Since I don't really have a sense for the size of the houses in SF, I'd be interested to know how SF's numbers for "$/sq.foot of floor space" and "$/acreage" compare with places like Palo Alto.
This, more than anything else, is going to be what kills Silicon Valley. All those twenty-something hackers today are going to look up one day and realize that they can't have a family in the Bay Area, and leave.
I think the points related to better transit expanding the amount of available housing stock in other commuter markets have more to do with it than a 'business friendly' legal system or even zoning laws.
We're developers. We know shit-all about common vic licenses or actual brick and mortar business, those of us who own businesses incorporate in delaware anyways. Supply and demand of housing stock is much more important than 10% marginal friction in dealing with regulators (who we don't deal with anyways).
Austin will succeed or fail at continuing to grow based on how much they can grow their housing stock without turning into a gridlocked nightmare.
Cops and teachers have to get paid somehow -- Texas doesn't print the money, it gets it from property taxes and other sources.
I'd say that even if you hypothesize a gain in not-paying-taxes of, say, 5% of income -- that doesn't change the game compared to local economy, as evidenced by the house prices that TFA is talking about.
It's not all about politics. Everyone says they believe in the free market, maybe they should look there first for an explanation of the housing prices.
(consider the typical "appraised value" in both locations and think in terms of actual dollars)
Sales tax:
SF: 8.75%
Austin: 8.25%
State income tax:
SF: usually 8%-10% for tech folks
Austin: 0%
edit: You had a reply that reiterated that TX still can't print money, but deleted it. My response is that you're ignoring the other option, which is to spend less. TX doesn't have a super-train-to-nowhere project or other spending issues that CA has.
CA ranks 4th in per-capita spending, with a (pre-federal) budget of nearly $146 billion. TX ranks 50th per-capita, with an $80 billion budget.
That's all great. People still want to buy a house in CA so bad that it costs a million bucks.
Political conservatives go on and on about the free market and then say with a straight face that a single government policy, income tax rates, is the most important thing to business, more so than market conditions, even if that narrative conflicts with the empirical evidence.
We've been hearing about the decline of liberal CA and the northeast for so long now, and it hasn't happened yet. House prices will probably come down and soak some of the new dumb rich, and things will proceed as before.
Texas is doing great, and all power to them, but by the time they eclipse CA/NY, they'll be liberal too.
Outside of celebrities I don't hear of many folks who move to California to buy million-dollar homes. The handful of people I know who made it big in business have moved out.
California's a big place. You can get an awesome house on some property for $150k in many many places in CA. The million-dollar homes are concentrated mostly in SF (+Napa/etc) & LA (+Santa Barbara/etc). IMO a lot of it is the tradeup nature of housing - buy a $300k house, sell it 10 years later for $700k, buy another at $800k, sell 5 years later for $900k, buy at $1MM, on and on. And since SF/LA are centers of business, that's where the people earning that kind of dough live. The $500-700k inventory in the Bay is fiercely competitive, and what do you know, that's the price range two young married techies are looking in. Not a coincidence. I agree with the poster upthread who predicts that once the new generation realizes they're basically permanently priced out the whole area will collapse.
> We've been hearing about the decline of liberal CA and the northeast for so long now, and it hasn't happened yet.
It's been in progress for a long time and shows no sign of slowing. We've got big swaths of folks who are protected in the armored bubble of technology, but for the average folks things are worse than ever. I could go on and on about business owners I know making plans to evacuate, or the scores of friends rich and poor who have fled, or the stories of the behind-the-scenes trouble from friends and family in the CA government, or just plain looking around up and down the state, but the bottom line is that only time is going to tell. Eventually, one of us will be proven right and I sincerely hope it's you.
SF is only a tiny (49 sq mile) part of the Bay Area. It's like saying nobody can live in the New York City MSA because the price of a 2-bedroom apartment in Manhattan is over $1M, despite the fact that most New Yorkers live in Queens or Brooklyn.
SF is the urban core of the Bay Area, but poorly linked with the rest of the MSA. Manhattan is very closely linked with the rest of the MSA thanks to an extensive transit network ranging out to Connecticut, New Jersey, and the New York State suburbs.
