Employees with high salaries at the larger more stable tech companies are doing most of the Bay Area home buying. Think FAANG, stripe, twitter, slack, etc. These companies can weather economic downturns without laying off people so Bay Area house prices don’t drop much. This was the case in 2000 and 2009.

Supply is also dropping as tons of homeowners are refinancing, which balances out any drop in demand.

The biggest hit is usually on the lower end of the market where you’ll see foreclosures as middle class people lose their jobs.

Anyone who thinks FAANG will survive without a contraction is deluding themselves. What happens to the ad market during a depression? How about luxury IT hardware? Entertainment subscriptions? Web services?

If there isn't a bounceback in three months or so, the entire tech sector will deflate like a balloon.

FAANG will probably survive in some form because of cash reserves, but there will absolutely be cancelled projects and mass lay-offs. And those will have an effect on the the property and rental markets, on startup funding, and on everyone's cash flow.

Business is a herd phenomenon, and as soon as panic spreads through the herd it reverses direction - until some new excuse for optimism appears.

> FAANG will probably survive in some form because of cash reserves, but there will absolutely be cancelled projects and mass lay-offs. And those will have an effect on the the property and rental markets, on startup funding, and on everyone's cash flow

FAANG will lay off their armies of contractors before down sizing FTEs. Google has 125k FTEs but over 300k temps. Will it get to the point where FTEs are laid off? I’m not sure, but it seems pretty unlikely unless things don’t improve over the next few years or so

contractors aren't summoned from the aether, they still live in houses.

Are these temps and FTEs even doing the same role? It’s probably going to depend more on the role they are doing than work status.

Depends. There are many many contractors doing corporate tech stuff but there are also vendors making food and they all have the same bright red badge

I've been reached out to by Google recruiters with COVID-19 specific messages. They know this is the time to hire software engineers.

Startups with cash are doing this, too.

My takeaway so far is that the tech job search is going to be way more competitive for a while. Since this started, we have had about twice as many people pass phone screens. Smart people who were taking time off who suddenly want a stable income, and smart people who were laid off from less secure startups. Some very talented people that we would have hired two months ago, might not get hired when they interview next week, and it's not because we are hiring less.

This. Lots of cheap/desperate talent right now.

Yup. Google has basically doubled in employee count since 2016. It doesn't seem unreasonable at all that it would contract back a few years or more, headcount-wise.

Only two of the FAANG companies get most of their revenue from ads, and all of those companies are weathering the storm rather well (except perhaps Google, but I can’t say for certain).

Facebook is struggling to keep up with site demand; more people are using it to communicate while shut in during this period of uncertainty.

Apple has enough cash on hand to not sell a single product for months - maybe years - and still keep paying everyone. But they have plenty of subscription-based revenue coming in anyway.

Amazon can barely keep up with demand to the extent that they are hiring 100,000 people and denying shipments of nonessential goods. (disclaimer: I work for AWS but have no inside information here; I read the same news stories everyone else does.)

Netflix is entertaining more people than ever who are stuck at home.

Google is, well, Google, and like Apple, awash in cash.

It’s not the FAANG companies we need to worry about; it’s the startups that were based on great ideas but needed the space and investment to incubate them but are now rapidly being depleted of oxygen.

Facebooks problem won't be lack of users, it will be lack of advertisers.

While it is true that the marketing budget is often the first to go in terms of spend, FB is also awash in cash ($35B at EOY 2019) to keep them afloat for quite a while.

This is day zero. Let’s see what happens on day 1.

> Entertainment subscriptions

$15 per month for Netflix might be one of the cheapest forms of entertainment in a recession. Classpass, not quite so much.

The cloud service providers will survive because they have a serious and relatively stable revenue from their services; even if they drop revenue to half, they cut contractors and investments for some months or a year and they are fine. Companies that rely on ads (like FB) will take a bad hit, ads are not essential services and companies will cut hard on that.

There may be modest layoffs in some specific targeted teams. But the giant tech companies are still hiring right now too. I'm still hearing from their recruiters.

> Supply is also dropping as tons of homeowners are refinancing, which balances out any drop in demand.

Can you explain this? How does refinancing affect housing supply?

Refinancing and selling your home are both ways to get cash. The best time to refinance is when 1) rates are at their lowest 2) your home value is at its highest and 3) you can get good ROI on that cash. Typically people look for ROI either by investing it in the currently down market or using it for down payment on a second rental property.

All three of those apply at this moment so record numbers of people have been getting refi’s this month. When fed rates eventually go up perhaps next year people will shift back to selling, or simply holding while they wait for their perceived home value to recover. Either way you have less people selling homes.

Not an expert - this is just what has been explained to me so take it with a grain of salt. Also this falls apart if the market is flooded with foreclosures.

During the dot-com bust, rental prices went down a bit. During 2008, they stayed flat (as opposed to going up a few percent each year).

So I'm guessing it will either stay flat or go negative. It depends on how quickly things recover once the shelter in place is lifted and how many people actually leave the area.

The housing prices are driven by lack of supply, so even if demand softens a bit, it won't have that big of an effect, I think.

Rents fell in 2008. I can tell you this for sure, because I had just moved to SF, and landlords were making deals. My landlord lowered my rent by $100 a month in order to keep me from moving in 2009.

