What Could Happen if the Bay Area Tech Bubble Bursts

 

There are signs that the red-hot tech scene is slowing down in Silicon Valley.

Some analysts are predicting a major crash is on its way later this year. But others are optimistic that lessons were learned during the dot-com bust in 2001.

Venture capitalists are starting to close their wallets and not invest in tech. Real estate analysts are warning the rate of growth for the housing costs in the Bay Area has surpassed where it was at right before the dot-com bust in 2001.

So the big question, are we heading for a devastating bubble pop? Or are we heading for a less-scary slowdown?

“There is definitely a real sense of fear that is out there, and when fear is there, the opposite of optimism, then certainly venture capitalists and any other sort of backers are going to put the brakes on, and they are going to go slower and they’re going to lend less money,” tech financial expert Erica Sandberg said.

Layoffs and the extreme fall of some tech stocks are spooking investors.

LinkedIn stock is 50 percent down from where it was in November. Twitter is down 62 percent over the last year.

Twitter is in big trouble. They are laying off 8 percent of their workforce. And for the first time, it is not gaining any users. It is losing people.

In the last three months of 2015, Twitter lost 2 million users.

Yahoo is also in really bad shape. It has announced it is laying off 15 percent of their workforce. That is around 1,700 people.

HP has laid off 33,000. And Microsoft laid off 7,800.

And now smaller, hot tech companies are also feeling the pain.

GoPro, Instacart, Autodesk, and Yelp are laying off workers.

“This kind of confluence of different events happening that don’t spell unbridled growth…in 2016,” USA Today San Francisco Bureau Chief Jon Swartz said.

Swartz wrote an article for USA today about how “the hour of reckoning is coming for tech.” And it’s gotten a lot of buzz.

“ I think you’re going to see more belt-tightening than we have before,” Swartz said. “It’s not going to be this unbridled growth and stratospheric valuations that have been dominating tech for so long.“

“It sounds so dramatic to say a big bubble pop,” Sandberg said. “But it’s definitely a slowdown. And that is a fact. It is happening. People are losing their job and companies are not hiring as aggressive as they were before. So, it’s a definite change.”

Jon, Erica, and other tech analysts Gabe talked to said there will not be a fierce bubble pop like 2001. It will be a slow down.

Lessons were learned with the dot-com bust and things are different now.

“Now, you have a much larger audience online. You have 3 billion people versus half a million back then,” Swartz said. “You have a lot more real profitable businesses. The mobile phone revolution, the use of apps have all kind of led to a really strong Internet economy. All I’m saying is what you are going to see is probably scaling back of what has been going, which was not sustainable to begin with.”

“Are lessons learned? Some yes some no.,” Sandberg said. “I have absolutely no faith that everybody is going to go, ‘Well, we’ve learned so much the last time, and now we are not going down that path again.’ That’s not necessarily true. But what is true is that people have this memory. We remember what it was like when jobs were scarce.”

And we all need to be prepared for that–jobs being scarce. So, from what Gabe learned, unless there is another major terrorist attack or a foreign market collapsing, there will not be a dramatic bubble pop with a different company closing its doors every day. But, this slowdown will affect the job market and layoffs will continue.

It will be harder to get a tech job in the Bay Area, or keep the one you already have.

Thursday night at 8 p.m. Gabe will cover that part of the story–how this all will affect jobs.

And he will have some good advice to share for people looking for tech jobs, or entering the tech workforce.

 

San Francisco Real Estate Market Poised for Cooling

 

Nina Hatvany has worked for 25 years in San Francisco as a real estate agent concentrating on the high end of the market. Today, as a result of a reeling stock market and concerns about global economic stability and growth, the conversation with well-heeled clients has turned decidedly more cautious.

"I have a number of buyers who are just more hesitant," Hatvany told CNBC. "They look and they talk and then they start arguing with me about the slow IPO market and overvalued unicorns. I feel like I have to argue with them about how nice the house is."

 

As technology stocks slide — the Nasdaq is down 15 percent this year — and private tech valuations suffer, real estate brokers say the feverish clamor for high-end homes in San Francisco has quieted.

"Somebody who might have pulled the trigger at $5 million last year now might be a bit more cautious," said Josh McAdam, a top producing real estate agent with Pacific Union in San Francisco. "It's not the same environment."

McAdam is quick to note that demand remains strong for homes selling in the $1 million range. But the high-end residences in the City by the Bay, if they are to attract buyers, now need to boast all the right finishes, he says.

For example, McAdam said only one home in the tony neighborhood of Noe Valley last year sold for over $5 million. The year before, he says a handful of homes sold in that price range and a couple even above $5 million.

  

Hatvany confirms the same trends. In the second quarter of last year, her firm said, 18 homes sold in San Francisco for $6 million or higher. That number dropped to nine in the fourth quarter.

One question: Will the more cautious tone now defining the ultra-high-end of the market spread to other price points?

Christopher Palmer — an associate professor at the Haas School of Business at the University of California, Berkeley, who specializes in the housing markets — said the biggest threat to price appreciation is a downturn in tech because so much of the Bay Area economy is reliant on the sector.

