Tale of Two Residential Real Estate Markets

"...it was a tale of two cities" wrote Charles Dickens about Paris prior to the revolution. Today in the United States, it is a tale of two very different residential real estate worlds and the wide disparity in supply and demand should not surprise any one. It is all about jobs (and job quality) and supply. At one end of the spectrum is a market with negative job growth and plenty of buildable land (pockets of Michigan). On the other end you have markets with growth in both jobs and wages and no meaningful increase in housing supply (Manhattan, San Francisco, Atherton, Ca). In between you have things like Fort Meyers (no jobs, but it is nice a couple months a year), and markets like Las Vegas and Phoenix. In these markets you have momentum on job growth but lots of space and little restriction on building.

Main stream media will continue to sell dramatic headlines to us. The reality is that any one who is awake can not be surprised at the numbers in their local markets. At the same time we have 400 properties auctioned in Orlando, we have record prices in premium neighborhoods in San Francisco and New York City.

Bay area housing bubble bloggers still frustrated

Folks who understand just a little about economics and can read through the "news" could see a few things in developing in residential real estate in this decade:
1. Individuals investors looking for investment alternatives outside of stocks and bonds.
2. A very liquid mortgage market and an appraisal system that has been, let's just say, imperfect.
3. Homebuilders with capital and available land (or space) in certain markets like Las Vegas, Phoenix, Florida, San Diego, etc.
4. Employment and wage data, while noisy quarter to quarter and carrying significant variances from region to region, that has been overall quite stable and relatively strong. Certainly in the major job center markets, labor has been tight.
5. Relative to jobs and wages, there has not been an oversupply of residential real estate (whether for rent or for sale) in major employment centers like San Francisco, Silicon Valley, and Manhattan.

The most famed bloggers focused on housing, are hosted and "led" by Mr. Patrick Killelea who, according to an article by the San Francisco Chronical reportedly rents a 3 bedroom in Menlo Park. The article says that Killelea works as a contractor and takes a substantial time away from work which, all else equal, must make it difficult for Mr. Killelea to obtain the same type of mortgage financing available to comparably skilled workers who collect a W2. Mr. Killelea and the other bubble watchers do not view consuming housing the same as they view consuming a car or a cup of coffee, which is fair enough. Housing is a big investment for most people and it is absolutely fine to attempt to quantify and separate consumption features from opportunity cost features for housing.

But what is wrong with the bubble bloggers? With all this blood in the streets, why are they still blogging? Reportedly, Killelea spends most of his time on his blog and it generates about $1,000 per month in advertising - this seems like a relatively low return on investment if we are to believe that the man earns $100 per hour. Maybe these bloggers are still blogging because they live in the bay area. By their arguments, these bloggers imply a personal conflict between not being able to afford the properties that they really aspire to live in and the simultaneous refusal to live in a community where houses are so cheap that it costs less to own them then to rent.

Peter Thiel of Facebook to CNBC: "People are one of the most important things in the world."

Video clip link:

CNBC asks Peter Thiel is explain the end game for social networking.

Here is the story: CNBC had been hyping having Peter Thiel on as a guest in San Francisco. I have never met Peter. I do have some common friends and was naturally interested to see and listen about why he had been invited to one of my friend's party and why CNBC wanted to interview him. With all due respect for Peter, I was disappointed. Aside from the fact that his answers were peppered with "umms" and pauses, there really was little to no substance. There is nothing that I know now that I did not know before watching the interview except that Peter thinks that "People are one of the most important things in the world." This was his answer to the question "Is social networking a fad?"

Another comment I might tag as "curious" if not "questionable" was Peter Thiel's assertion that valuations for companies that produce "social networking" services are, in the aggregate, not too high to provide an attractive risk adjusted payoff for investors. Bill Griffith asked Peter Thiel if there is a bubble in the market for web 2.0 and social networking companies. Notes, his line of questioning was: ‘is social networking a fad?’ and ‘what is the next Google?’. In response, Peter Thiel uttered “Facebook” although Griffith had not asked about any specific companies, then he offered four reasons why there is not a bubble as it relates to [private venture equity capital] investments companies that offer web 2.0 and social networking services. Peter Thiel said [this is not from a transcript, just my notes from the interview and my sarcastic comments are in [bracktets]]:

1) There are "no IPOs" for these companies. [Did you know bubbles are defined by whether or not the public can invest directly instead of indirectly? I did not.]

2. MBAs are going to private equity not coming to Silicon Valley [Mr. Thiel added, and I am not making this up, that ‘this was what was going on a year ago’. So his reasons are not even forward looking, they are backward looking, and at least a year old. This one is too easy. No, MBAs are not coming to Silicon Valley, they are dropping out of undergrad and moving to Silicon Valley - they don't have time for an MBA when there is also this tagging and networking and mashing up to do! : ) ]

3. And this was perhaps the most interesting reason why valuations are supposedly not too high: "...it takes far less cash to get these companies off the ground". [Peter Thiel is such a genius that people like you and me can not even follow his logic.]

4. People in the late 90s were swapping out old economy investments for new economy investments. [Well, that was true...therefore your little widget code must be worth $5M pre, right?]

I have an economic interest in the web content economy as do many people that I care about. Peter made a reference to the importance of enabling human communication globally and that was appropriate. Much of the rest sounded like cheerleading and the explanations were not exactly what I would expect from someone who is probably Mensa material. Facebook is obviously thinking IPO. If publishers like Anthony Noto or Mary Meeker are going to explain Facebook to the likes of Bill Miller or Will Danoff, I guarantee that these will not be the four bullet points they use to justify the valuation. Fidelity is a "build it" shop, so they probably won't let Noto or Meeker "poke" or "nudge" or "wink" at Danoff or the other managers using Facebook when the initiation report is ready.

Do you begin every reply to a question with "So,...."?

I wonder why.
Seems like a relatively new [invention?] because I do not remember listening to people begin the answers to questions with "SO....Blah, blah..." when I was in elementary school or college.

I suppose we could leave Comments that include the names of people we know who do this just in the wild chance that they end up being aware of themselves through your investment in posting.

Question: Who does this over and over again?
Answer: So, I don't begin each answer with "so"; but I hear an unusual percentage of people that do talk this way - particularly people in San Francisco and Silicon Valley who are trying to describe their companies, but also in and around New York City. I admit I spend a significant about of my time in northern California, so thus the skew in my observation.