In most cities with poor transit, living out in the suburbs is totally different from living in the city. You might only ever go into city on rare occasions. In New York, you can get much more affordable housing in say Westchester or New Jersey, and still work in Manhattan, with access to all the jobs Manhattan has, with a very reasonable commute.
In the Bay Area, most jobs aren't in SF. That's why SF has one of the largest proportions of reverse commuters in the country. So the idea that it's a transit situation where folks are trying to live close to work doesn't really make sense.
That's not the number the parent is talking about. The question is how many people are commuting out of the city, not the difference between in and out.
The proportion of reverse commuters in a region has nothing to do with how many commute in each day. It's just reverse commuters divided by residents.
As far as the increase due to commuters, 20% is very low for any area with corporate offices and not just residential neighborhoods. Manhattan grows 95%. In the Bay Area, Mountain View has 75,000 residents, and Google alone brings 25,000 people in each day. Palo Alto (the next town up the 101) also grows ~80%.
Have you seen prices outside of San Francisco? It's "okay" in the East Bay, but elsewhere on the peninsula it's just as bad or worse (Burlingame, San Carlos, Menlo Park, Palo Alto, Mountain View).
Proportionally, that's still a lot more affordable than SF, given that it's almost 50% higher in terms of household income. This is partially due the problems inherent in tracking home values based on median sale prices - by definition, transactions are always going go happen at a value higher than the value of the overall housing stock.
TFA actually list an Oakland location. To be honest its +- like SF all around the bay area for a decent place. There are crappy ones which are cheaper tho.
Not to mention the people who never went there in the first place because they have fewer romantic notions about what it means to be a tech startup and never saw the appeal in being paid barely enough to live in an expensive, crowded area.
My rent did nearly triple AND i went a little down-market from the high-end condo I had in FL.
But my other expenses didn't increase more than 50%.
At the same time, my salary without including options is 85% higher. Including options (I work at a somewhat recently IPOd company) is 122% higher.
My wifes salary -- she's not really in tech -- also increased 25%.
In total, we are far better off financially now than in Florida. And to be clear: In florida my income was a multiple of the median HHI. I was not underpaid there.
Most importantly, though: I can't swing my vintage IBM XT without hitting a half dozen job offers. Seriously every experienced engineer here gets pitched via LinkedIn on the regular.
I'm not trying to sell you on it. But the way you wrote your comment, "romantic notions" and all, was a little condescending. As if it's some foolish thing. Like you have all these analytically minded engineering types going like lemmings.
We may move at some point to another tech-heavy city like Austin or Boulder or, ya know, whatever. But as techy as those places are, truly NO other place can compare to the density of startups and tech companies here.
Like me, I already left. I lived in Hayward and commuted to the south bay while my wife commuted north a little bit. It was rotten and awful. I hate everything about living in the Bay Area and I love it here in Sacramento. I also lived on the peninsula. It was nicer but twice the cost per sq foot to rent and a lot more traffic to deal with during regular hours.
I dunno, a quick browse through Craigslist reveals many early-twenty-somethings seeking roommates who are okay with sharing bathrooms for <$2k budgets, and dangle your own private bathrooms if your budget exceeds that.
With salary boom, for many foreigners the disposable income after paying rent still exceeds disposable income in their home country, so until salaries are where they are, for a bunch of people the current price levels are still a sustainable and highly desirable proposition.
The title here is a little deceptive; it's the median price for a "single family home". A lot of the inventory in SF is either apartments in small buildings or duplex / multi-residence structures, which are generally less expensive (and it would be better to have more of those and fewer single family dwellings, since they use space more efficiently.)
Sell. Seriously. If you own one of these, sell. Then laugh.
This real estate hyperinflation is going to destroy the very engine of class mobility and youthful enthusiasm for a better life that powers the Valley. When that's gone, the Valley will decline. When the Valley declines, the local real estate bubble will pop.
