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In terms of property, I wonder how much is being sold to foreign investors. This article came up recently about London

http://www.constructionenquirer.com/2016/02/04/opinion-is-th...

I give it more credence than the usual "property market correction incoming" because certain fundamentals have actually changed, oil is dirt cheap, China as you say is volatile having blown multiple bubbles and now dealing with the consequences.

Perhaps those who previously bought for investment purposes may need to liquidate?

Hard to know, because High end London property is pretty weird. It's basically a piggy bank, a tax dodge, a money laundering vehicle and a fashion accoutrement all tied up in one dirt cheap currency.

London is a weird spot for property. I see it as more inline with the gold market. A "safe" investment for people who need to invest. That makes your last point more likely if anything I'm saying is true, but what happens when in London is unlikely to reflect the properly market in general, which is based somehat on fundamentals.

http://abc7news.com/realestate/chinas-elite-buy-bay-area-pro... http://www.sfchronicle.com/business/networth/article/How-do-... http://www.bizjournals.com/sanfrancisco/blog/real-estate/201...

and so on

> The number of people employed might.

It will.

> Engineer salaries are not going to drop a whole lot.

Basic economics say that will follow.

None of these events are isolated. They're interconnected and cascade. Everyone will be affected, even those who are flipping burgers in the Bay Area.

> Everyone will be affected, even those who are flipping burgers in the Bay Area.

hey sure there is a bubble there, but last time I checked BA wasn't caput mundi yet. Plenty non inflated startups do exist, even if not specifically there.

Where the whole economy is sustained by VC money, well, there's gonna hit the hardest. But doesn't seem that the whole IT world is following that model.

That doesn't matter in the short term. Once the inflated startups tank, everything will take a dive. Remember 2000?

Maybe not. Seems like many here are too young. I'm only in my early 30s and am already feeling deja vu. Life is strange.

I recall sending my resume to over 50-60 companies for junior web dev work @ $15/hr after college and only getting two answers back. It was pretty brutal.

When the dot.com economy crashed, Google and Apple weren't producing billions in quarterly profits. Facebook didn't even exist. Today, the local economy is a very different thing. There's a new layer of massive and massively profitable companies that are not relying on venture money to keep their doors open. Meanwhile, a number of truly fundamental breakthroughs in AI, A/VR, genetics (CRISPR), transportation, and energy are happening simultaneously. Any one of them could trigger another tech boom, especially when corporate balance sheets have ludicrous amounts of liquidity. All five at once indicates a world-historical event in the making (think Second Industrial Revolution).

https://en.wikipedia.org/wiki/Second_Industrial_Revolution

Accordingly, there's no reason to be investing in fluff like file sharing, app-based bike delivery, or "valuable" services like Shazam when there's real work to be done. In other words, the VC correction unfolding now is exactly that, a correction (long overdue, to my mind, and an unambiguously healthy thing). It will hurt a lot of overextended people to be sure, and unprofitable companies with dubious valuations that are laying people off now are wise to get ahead of the crunch.

As the squeeze tightens, salaries will even out, the balance of power will shift to employers, traffic may improve (slightly), and rents may even stop climbing. But 20-30% declines in the overall housing market? Dream on. Prices here are a function of a massive shortage, off-the-charts desirability, and deeply-rooted peculiarities in the tax code (Prop. 13), not Florida-style speculation. All of these factors are far more impervious to temporary downturns in the employment market.

Having lived through the dot.com crash, I can certainly hear echoes, but deja vu it isn't. The world is now a very different place.

Actually, basic economics says that wages tend to be sticky.

And as a result, unemployment higher.

/Average wages/. On a macro scale.

That's not the same situation. Of course you're going to see the $150-200k premium for engineers fall once startups, funding, and jobs disappear. It's already happening in the form of cutting RSUs and bonus packages.

And it has happened before. Why is it so hard to understand this?

Because most people here weren't around for 1999-2001.

Agreed. But I'm still a little surprised by this. I would expect anyone at least 30 yro to have /some/ recollection of what happened, if not a good understanding. Or to have the curiosity to find out what did. I'm 31 myself, but knew what was happening with the bubble during highschool (thanks pud and F'd company).

Maybe the typical age on HN is 21? :)

Young people are just smarter, apparently. Sit back and enjoy the show.

Yup. Most guys here are in their 20s: https://news.ycombinator.com/item?id=5536734

Oh, I was around.

Regardless, I was stating that your dismissal of "basic economics" was wrong. It's not basic economics, there's a lot that goes into the equation. Wages might go down. Wages might not go down by a ton. They might drop like a rock. It all depends on a number of factors, but blithely dismissing people with some nonesense about econ 101 is not being intellectually honest.

You're still talking macro 101. I'm not talking about nationwide unemployment figures here.

The key is that wages for /engineers/ will fall if funding and jobs disappear in the tech sector. Today's wages for engineers are high and will be unsustainable when things go bust.

