem.

So my question is, can Californians expect to see deals like those in Portland, OR anytime in the near future in San Francisco? (And I pick Portland for its many similarities, physically and politically, to SF.) Ironically, though this would be a nightmare to some people, it would be a dream come true to the vast majority of renters who are currently priced out.  And if this untapped pool of buyers could actually buy, well…  we’d see that scary-good rush to buy again, like before the dot.com and current economy bust when people offered children and unneeded organs along with 50% over asking— but with distinctly post-bust differences.

10 thoughts on “Can California Keep Her Bling?”

  1. I don’t think California will ever get to Oregon levels unless there is a natural disaster that levels a good chunk of this state. The problem with California is that its balance sheet is completely mismanaged. One question: Why is San Francisco a mecca for the homeless?

  2. I consider myself a liberal democrat, but not a lazy one. What do the able bodied homeless do to earn the free healthcare, shelters and so on? What percentage of SF’s budget is spent on this? It might be better spent on cleaning up the city with a better staffed and better trained law enforcement dept.

  3. In the tech entrepreneurial camp, few would consider moving there. Portland has Nike and some parts of Intel (and some Google data center because electricity is cheap). But that’s about it. Here is where the start-up actions are. One can’t put a price tag on how much that is worth to someone who just wants to do start ups all their lives.

    There is a trend that now enables tech developers to work collaboratively from anywhere, something started with the open source initiative. I know quite a few developers who moved to Portland because of what you said, and they can just work from home in their pajamas, and they’d fly down to the SF bay area HQs every other week or so for meetings, etc. However, I only see developers doing that (and mostly developers who are good enough to write their own ticket). Folks in the bizdev/marketing/product mgmt side in a start-up environment still just want to live in the Bay Area.

  4. this might change with the continues layoffs and shrinkage/freeze in hiring. I don’t think the question is a stupid one as some of your commenters seem to imply. The reasons people pay for CA real estate are subjective as well as real. When the real ones fail, the subjective ones will not matter as much; emmigration is a very plausible side effect, which in turn drives prices up to the immigrated to location as well as down in the emigrated from

  5. For many of us working in tech/start-ups, leaving really isn’t a viable employment option. All of our contacts are here… our network is here – in the bay area. If you are young and you haven’t established much a network, then yes – maybe this downturn is the time to leave. You won’t see the exodus you saw during the dot com bubble.

  6. The question lies in the local economy’s ability to continue to reinvent itself and create wealth. I don’t see SF turning into the next Allentown or Detroit anytime soon for the following reasons:

    - Berkeley, Stanford & UCSF
    - CIRM
    - All of the new medical infrastructure going in at China Basin
    - World Class VC Community
    - “People Infrastructure” & business networks.
    - Innovative culture
    - People like living here!

    This is a well diversified local economy with significant global reach. Even during the downturn we are still seeing companies moving to the area to be close to the innovation that is happening in clean technology, life sciences and other emerging technical fields. Roche’s bid to take out Genentech is a prime example of why our chances are good here. Yes we are in a downturn, but what region has proven itself over time when it comes to innovation?

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