Want a historical example? Detroit. It once had the highest average income in the U.S., and now look at the property values there. The reasons for its collapse are different and it's unlikely that SF (which is desirable for other reasons like climate and landscape) would ever fall as far or as fast as Detroit, but it's illustrative nonetheless. It shows that one should be cautious about long-term value in overinflated one-horse-town economies.
And if SF is not a one-horse-town, it soon will be. Industries other than tech will succumb to the lure of lower costs of doing business and leave.
Beware. The liquidity of these markets is vastly lower than that of equities. Also remember Keynes: "The market can remain irrational longer than you can stay solvent" or in this case longer than the contract durations offered.
We had a townhouse in the South Bay (which has been going up very quickly too) that we sold a few month ago. We got $100k more than we would have about 9 months earlier.
It's madness.
(We moved a few hours away a couple years ago and had been renting it...)
You could sell and laugh, but then where would you live? You either get a ridiculous commute, or you have to pay exorbitant rent. Something decent runs for over $4k/month everywhere in the valley these days. Everyone said the same thing about the Valley during the last 2 bubbles, but it keeps going up. People need somewhere to live - selling now on some hypothetical crash makes living your life very difficult.
I sold my place in the east bay and now rent in Morgan Hill. $2900/month gets me a 4 bedroom place in a 10 year old neighborhood. My commute to SJ is 30 mins up 101.
I guess the idea is to sell, live on rent for a while, and then buy a new home after the crash. Easy to make a decent profit if house prices crash by 30%.
>I guess the idea is to sell, live on rent for a while, and then buy a new home after the crash. Easy to make a decent profit if house prices crash by 30%.
yeah, if you can time markets, there's all sorts of ways to make money.
Me? I refused to buy when I got my first "real job" in '98, because clearly we were in a tech bubble and a real estate bubble.
I should have bought then. Even if I then sold at the depth of the crash in '08, I'd have still been ahead.
I mean, I'm not saying that the current bubble is similar; all I'm saying is that seeing that it's a bubble is easy; timing that bubble is /hard/
Over time however more founders might start their companies in places that are more reasonably priced and have a growing tech community (Austin/Kansas city).
Investors may begin to set up a presence around these hubs outside of the valley, and eventually a shift could take place, leaving the valley a great place to live for employees of tech giants like Google, Apple etc.
Things are expensive but there's no reason to round-up or inflate numbers. Maybe if you must rent a large single family home. Then sure, $4k would be the minimum.
But I live in a 2/2 duplex in a desirable SF neighborhood and pay $3100.
I'm not rounding up or inflating numbers. That example came from recent rentals on the peninsula my brother is looking at. 2/2 townhomes ranging from $3800-$4300.
Ok, if you want to live in a 2/2 duplex. How's your kitchen?
If you like it, good on you. Real estate more than almost anything else really does take all kinds.
My challenge is that I want some room for kids - more than 2 bedrooms, a yard where they can play and still be somewhat supervised, no sharing walls (for me AND for the neighbor, what neighbor wants to hear a screaming baby through their $3100/month duplex walls?).
I moved south of SJ. Still not cheap, but I've got the big SFH 30 mins outside of SJ for less than $3k.
Not everyone desires suburbia but if you do, prepare your wallet.
Do you absolutely need to be in the [EDIT] Bay Area?
If the answer is no, then there are a lot of other cities with reasonable tech scenes and much cheaper housing. Boston and Seattle are around $350k median home value. Denver, Atlanta, and Minneapolis-St. Paul are around $200k. Those places all count as "somewhere to live", and don't make life particularly difficult (unless your life revolves around something specific to SF/SV.)
All this assumes that people want/can leave where they currently live. Personally, with family, friends, fulfilling job, and a lot of fun stuff to do, I don't particularly want to relocate.
"I don't want to relocate" is a far cry from "selling... makes your life very difficult".
If you're particularly attached to and fulfilled by everything you have where you are, maybe you should stay, even if it costs a million dollars for a 2 bedroom house. Personally, I've got family, friends, fulfilling work, fun stuff to do, and a much bigger house that cost under $200k where I am. Life is not "very difficult" here; it's quite pleasant.
