Late Stage Capitalism? Silicon Valley Bank Collapses in 48 Hours

[Edge-]

Wage stagnation has been an issue in the US for decades overall wages haven't outpaced inflation. The Fed hiking rates as such a fast pace will have a very negative effect on corporate debt which is at an all time high, a lot of businesses have been relying on loans will start failing overtime.

Existing corporate debt is mostly locked in at the low rates they borrowed at, so unless they're restructuring and renegotiating loans the hikes only make new loans less attractive.

Though if businesses have been relying long-term on these low-interest loans then maybe the business shouldn't be successful to begin with?

The Fed simply can't address one of the biggest problems driving much of the current issues - corporate greed as they post record profits and earnings and then announce deep layoffs while giving executives raises and bigger bonuses. Those require legislative fixes which we know won't happen.

[Draco-Onis]

Existing corporate debt is mostly locked in at the low rates they borrowed at, so unless they're restructuring and renegotiating loans the hikes only make new loans less attractive.

Though if businesses have been relying long-term on these low-interest loans then maybe the business shouldn't be successful to begin with?

On top of that a lot of business have short term loans or bonds usually 1 year or less, large companies tend to have the long term loans / bonds which they borrow or refinance during times of low interest rates. New bond issuances have to pay much higher interests now increasing the cost of borrowing. I agree a lot of these companies shouldn't be in business but they are and when those bonds/loans expire it will have an effect.

The Fed simply can't address one of the biggest problems driving much of the current issues - corporate greed as they post record profits and earnings and then announce deep layoffs while giving executives raises and bigger bonuses. Those require legislative fixes which we know won't happen.

To be fair that's something for congress to do but they would never touch that.

[Rasulis]

Those low interest rate mortgages will haunt the US housing market for a long time.

14 million mortgages were refinanced during ‘pandemic boom.’ That makes life very difficult for home buyers.

During the early days of coronavirus pandemic in 2020 and 2021, mortgage rates fell sharply, and millions of homeowners jumped at the opportunity to refinance. The 30-year mortgage fell down to 2.65% in early January of 2021, according to Freddie Mac data.

15-years were around 2.1 - 2.2%.

The Federal Reserve Bank of New York estimated that 14 million mortgages were refinanced during the “pandemic refinancing boom.”

The surge in refinancing was, in part, due to strong household balance sheets and an increased need for housing, the New York Fed said in a blog post published Monday.

The average homeowner who refinanced saw their monthly payment drop by $220, the Fed said.

The biggest share of mortgages that were refinanced originated from 2015 onwards, the NY Fed. said. Older mortgages, such as those originated before 2010, were the least likely to be refinanced.

Homeowners most likely to refinance their mortgage owed a balance of $400,000 to $500,000 on their mortgage, the NY Fed concluded.

“The mortgage refinancing boom is over, but its impact will be seen for decades to come,” Andrew Haughwout, director of household and public policy research at the NY Fed, said in a statement.

One of the biggest consequences of the refinancing boom is that would-be homebuyers today are now struggling to find homes for sale.

“The end of the most recent exceptionally low interest-rate period leaves homeowners somewhat disincentivized to sell or change properties,” the NY Fed authors noted.

We see it here. Outside the commercial district downtown, Mission and SoMa, which were abandoned by the tech workers, everywhere else, supply is at all time low.

In other words, homeowners aren’t keen on giving up their ultra-low mortgage rate and selling their home. Not only are rates far higher today, with the 30-year above 6%, but home prices have continued to stay elevated.

New listings — how many sellers were putting up their homes for sale — were down by 16% in early May compared to a year ago, according to Realtor.com.

“Owners now looking to move will face increased borrowing costs and higher prices, with current home prices being more than 36% higher than they had been pre-pandemic,” the NY Fed said.

Homeowners appear reluctant to sell. Sales of previously-owned homes fell 22% year-over-year in March, according to the National Association of Realtors. New data on April home sales will be released this week.

Many buyers are turning to new builds to find good housing options. New home sales jumped 9.6% in March. One-third of housing inventory is new construction, a deviation from the historic norm of new homes being just 10% of overall housing, the National Association of Home Builders said in April.

And for the mortgage industry, business is likely to be far slower than it was during the pandemic as fewer homeowners are refinancing. The NY Fed said mortgage originations — which include refinanced mortgages — fell sharply in the first quarter of 2023 to $324 billion, the lowest level since 2014

It’s not hard to understand why few are interested in refis: The 30-year was averaging at 6.35% in mid-May, as compared to 5.3% a year ago, according to data from Freddie Mac.

The rise in rates between December 2020 and October 2022 was not just steep, it was historic: Rates rose from 2.68% in 2020 to 6.9% in 2022, the largest swing since the early 1980s, the NY Fed said, citing data from Freddie Mac.

[Edge-]

We see it here. Outside the commercial district downtown, Mission and SoMa, which were abandoned by the tech workers, everywhere else, supply is at all time low.

At some point some of those office towers are going to need the expensive work of refitting them for apartments/condo's with the reduced need for office space in cities. Like, IIRC Salesforce is all but gone from Salesforce Tower even and are trying to sublet the place.

