SEEMS THAT THE MUSIC HAS ACTUALLY STOPPED!
Momo Meltdown Singes San Francisco Housing Bubble
San Francisco’s favorite baby, Twitter – so favorite that the city’s taxpayers were shanghaied into granting it tens of millions of dollars’ worth of payroll tax exemptions so that it would move from one building to another a few blocks away, rather than move to another city whose taxpayers might have been shanghaied into an even worse deal. Well, Twitter is the locally best known among these momentum fiascos, down 56% from its high in less than five months. Hope has wheezed out of it.
The Bay Area is full of these companies that are part of the big money transfer machine that is screeching to a halt. Take FireEye, in Milpitas, next to San Jose. It sells network and cloud security products, one of those formerly white-hot sectors. These outfits follow the same pattern: immensely hyped pre-IPO funding rounds with ever sillier valuations, an even more hyped IPO (last September), a Wall-Street instigated run-up into the stratosphere, and then a giant hissing sound. It’s down 72% from its high in March and trades well below its IPO price. Like Twitter and most of the others, it’s still way overvalued. In this manner, spread over hundreds of companies, many billions in fake wealth have evaporated in just a few months.
That brutally bursting stock bubble is wreaking havoc on IPO and momentum-stock hype, and on the necessary flow of money from all over the world to the Bay Area. The whole construct begins to teeter. And it’s already taking down housing in San Francisco.
That magnificent February, when the median home sold for $945,000, something terrible was already under way: sales were stalling. Turns out, only a few wealthy people could afford to buy a median home at this price, but wealthy people – even those freshly minted millionaires – don’t like to live in median homes, which is a two-bedroom apartment in San Francisco. And so in March, the price of the median home dropped to $937,500, according to DataQuick. The hot air had begun hissing out of the San Francisco housing bubble. And in April, the price dropped again to $922,500. While that is still up 13.2% from prior year, it’s down 2.4% from just two months ago.
That this drop came in March and April is particularly nasty. This is the time when home prices rise. Even during the down-years of 2008, 2009, 2010, and 2011 when the housing bubble in San Francisco was imploding, home prices religiously rose in March and April! So this downdraft is very special; and an early indication that this fabulous boom is once again turning, as it always and inevitably does, into a bust.
Well, if we finagle World War III for August, in time for the WWI centenary, all of that could be reinflated, right? KEYNESIANS ALWAYS WIN!