EDIT: to phrase it slightly differently, you're criticizing others for assuming people can relocate or assuming people might prefer Denver for the extra money. Yet you yourself assume the Valley is the only place that makes sense to live. That assumption simply isn't valid for most people.
Selling makes your life very difficult if you don't want to relocate. I am criticizing folks who say "wow, that's expensive, you should just sell!" without any critical thought as to what that actually means.
And I'm criticizing those folks who say "leaving is impossible" without any critical thought as to the potential benefits of cashing out, or potential alternate locations where a million dollars would go a loooooooong way to making a good life.
It's possible we're both criticizing folks who don't actually exist.
If you currently own a home in San Francisco, its pretty clear you don't need to live in the Valley, in the same way that if you currently own a home in New York City, its pretty clear you don't need to live in Trenton, NJ.
> When that's gone, the Valley will decline. When the Valley declines, the local real estate bubble will pop.
I wouldn't be so sure of that. The appeal of a particular location as a place to live will usually long outlast the activities or culture that put that location on the map in the first instance.
San Francisco is a strong brand, and demand for housing in the city is going to remain strong for a long time to come.
> Agreed, but the OP's point was that while obviously desirable it wasn't at the price that it currently stands.
Median home prices (which are actually median prices of homes sold, which is important to keep track of) in California are deceptive right now because there is very little inventory for sale. What is being sold is mostly being sold at high prices, because very little is being sold at all, what is being sold tends to be sold by people who are fairly well off (and thus, to be high end) because the collapse hollowed out much of the rest of the market, and banks are a lot more reluctant to loan than they were before the crash, so the people that are able to buy tend to have lots of money.
Its not a rapid rise in market value of existing real estate, or even a rapid rise in the price for like real estate.
It's worth noting that SF is already on it's 3rd or 4th major evolution; between the Gold Rush, the big shipbuilding days, the 1906 earthquake, the WWII period and 90's tech bubble, it's survived a series of major changes and collapses and rebuilt successfully. I don't know Detroit's history that well, but it seems like it's basically had one major act (the auto industry) and that's still playing out.
The timeline you described has events separated by 40 or more years. I cannot practically plan my life around events separated by almost half a generation.
I chose a few events from a 300 year history. There are lots of micro cycles - if you note from the article, current prices are only returning to previous highs from 2007. So in just 6 years we've gone through a cycle.
The previous highs from 2007 were real estate bubble prices. I don't consider a return to over-inflated prices a rebound. Is your point that everything is a cycle, or that SF will rebound after this new bubble?
Whenever you return to a previous high, it was a bubble / peak. Because otherwise it wouldn't now be a "previous high". That doesn't mean the new price is a bubble or not - it's just inherent in the definition of the term. The 2000 peak was a big "previous high" too, and yet even in the depth of the last 2007-2012 cycle, prices didn't drop below that level.
SF is only like 10% of the population of the SF/Oak/SJ bay area triangle. It may have the best brand in the area, but what happens when the housing prices drop in fremont/milpitas and then in santa clara/san jose and then starts working its way up the peninsula?
I think housing in SF is very dependent on 1) the tech boom and 2) the baby boomers who own property in the south/east bay (but wont sell because they missed out on the 2008 sales price). Both of which are temporal in nature.
SF may always be a enclave of the wealthy, but if the rest of the bay area goes to shit, prices will drop. It may not get massacred like SJ eventually will (after the baby boomers houses start hitting the market en masse), but even those wealthy enough to live there will feel it.
I'm part of one of those boomer families that have owned their house in the SF peninsula for many years (we're coming up on 25 years now), and many of us have no intention of ever selling because prop 13 has kept property taxes very low and selling would mean that we'd only be able to afford a much smaller/inconvenient place for the same upkeep cost.
What will change this is when the wave of deaths hit the boomer generation in the next 10-20 years. Once that hits, houses will be reassessed at current property values, and the house will often go on sale to settle estate taxes and to liquify the value in the house so that it can be split between the siblings.
