Friends of ResiShares -
So apparently, superstar cities are actually NOT dead, according to data recently published by the US postal service. Here is the Wall Street Journal take:
https://www.wsj.com/articles/the-bay-area-exodus-that-wasnt-11614960057
This data set was a good find by the Journal. The more longstanding friends of ResiShares may remember we referenced it in a note this past December (“Window Shopping”), that mentioned how few people actually leave their hometown in any given year. Our point in sharing it was that migration that drives real estate pricing is dependent on slow, compounding marginal trends.
Indeed, the gravitational pull of friends, family, and familiarity is incredibly strong for most would-be movers. Of course, if gravity is the right analogy, it works in both directions. That is, migration happens gradually, then suddenly, just like a space rock accelerating towards a black hole. A hot spot slowly becomes acceptable, and then more rapidly becomes inevitable after accumulating a critical mass of social network linkage to a source geography. Quantifying and predicting this dynamic is our day job here at ResiShares.
Apparently, those brainy folks at Harvard have done some work on the subject as well (hat tip to Friend of ResiShares Marvin Chang for catching this).
https://www.jchs.harvard.edu/blog/do-workers-fleeing-house-price-growth-take-boom-them-they-go
Migration from superstar cities does transform home affordability dynamics in destination cities, but it does so in a manner and at a speed dependent on the migration patterns of entire social, economic, and cultural groupings.
This social network effect can be taken quite literally. This article below maps Facebook friendships by county. It is two years old, but if he were to hover his mouse over New York or San Francisco, the author of the Harvard paper would not be too surprised with the result.
https://www.nytimes.com/interactive/2018/09/19/upshot/facebook-county-friendships.html?
This is why all the VC tweets debating the death of Silicon Valley or the opportunity they see in Miami are laughably premature. It doesn’t matter for the real estate market if Elon Musk, who mostly lives on an airplane, moves his “residence” to Texas. It only matters if thousands of families per year decide to follow him.
Incidentally, it appears some of these footloose tech investors are starting to lose patience with that pace of change, which plays out far more slowly than the average SPAC deal.
https://www.bloomberg.com/news/articles/2021-03-10/wall-street-a-listers-fled-to-florida-many-are-eyeing-a-return
The Rest of Resi
https://www.politico.com/states/california/story/2021/03/08/soaring-home-prices-are-starting-to-alarm-policymakers-1367423 - Policy is coming. This is always the unpredictable part of real estate. It doesn’t sound like policy makers have any particular idea of what direction to take, but when Politico is covering home prices, it is pretty clear that this is going to be increasingly part of the national conversation.
https://amp.scmp.com/business/china-business/article/3124630/chinas-runaway-house-prices-may-ease-centralised-land-sale - Speaking of policy, here is one in China. This is what Paul Krugman or the South Park kids might refer to as “Underpants Gnomes Economics” (Google it).
What exactly changes in a market when you auction off the same amount of the same thing to the same bidders, just on a different schedule? Do they not realize that there is an entire financial services industry whose sole purpose is to match businesses’ cash flows with the timing of their cash needs?
https://www.newsnationnow.com/us-news/bye-bismarck-144-cities-could-lose-status-as-metro-areas/ - Here are some cities that don’t appear to be part of the superstar city expat social network.
https://www-wsj-com.cdn.ampproject.org/c/s/www.wsj.com/amp/articles/paying-rent-during-covid-landlords-11614201531 - Eviction bans explained for mom and pop landlords
https://mises.org/power-market/americans-have-much-more-living-space-europeans - Americans have big houses. Is this a function of our distorted housing policies or are our distorted housing policies a function of our cultural preference for big houses? The answer to that question has big implications on the next decade of housing policy and housing costs.