How much they will fall is anyone's guess. But the reasoning behind why they will fall is very straightforward.

Wages probably will fall but it's probably also more complex than that.

Your extremely talented engineers who build things at scale and understand the fundementals, who are basically a safe per of hands, are still going to be in deep demand. Profitiable companies that work at scale are still going to have real problems and are unlikely to turn around and tell their engineers that they're going to be getting significantly less money, as those engineers are already in their own market and these companies will still want to compete for them.

The startups filled with architecture astronauts who spend most of their time overdesigning, learning new tools, and basically doing anything that isn't meeting user needs, delivering the product or tackling some tough engineering problem, then you're likely going to see a drop because they're not really worth it in the first place.

Most management can't tell the difference between the two.

True, but you're assuming they won't be part of the same cull.

Culls occur from the bottom up. Engineers, then management.

This strikes me as a bit of a fantasy. Very few people can recognize, and even fewer value, a "safe pair of hands". Let's not also forget this industry's rampant ageism, which even in good times sidelines experience in favor of hipness. I have no idea why you think this will magically change just because times are tough.

I'm not sure the industry suffers from ageism in the way most people here think it does. The start-up community hiring cocky 24 year old team leads who refuse to heed advice from their seniors definitely aren't going to be hiring the older guy, sure.

However, remove the funding and force these companies to actually compete on merit and only those who are actually capable of delivering will still exist. At that point, hopefully, we'll see a rise of new leaders who actally value excellence.

The point is, we can only afford to value hipness over experience in bubbles and it looks like this one's about to burst. Of course, I'm not from the future, so I could be wrong.

I disagree completely. I think there are really two markets for dev jobs: the startup economy which is over-inflated but also exists in a smaller high COL location, and everyone else which had lower COL and wages to begin with and likely won't see much of a drop in wages due to the fact that their company needs those services to function efficiently.

You can argue that the drop in employment in startup land may see some movement outside the bay area and into boring lower paid dev jobs, but I doubt that it will be more than a small blip.

TL;DR: If you're at a start up the good times might be over. If you're not, don't expect much change (maybe less likely to see a pay rise). If you're just coming out of Uni and into the job market, you may see interesting times.

"Real estate values are sticky and will hold up longer than people think."

This may be true in the general case, but there is a more relevant (IMO) general case here, and that is: demand outstripping supply causes prices to ramp up steeply ... but if that condition wavers at all they will drop.

That is to say, if there is even a single marginal house for sale in the SFBA that can't clear, the whole market drops. Right now that doesn't exist. All (normal, conforming) homes in SF are clearing. If that changes - if there are even one or two marginal houses left unsold - the price plummets.

Can you say a bit more about this? How does a quantity of one affect supply so much?

What do you mean by "clear"? Is that a synonym for "sell"?

If a house does not sell at a certain price, typically the owner can lower the sale price.

> At the moment, outside of wholly energy dependent countries (Middle East, Latin America, Nigeria, etc.), there does not appear to me a 2008-like financial system shutdown.

There's nothing stopping central banks from creating more liquidity through progressive rounds of QE, each of them buying in because they know their country will suffer in the short run if they do not follow suit. Of course this will lead to deflation and another recession in the long run with many losing faith in monetary policy/central banks altogether, but we're not quite there yet. We've still got another couple of years before we hit that phase.

I think at this point we're more likely to see NIRP than QE.

QE leads to deflation?

Could you explain how you see QE leading to deflation, when it's an explicitly inflationary policy?

Sure. QE pushes money into the supply side (banks) which goes primarily into rent seeking activities such as equity markets and real estate due to a lack of aggregate demand.

This allows the economy to stay afloat as those with assets enjoy increases in nominal wealth as long as more and more liquidity is injected into the system.

But it hurts the economy in the long run by distorting market signals (wage, unemployment, asset prices) that would take a major correction if the market was allowed to match supply and demand in these respective markets efficiently.

Short summary: QE hurts aggregate demand in the long run through the misdirection of resources and the creation of rent seeking asset bubbles. Weak aggregate demand leads to deflation, regardless of how much liquidity we have on the bank side.

So, shorter summary: QE doesn't work.

It works perfectly well in the short run, but it makes things worse in the long run, possibly necessitating (non-nuclear) war to boost aggregate demand through government spend (fiscal policy) and a reduction in the supply of excess labor.

QE works well. It's just limited in how much impact it can have because it's monetary policy. Fiscal policy is the other half of the equation and one that is much more politically charged. Bernanke did what he could with the tools at his disposal at a time when government was seized with deep partisanship. That's now coming home to roost as liquidity is removed from the system. Luckily, or appropriately, it's happening as unemployment is low and there is finally some upward wage pressure. You only have to look at many countries in Europe to understand what the US would have looked like had we not had the monetary firehose, with all of its imperfections, opened.

Which countries in Europe would that be?