However, the side effect will be that Peninsula housing rents will rise to adjust to the new higher property tax costs. That's right - we haven't soon the worst of rents with respect to single family homes yet... shudder
"Today's low mortgage interest rates and tight supply of homes for sale are "creating a kind of witch's brew of extreme price spikes," says Stan Humphries, Zillow chief economist. (1)
Logic tells me that when the all-important "monthly payment" rises, as a result of higher mortgages rates, that is going to be instantly detrimental to the housing market to a nearly equal degree.
But when I've asked this question of people I know in real estate (from realtors to investors) the answer is "yah but there are a lot more factors at work"
What are those factors? The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset?
Mortgage rates do not affect cash buyers. Despite low interest rates-- and high dollar amounts-- there are surprisingly many cash buyers in the Bay Area.
This is secondhand so take it for what it's worth, but I've heard that a lot of these all-cash offers are folks who tap their extended family for spare cash, buy the house, then "re"-finance into a normal mortgage and pay the family back. Rates do affect cash buyers who use this strategy.
Also, many cash buyers are flippers, but the flippers need to sell to normals who take mortgages. So impact there, too.
I don't think you can refinance, what you can do is take out a home equity loan. Regardless, you can get those at fixed rates or (currently cheaper) ARM rates, I'd imagine someone intending to stay in the Bay Area would choose the former.
Buyers don't buy in a vacuum. When mortgage rates rise, it reduces the buying power of a large portion of the market, and the value of the homes themselves decline as a result. Yes, a cash buyer could still pay the same amount, but why would they?
> Logic tells me that when the all-important "monthly payment" rises, as a result of higher mortgages rates, that is going to be instantly detrimental to the housing market to a nearly equal degree.
The big thing right now isn't interest rates/monthly payment (though that's a factor that reinforces the high prices). Its who is buying and selling and which homes (and how few) are on the market.
> What are those factors?
The big one is the broader economy and credit markets.
> The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset?
Not really, because the big price spikes recently are because there are a very small number of homes selling and they tend (disproportionately as compared to other times) to be higher end homes and higher-end buyers and being paid for with cash or at least very large % down. So the median prices look high, but there's not a lot of people involved, and even for the number of buyers not a lot of exposure to interest rate hikes.
The examples at 322/280/etc. per square foot seem cheap. I live in WINNIPEG and houses on my street go for $450+ per square foot, and that's in Canada where mortgages aren't tax deductible, and Winnipeg in particular where the climate is... challenging. The one's that are $500+ per sft --- well, that's the cost of location. Deal with it.
As an American, I don't seem to understand Canadian currency at all. I've watched 'Love It or List It' on HGTV knowing that it's a Canadian show but the prices of the houses are all typically anywhere from $700k-$900k for 1600 to 1800 square feet. Trying to convert it back to a price in US dollars I guess isn't quite right. What's the median income in Canadian dollars that makes home prices so high?
Side nitpick: do Canadians primarily use square feet as a measurement? Is that a real estate standard even though Canada is mostly metric?
Real estate and houses are just cheaper in the US -- like cars. That's just the way it is. In real estate, square feet rule in Canada - just one of those holdover things.
Median housing prices in my area (palo alto) have already been well above $1M for a long, long time. Doomsday prophets: nothing new here, really - just continuation of a well established trend.
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[ 5.1 ms ] story [ 146 ms ] threadhttp://pricesquares.com/#/county/1/san-francisco/
You can see that the north and northeast portions of the city carry the highest rates (close to $1k/sq foot in Pac Heights and the Marina).
Zoom in to drill down to smaller neighborhoods/sub-districts.
For comps between SF and Palo Alto, I'd recommend Redfin. Last I checked, the Palo Alto prices were above SF prices (on a square foot basis).
Edit: I'll just add some more detail!
Here's the Redfin report for Palo Alto ($1,168/sq ft): http://www.redfin.com/city/14325/CA/Palo-Alto
Here's the Redfin report for SF ($660/sq ft) http://www.redfin.com/city/17151/CA/San-Francisco
http://www.zillow.com/local-info/CA-home-value/r_9/#metric=m...
Lower cost of living, less restrictive zoning laws, and a more business friendly legal system.
