Silver Lake is overvalued.
That's not to say people are overpaying for homes there, or that values will adjust downwards anytime soon. What I mean is buyers are happily paying a large premium for the location.
By location, I mean the name of the neighborhood.
Neighborhoods are brands, and where you live is perhaps one of the most powerful personal brand signals. We don't ask, “Who are you?" Instead, we ask, “What do you do?” and “Where do you live?"
Tell someone you bought a house; their next question is always “Where?”
And just like clothing brands, neighborhoods are subject to the whims of fashion.
Sociologists tell us that cultural change (i.e. fashion) happens by innovators, then early adopters, early majority, late majority, and laggards.
The distribution is uneven - there are hardly any innovators and early adopters, a ton in the majority, and a small number of laggards trickling in behind.
I'd say Silver Lake is in the “laggards” stage.
The laggards have to pay the most, but they're usually happy to. The Silver Lake brand is incredible and lasting - it will always be the Brooklyn of L.A.
But if you like money…don't be a laggard.
We all want to live in the best area. But deciding where to live is a dogfight between "What will this say about me?" and "What can I afford?"
If you're early, you get in cheap. But it's hard to be an innovator. What distinguishes innovators from the early and late majority? Unequal access to information.