[Rasulis]

At some point some of those office towers are going to need the expensive work of refitting them for apartments/condo's with the reduced need for office space in cities. Like, IIRC Salesforce is all but gone from Salesforce Tower even and are trying to sublet the place.

I agree that's the best solution. Combination of residential/retail/office districts. Not sure how many offices will be required. I swear everybody here are working from home.

We'll see how quick City Hall bureaucracy adapts to the new reality.

Looking back with 20/20 hindsight, devoting the entire core of the city to office space for tech businesses that are now going remote and cutting down was probably a bad idea. The financial district is different than the other districts. It is the only district that is almost fully devoted to office buildings. All the other districts are mixed business/retail/entertainment/residential. Sunset and Richmond were never abandoned even during the height of the pandemic.

[Belize]

I agree that's the best solution. Combination of residential/retail/office districts. Not sure how many offices will be required. I swear everybody here are working from home.

We'll see how quick City Hall bureaucracy adapts to the new reality.

Looking back with 20/20 hindsight, devoting the entire core of the city to office space for tech businesses that are now going remote and cutting down was probably a bad idea. The financial district is different than the other districts. It is the only district that is almost fully devoted to office buildings. All the other districts are mixed business/retail/entertainment/residential. Sunset and Richmond were never abandoned even during the height of the pandemic.

Districting in america was always a bad idea, and has been known to be one for decades. There's no need for hindsight when it's a known problem that's addressed by a great big shrug.

[Milchshake]

The "other districts" are also the problem with their restricted zoning .... Sunset and Richmond being among the worst examples.

A developer wanted to build a nice 5 story there. Of course the n\mbys rejected it.


Now the developer is coming back with a nice 50 story tower. Yes plz!

[Rasulis]

The "other districts" are also the problem with their restricted zoning .... Sunset and Richmond being among the worst examples.

A developer wanted to build a nice 5 story there. Of course the n\mbys rejected it.


Now the developer is coming back with a nice 50 story tower. Yes plz!

The original proposal was for a 12-story building.

This one will never be built. Sunset and Richmond communities have had 30 years worth of practice keeping developments out. Keeping this one out should be easier. The coastal commission, building department, mayor and council are unanimously against the project.

The project budget is not even remotely realistic. 20 months and 143M for a 50-story building in Outer Sunset next to the beach? That’s a joke. For comparison, the estimated construction cost for the 56-story 181 Fremont was $500M when it was announced in 2013. When it was completed in 2017 the cost has ballooned to just under $1B. The geology and proximity to the Pacific Ocean make this project more challenging then 181 Fremont.

Less people forget, currently San Francisco has over 21 million square feet of vacant office space. That's a lot of potential residences.

On a personal note, I like living in the place that time forgets.

[Rasulis]

Units in the 5-story condo building you referred to, which is across the street from the proposed monolithic tower, are on sale right now. Here is the website if anybody is interested.

https://www.thewesterlysf.com/

Ouch. Mid 800s for a 1bdr/1bath.

[Flarelaine]

Units in the 5-story condo building you referred to, which is across the street from the proposed monolithic tower, are on sale right now. Here is the website if anybody is interested.

https://www.thewesterlysf.com/

Ouch. Mid 800s for a 1bdr/1bath.

As in around 850 thousand dollars?

[Rasulis]

As in around 850 thousand dollars?

Yes. It is pretty steep for the Sunset District. A 1 bdr/1 bath condo typically goes for 400k - 500k.

Granted it will be brand new. In fact, it is the first multi-residential development in the district in the last 20 or 30 years. The first 5 story building also. Most of the condos in Outer Sunset are old. Dating back to the 30s and 40s.

[Milchshake]

As in around 850 thousand dollars?

Its a joke hon. There are no available $850 condos in the Sunset. Because gentrifiying boomers are keeping them out. /joke

https://www.zillow.com/sunset-distri...isco-ca/condos

[Rasulis]

Its a joke hon. There are no available $850 condos in the Sunset. Because gentrifiying boomers are keeping them out. /joke

https://www.zillow.com/sunset-distri...isco-ca/condos

Sunset is the equivalent of elephant graveyard for boomers. Once you move in, you either leave in a casket or when your knees can't handle the stairs in your home anymore. There is no getting around that. When you build homes on 0.1 acre lots, you end up with lots of stairs.

Although not at the level of the villages, lots of retirees in Sunset. Last census data by employment showed 31% retired.

The neighborhood is basically stuck in the 70s. It is not old enough to have that European old-world charm. Yet it felt used. It is like walking into a second-hand store. No grand mansions like one would see in Pacific Heights. The western part is basically made up of pastel colored row homes. The dot.com and internet boom techies did not flock to the Sunset because it is too far from the downtown offices and Silicon Valley. The tech bus routes did not extend pass 19th. It is cold, damp, foggy and windy. On some days it is like living in a wind tunnel. Even the homeless stay away from Sunset. With the exception of some van dwellers (they prefer the term nomads) along the Great Highway. No encampment or homeless loitering along the sidewalks like one would see in Tenderloin, Mission or SoMa.

Sunset real estate is now booming. My wife just closed on a property on Friday. It sold for 400k over asking price and 2.5 times what it sold for in 2019.