We're developers. We know shit-all about common vic licenses or actual brick and mortar business, those of us who own businesses incorporate in delaware anyways. Supply and demand of housing stock is much more important than 10% marginal friction in dealing with regulators (who we don't deal with anyways).
Austin will succeed or fail at continuing to grow based on how much they can grow their housing stock without turning into a gridlocked nightmare.
I'd say that even if you hypothesize a gain in not-paying-taxes of, say, 5% of income -- that doesn't change the game compared to local economy, as evidenced by the house prices that TFA is talking about.
It's not all about politics. Everyone says they believe in the free market, maybe they should look there first for an explanation of the housing prices.
SF: ~1.25% appraised value
Austin: ~1.9%-3.1% appraised value
(consider the typical "appraised value" in both locations and think in terms of actual dollars)
Sales tax:
SF: 8.75%
Austin: 8.25%
State income tax:
SF: usually 8%-10% for tech folks
Austin: 0%
edit: You had a reply that reiterated that TX still can't print money, but deleted it. My response is that you're ignoring the other option, which is to spend less. TX doesn't have a super-train-to-nowhere project or other spending issues that CA has.
CA ranks 4th in per-capita spending, with a (pre-federal) budget of nearly $146 billion. TX ranks 50th per-capita, with an $80 billion budget.
Political conservatives go on and on about the free market and then say with a straight face that a single government policy, income tax rates, is the most important thing to business, more so than market conditions, even if that narrative conflicts with the empirical evidence.
We've been hearing about the decline of liberal CA and the northeast for so long now, and it hasn't happened yet. House prices will probably come down and soak some of the new dumb rich, and things will proceed as before.
Texas is doing great, and all power to them, but by the time they eclipse CA/NY, they'll be liberal too.
California's a big place. You can get an awesome house on some property for $150k in many many places in CA. The million-dollar homes are concentrated mostly in SF (+Napa/etc) & LA (+Santa Barbara/etc). IMO a lot of it is the tradeup nature of housing - buy a $300k house, sell it 10 years later for $700k, buy another at $800k, sell 5 years later for $900k, buy at $1MM, on and on. And since SF/LA are centers of business, that's where the people earning that kind of dough live. The $500-700k inventory in the Bay is fiercely competitive, and what do you know, that's the price range two young married techies are looking in. Not a coincidence. I agree with the poster upthread who predicts that once the new generation realizes they're basically permanently priced out the whole area will collapse.
> We've been hearing about the decline of liberal CA and the northeast for so long now, and it hasn't happened yet.
It's been in progress for a long time and shows no sign of slowing. We've got big swaths of folks who are protected in the armored bubble of technology, but for the average folks things are worse than ever. I could go on and on about business owners I know making plans to evacuate, or the scores of friends rich and poor who have fled, or the stories of the behind-the-scenes trouble from friends and family in the CA government, or just plain looking around up and down the state, but the bottom line is that only time is going to tell. Eventually, one of us will be proven right and I sincerely hope it's you.
Rather than wonder why reality isn't as one would predict, it would be better to understand why it is the way it is.
In most cities with poor transit, living out in the suburbs is totally different from living in the city. You might only ever go into city on rare occasions. In New York, you can get much more affordable housing in say Westchester or New Jersey, and still work in Manhattan, with access to all the jobs Manhattan has, with a very reasonable commute.
http://www.census.gov/hhes/commuting/files/ACS/Commuter%20Ad...
http://www.census.gov/hhes/commuting/files/ACS/Table3.xls
As far as the increase due to commuters, 20% is very low for any area with corporate offices and not just residential neighborhoods. Manhattan grows 95%. In the Bay Area, Mountain View has 75,000 residents, and Google alone brings 25,000 people in each day. Palo Alto (the next town up the 101) also grows ~80%.
Even nearby San Jose has a higher proportion of reverse commuters than San Francisco, much higher:
http://www.census.gov/hhes/commuting/files/ACS/Table3.xls
http://www.sfgate.com/news/slideshow/Palo-Alto-families-earn...
Proportionately, you're about 10% worse off in SF.
http://www.redfin.com/CA/Pittsburg/1171-Summer-Way-94565/hom...
Commute to SF on BART.
