A perfect storm of low interest rates and a booming tech economy, which has pumped out an endless number of tech millionaires rewarded for amazing ideas like the ability to morph one’s face with a squirrel, have culminated in a substantial housing bubble in Silicon Valley and the surrounding areas.
As recently observed here and here, we think this bubble is just about ready to burst. In fact, an overlay of recent housing prices in San Franciso vs. Las Vegas prices during the last cycle look fairly ominous:
Several weeks ago in a post titled “These 2 Forces Will Crush the San Francisco Housing Bubble,” we presented the combination of plateauing employment with an accelerating expansion of housing supply as a nasty combination for home prices in Silicon Valley. That said, we would like to add 1 more “force” to the list which is a return of extremely aggressive lending practices, painfully similar to the previous housing bubble.
As noted in a Bloomberg article today, the $0 down, 30-year, adjustable-rate, jumbo mortgage backed by illiquid stock options in tech start-ups, a loan which the San Francisco Federal Credit Union has coined POPPY, or Proud Ownership Purchase Program for You (because “Steaming Pile of Shit” just didn’t seem appropriate and messaging really is everything when you’re trying to dump loans overseas), has made a huge comeback in Silicon Valley.