Even as late as 2010 this was happening. I looked at a place on Russian Hill around that time, and it was offering rent incentives.

In my recollection, the market didn't pick up again until around 2012, corresponding with the rise in startup investment.

The data seems to back you up, so I stand corrected. [0]

I was basing it on my own experience pricing the rental unit I've managed in Berkeley for the last 21 years. Each year I do a rent survey for the East Bay, and that was based on my experience there, but the East Bay is a little less price sensitive in both directions compared to SF, so that's probably the difference.

[0] https://medium.com/@mccannatron/1979-to-2015-average-rent-in...

The center region of the bay area will hold its value longer while the outskirts will drop earlier. Basically people will "move up" when there is an opportunity to be closer to their job. Remember not all people will lose jobs during this downturn so some will take it as an opportunity to buy. If nothing else the bay area has great weather to offer.

These prices are set by the top 30% employees of the big tech firms. Unless there are massive layoffs there (e.g. 250k employees are let go) and this situation lasts for a few years (they have savings for 3-5 years usually), I wouldn't expect the prices to move.

Stock options and RSU's are a big part of the compensation packages for that group. So lower stock prices are essentially pay cuts.

And unlike 2008, many of these companies are more mature and much more exposed to the broader economy. Cloud computing, Ads, GSuite, etc... There are a handful tech companies that will probably thrive (Netflix, Zoom, etc...), but most of them are probably going to see big drops in revenue.

And considering that most of these companies have plenty of fat to trim (how many Alphabet moonshots are bringing in meaningful revenue, let alone profits?), I don't see how declining revenues won't result in some belt tightening. And when that starts happening, how many of the top 30% are going to be buying $2M-3M homes. The mortgages on those things are like ~$15k a month, and CA unemployment maxes out at ~$2k.

It is certainly possible that Bay area real estate weathers the storm just fine. But I really don't see a compelling case for it. Salaries can, and likely will go down. And bay area real estate is at all-time highs relative to incomes.

Why are lower stock prices pay cuts? Strike price is rarely fixed, usually it is some percantage of current stock price. So if stock price falls you get more shares.

You have no way of knowing what the price might be when you are able to exercise your options. You also don't have to exercise them, it's your choice. Equity compensation is always a gamble.

Because most (all?) of the large companies issue RSUs now, not options, with the quantity of RSUs determined at issue time.

They live in 700K houses with 3K a month payments. Mortgages will be suspended: banks don't want foreclosures. Again, the tech bros are in the top 5% by income and assets. If they sink, then 95% will have been underwater already.

Are we talking about the same people and same area? You mentioned the top 30% of tech companies. Those folks aren't living in the far flung suburbs in the East Bay. They are living in SF and on the Peninsula, where median home prices have been well over $1M for a while now[1]. There are certainly some tech people that managed to buy real estate back in 2010-2012 at the bottom of the market, and who have been saving plenty of money for rainy days. Those folks will probably be fine. But there are plenty of others who took on large loans to buy expensive houses with incomes that were heavily based on stock based compensation.

[1] https://www.zillow.com/san-francisco-ca/home-values/

Just to make sure I am understanding you, are you stating that the top 30% of employees have 3-5 years of savings socked away that they can get to easily?

If that’s true, well, I guess I am not in the top 30% of employees of big tech firms.

It also depends on if you include retirement accounts. It seems nuts to have 3-5 years of savings as cash in taxable accounts. But this is easily doable if you include retirement accounts, which you would start withdrawing from if things were really bad and the choice is to lose your house or withdraw early from 401K/IRA.

Statistics based on a sample size of one are not a good example.

Corrections in real estate market, be it rent or selling, tend to reflect economy in slower pace and depend greatly on location/overall attractivity. Owners get very quickly used to higher rent/property valuations, but are very reluctant to go down with prices.

It might be good for those high renters to simply move elsewhere in couple of months when/if there will be many free places on the market. This is experience from elsewhere, from +-2008, so it might not work out exactly like this of course, but generally I would expect so.

My rent has gone up ~5-7% per year for the past 3 renewals and just recently (1 week ago) I got one that was 0 increase. I wouldn't have thought that was possible in the Bay Area until recently, so I'm not sure if I should renew or just wait until the last day and haggle a bit.

In the early 2000s, rents really didn’t go down. In rent controlled buildings you should expect they will still ask for the max increase. That’s what happened back then and people were moving away in droves.

In 2002 after dot.bomb, prices held flat for a while. A fair of vacancies in SoMa.

The 2008 recession sort of bypassed tech.

Are you kidding? The 2008 recession killed a ton of tech. The core of traditional Silicon Valley (Mountain View, Sunnyvale, Santa Clara) had so much vacant office space that large areas zoned industrial felt like ghost towns. Sure, the companies that later became dominant survived. The electronic design automation sector held on because chipmakers couldn't stop doing design work. But it was very tough.

I think its unlikely because everyone knows its going to right back up once this blows over. So demand should hold constant.

Perhaps, but the way it’s moving there will be another 20m+ people without jobs in a month or two (prime working age folks), and with a bunch of industries contracting at the same time it’s likely that recovery will take a while before it all resumes. Hope I’m wrong but it could be a few years before it will bounce back.