Pay no attention to the crime, terrible schools, entire neighborhoods that have been foreclosed or never finished, etc.
My rent did nearly triple AND i went a little down-market from the high-end condo I had in FL.
But my other expenses didn't increase more than 50%.
At the same time, my salary without including options is 85% higher. Including options (I work at a somewhat recently IPOd company) is 122% higher.
My wifes salary -- she's not really in tech -- also increased 25%.
In total, we are far better off financially now than in Florida. And to be clear: In florida my income was a multiple of the median HHI. I was not underpaid there.
Most importantly, though: I can't swing my vintage IBM XT without hitting a half dozen job offers. Seriously every experienced engineer here gets pitched via LinkedIn on the regular.
I'm not trying to sell you on it. But the way you wrote your comment, "romantic notions" and all, was a little condescending. As if it's some foolish thing. Like you have all these analytically minded engineering types going like lemmings.
We may move at some point to another tech-heavy city like Austin or Boulder or, ya know, whatever. But as techy as those places are, truly NO other place can compare to the density of startups and tech companies here.
With salary boom, for many foreigners the disposable income after paying rent still exceeds disposable income in their home country, so until salaries are where they are, for a bunch of people the current price levels are still a sustainable and highly desirable proposition.
This real estate hyperinflation is going to destroy the very engine of class mobility and youthful enthusiasm for a better life that powers the Valley. When that's gone, the Valley will decline. When the Valley declines, the local real estate bubble will pop.
Want a historical example? Detroit. It once had the highest average income in the U.S., and now look at the property values there. The reasons for its collapse are different and it's unlikely that SF (which is desirable for other reasons like climate and landscape) would ever fall as far or as fast as Detroit, but it's illustrative nonetheless. It shows that one should be cautious about long-term value in overinflated one-horse-town economies.
And if SF is not a one-horse-town, it soon will be. Industries other than tech will succumb to the lure of lower costs of doing business and leave.
Beware. The liquidity of these markets is vastly lower than that of equities. Also remember Keynes: "The market can remain irrational longer than you can stay solvent" or in this case longer than the contract durations offered.
We had a townhouse in the South Bay (which has been going up very quickly too) that we sold a few month ago. We got $100k more than we would have about 9 months earlier.
It's madness.
(We moved a few hours away a couple years ago and had been renting it...)
yeah, if you can time markets, there's all sorts of ways to make money.
Me? I refused to buy when I got my first "real job" in '98, because clearly we were in a tech bubble and a real estate bubble.
I should have bought then. Even if I then sold at the depth of the crash in '08, I'd have still been ahead.
I mean, I'm not saying that the current bubble is similar; all I'm saying is that seeing that it's a bubble is easy; timing that bubble is /hard/
Investors may begin to set up a presence around these hubs outside of the valley, and eventually a shift could take place, leaving the valley a great place to live for employees of tech giants like Google, Apple etc.
But I live in a 2/2 duplex in a desirable SF neighborhood and pay $3100.
If you like it, good on you. Real estate more than almost anything else really does take all kinds.
My challenge is that I want some room for kids - more than 2 bedrooms, a yard where they can play and still be somewhat supervised, no sharing walls (for me AND for the neighbor, what neighbor wants to hear a screaming baby through their $3100/month duplex walls?).
I moved south of SJ. Still not cheap, but I've got the big SFH 30 mins outside of SJ for less than $3k.
Not everyone desires suburbia but if you do, prepare your wallet.
There's no shortage of jobs here in Denver, and that kind of money can last a long time here, even without working and living modestly.
Do you absolutely need to be in the [EDIT] Bay Area?
If the answer is no, then there are a lot of other cities with reasonable tech scenes and much cheaper housing. Boston and Seattle are around $350k median home value. Denver, Atlanta, and Minneapolis-St. Paul are around $200k. Those places all count as "somewhere to live", and don't make life particularly difficult (unless your life revolves around something specific to SF/SV.)
If you're particularly attached to and fulfilled by everything you have where you are, maybe you should stay, even if it costs a million dollars for a 2 bedroom house. Personally, I've got family, friends, fulfilling work, fun stuff to do, and a much bigger house that cost under $200k where I am. Life is not "very difficult" here; it's quite pleasant.
