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Comment by kuschku | Hacker News Reader

It’s probably even a too optimistic forecast.

The readjustment of the market to reality is going to be a big issue, especially when one looks at just how many companies are operating at huge losses. Most people already know that it can’t continue like this.

The good thing is, real estate values will decrease like the pay, so people can rent at cheaper rates in the bay areas.

The bad thing is, those who have bought a house are f~~~~~d.

We’ll probably see a lot of tech giants like Twitter (no income? really?) tumble, and others take a small hit (like Google).

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>The good thing is, real estate values will decrease like the pay, so people can rent at cheaper rates in the bay areas. The bad thing is, those who have bought a house are f~~~~~d.

This needs to happen. We need to see housing as more a consumption item than an investment item. The more people see it as an investment, the more the NIMBY policies we see to increase home values to levels which price young and low earners out of the market.

I don't see TWTR dying. They make too much money. What I do see is a major correction in their head count.

I could see them operating with 100-200 employees.

> We’ll probably see a lot of tech giants like Twitter (no income? really?) tumble, and others take a small hit (like Google).

What do you mean by no income? Twitter makes billions in revenue...

The relationship valuation/income is vastly off with twitter, and I’m not sure how long the investors are going to wait.

Except the last time the markets dropped, real estate prices went up.

If there is a problem, the Fed will drop interest rates, maybe even go negative, and that will cause bond rates and conceivably mortgage rates to drop as well.

The Fed wants inflation, and most importantly home price inflation. They will do whatever it takes to stop deflation, they've already said this. Bernanke said he would drop bags of money out of helicopters, obviously an exaggeration, but basically this is how critical the Fed views the fight against deflation.

That works until it doesn't, see Japan.

what about japan

I'm assuming this was an offhand remark, but if you are looking for a serious answer: the Japanese Govt. has been trying a similar thing for over a decade to kick the economy into growth and has failed rather spectacularly and persistently in doing this.

[0]: https://en.wikipedia.org/wiki/Lost_Decade_%28Japan%29

> If there is a problem, the Fed will drop interest rates, maybe even go negative, and that will cause bond rates and conceivably mortgage rates to drop as well.

The Fed has very little room to drop interest rates and won't do so to prop up the NASDAQ while the economy continues to grow and add jobs.

It's not to prop up the Nasdaq. In the doomsday scenario referred to above, housing prices dropping 30%, salaries went down 25%, etc. This is unacceptable to the Fed and they will do whatever it takes to counter this, including dropping as much money as possible.

And they can go negative interest rates which would be crazy, but it's happened before, and currently going on in Japan.

The Fed is all out of bullets, except for NIRP. And yes, it would (will) be crazy, but only slightly more so than 7 years of ZIRP.

Outside of a few areas home prices are not absurd. The Fed doesn't care if studios in SF fall to under $2k a month. Same for Valley salaries.

It seems like home prices are pretty high historically in a lot of places, not just a few.

They've bubbled up again not only in SF, but also in most every single area with job growth - SoCal, the whole I95 megalopolis, Denver, SE Florida, Dallas and Austin, Minneapolis, and the Pacific Northwest.

In fact, only parts in the rust belt, South, and Midwest remain affordable, based on historic standards. Unfortunately, the majority of job growth is not in these areas.

I do not see how homes can retain their value when Boomers begin dying and down sizing, as they own the majority of wealth in real estate and the next generation is loaded in debt already and not forming large households at the historic rate.

"The Fed" is not all one thing, and the majority of the members don't behave as if they want inflation. They want bank balance sheet stability.

The "helicopter" thing is a metaphor, not to be taken internally. The is a related action to be taken but it's not nearly as exciting as helicopters :)

I hope very much that you are correct, but I'm kinda droopy about the prospects, frankly.

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