"Tech stocks have taken a beating in the past few months, and every time there is a stock market correction, people start to wonder if the spigot of capital that has fueled so much Bay Area growth is about to be turned off," Palmer said.

20 of the Hottest Real Estate Markets in the US for 2016

After a December that was unseasonably balmy for a large swath of the East Coast, January saw a return to winter norms: frigid temperatures and mountains of snow (even in the drought-parched West, thanks to El Niño). Real estate markets around the country also followed the regular January pattern, according to realtor.com® data: fewer homes on the market, and those that are for sale move like semi-frozen molasses. But just like the seeds that are waiting to sprout once temperatures warm up (hey, is it April yet?), we’re seeing signs that buyers are getting ready to jump into the market this year when the time is right.

“Our initial readings on January affirm the positive growth we expect to see in the residential real estate market in 2016,” says Jonathan Smoke, chief economist of realtor.com. “Our traffic, searches and listing views exhibited the January ‘pop’ we saw last year, which made for a strong spring. In addition, a large number of prospective buyers have been telling us since the second half of 2015 that they plan to purchase in the spring and summer of 2016.”

For now, buyers have fewer choices than they will later in the year, but of course there’s also less competition. Smoke expects listing inventory for January to trend down 7% over December, following the usual winter pattern. The median age of inventory is now 100 days, which means it’s taking homes 6% longer to sell in January than in December, but that’s still 4% faster when compared with January 2015.

The median listing price for January is estimated at $227,000, remaining virtually flat over December, but still up 8% year over year.

By analyzing listing views and age of inventory in the nation’s largest markets, Smoke’s team was able to identify the top 20 that are beating the winter chill. Listings in these markets are viewed two to five times more often than the national average, and houses move 30 to 50 days more quickly than the rest of the U.S. They have also seen days on market drop by a combined average of 7% year over year.

San Francisco retains the first spot this month—again—as California maintains its dominance with seven of the top 10 markets. One surprise: Nashville is the biggest gainer, moving up six spots to end at No. 7. Also, Texas and Florida now feature multiple markets on the list. Overall, Florida real estate markets just keep getting hotter, and the state will give California a run for its money in 2016 as the warm-weather housing market to beat. 

The Hot List    

1. San Francisco, CA

2. San Jose, CA

3. Dallas, TX

4. Vallejo, CA

5. San Diego, CA

6. Sacramento, CA

7. Nashville, TN

8. Stockton, CA

9. Denver, CO

10. Los Angeles, CA

11. Santa Rosa, CA

12. Oxnard, CA

13. Palm Bay, FL

14. Yuba City, CA

15. Modesto, CA

16. Detroit, MI

17. Midland, TX

18. Santa Cruz, CA

19. Tampa, FL

20. Fort Wayne, IN

According to Experts 2015 Was Quite a Year for California Real Estate.

With the latest numbers on existing-and-new-home sales from the National Association of Realtors(NAR), we can now close the books on 2015.

And quite a year it’s been.

As we’d expected, 2015 produced major growth and some big-time milestones in California’s housing’s recovery.

Jonathan Smoke, chief economist for NAR puts it this way. How good was it? Total home sales grew 7 percent over 2014 for the best year in real estate since 2007, based on 6 percent growth in existing-home sales and 15 percent growth in new-home sales.

The increase in 2015 was a stark contrast to the decline in total sales in 2014.

And en route to housing’s definitive recovery in 2015, we hit plenty of landmarks, including a new nominal record for the median price of existing homes in June, a substantial decline in distressed sales, an uptick in the share of first-time buyers, and an increase in the share of new homes among total sales.

NAR estimates from monthly sales and survey data that sales to first-time buyers were up 12 percent.

An improving economy, pent-up demand, and strong affordability brought moreMillennials and other first-time buyers into the market.

Sales to buyers relocating or resulting from a job change were up 8 percent as the country saw close to 2.8 million jobs created and the unemployment rate fell to 5 percent.

Demographics were a driving force behind strong demand for housing in 2015 as we returned to a more normal pace of household formation related to the healthy job market.

The new-home market grew in part because of builders responding to stronger and more consistent demand from entry-level buyers.

As a result of product starting to shift, the median price of a new home ended the year at $288,900, down 4.5percent from last year.

Not everything was about rainbows and green pastures, however, says Economist Smoke.

Distressed sales were down 19 percent as a result of fewer foreclosures and short sales. Sales to investors were down 10 percent as fewer distressed sales provided fewer bargains.

Even sales to international buyers were down 12 percent due to weak economic conditions abroad, combined with a much stronger demand.

What is NAR expecting in 2016?

More growth but it will be more moderate for existing-home-sales, and just a bit stronger for new-home sales. The demographics that fueled all that growth in 2015 should be just as strong in 2016.

More employment growth should lead to similar household formation, and affordability will still favor buying over renting for those who are qualified and ready to settle down.

All in all, now is the time to call your local Realtor and start searching for the home of your dreams.