EDIT: to phrase it slightly differently, you're criticizing others for assuming people can relocate or assuming people might prefer Denver for the extra money. Yet you yourself assume the Valley is the only place that makes sense to live. That assumption simply isn't valid for most people.
It's possible we're both criticizing folks who don't actually exist.
If you currently own a home in San Francisco, its pretty clear you don't need to live in the Valley, in the same way that if you currently own a home in New York City, its pretty clear you don't need to live in Trenton, NJ.
I wouldn't be so sure of that. The appeal of a particular location as a place to live will usually long outlast the activities or culture that put that location on the map in the first instance.
San Francisco is a strong brand, and demand for housing in the city is going to remain strong for a long time to come.
Median home prices (which are actually median prices of homes sold, which is important to keep track of) in California are deceptive right now because there is very little inventory for sale. What is being sold is mostly being sold at high prices, because very little is being sold at all, what is being sold tends to be sold by people who are fairly well off (and thus, to be high end) because the collapse hollowed out much of the rest of the market, and banks are a lot more reluctant to loan than they were before the crash, so the people that are able to buy tend to have lots of money.
Its not a rapid rise in market value of existing real estate, or even a rapid rise in the price for like real estate.
SF prices 1996-Mar 2013 http://my.paragon-re.com/Docs/General/SixtyFortyImages/Case-...
I think housing in SF is very dependent on 1) the tech boom and 2) the baby boomers who own property in the south/east bay (but wont sell because they missed out on the 2008 sales price). Both of which are temporal in nature.
SF may always be a enclave of the wealthy, but if the rest of the bay area goes to shit, prices will drop. It may not get massacred like SJ eventually will (after the baby boomers houses start hitting the market en masse), but even those wealthy enough to live there will feel it.
What will change this is when the wave of deaths hit the boomer generation in the next 10-20 years. Once that hits, houses will be reassessed at current property values, and the house will often go on sale to settle estate taxes and to liquify the value in the house so that it can be split between the siblings.
However, the side effect will be that Peninsula housing rents will rise to adjust to the new higher property tax costs. That's right - we haven't soon the worst of rents with respect to single family homes yet... shudder
Recession -> Area is becoming Detroit Boom -> Area will be Detroit
There are newspaper articles comparing Silicon Valley to Detroit going back to at least 1985...
Logic tells me that when the all-important "monthly payment" rises, as a result of higher mortgages rates, that is going to be instantly detrimental to the housing market to a nearly equal degree.
But when I've asked this question of people I know in real estate (from realtors to investors) the answer is "yah but there are a lot more factors at work"
What are those factors? The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset?
(1) http://www.usatoday.com/story/money/business/2013/05/28/home...
http://sanfrancisco.cbslocal.com/2013/04/03/rise-in-all-cash...
Also, many cash buyers are flippers, but the flippers need to sell to normals who take mortgages. So impact there, too.
In theory, the cash buyers of today have factored in their expectations of rising interest rates and the effect on home values going forward.
Regardless, if someone did believe that, and factored in expectations of rising rates, they simply wouldn't be a buyer in this market.
The big thing right now isn't interest rates/monthly payment (though that's a factor that reinforces the high prices). Its who is buying and selling and which homes (and how few) are on the market.
> What are those factors?
The big one is the broader economy and credit markets.
> The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset?
Not really, because the big price spikes recently are because there are a very small number of homes selling and they tend (disproportionately as compared to other times) to be higher end homes and higher-end buyers and being paid for with cash or at least very large % down. So the median prices look high, but there's not a lot of people involved, and even for the number of buyers not a lot of exposure to interest rate hikes.
Side nitpick: do Canadians primarily use square feet as a measurement? Is that a real estate standard even though Canada is mostly metric?
http://www.redfin.com/CO/Lakewood/1826-S-Manor-Ln-80232/home...
For comparison, here's a $1 mil home in SF:
http://www.redfin.com/CA/San-Francisco/96-Broad-St-94112/hom...