12 ms·

A Silicon Valley down payment could buy you an entire house in much of the U.S

91 points by akras14 10y ago

dbroockman 10y ago
Fun fact: in Tokyo prices are 3x lower than in the bay area, in large part because new housing is legally much easier to build. If you want to make the bay area more affordable, check out the great work these folks are doing to legalize building new housing: http://www.sfyimby.org http://www.sfyimby.org.
- ekianjo 10y ago
  prices in tokyo are still insane compared to the median salary. thats why everyone commutes.
  - cynicalkane 10y ago
    Tokyo also has the greatest public transit system in the world, and fewer restrictions on building near transit hubs. That probably helps a bit. The SF peninsula is full of commuter rail stations that should be surrounded by mid-rises, but aren't. It's an economic tragedy.
    - ekianjo 10y ago
      it helps but theres far not enough high rise habitations in tokyo itself. its crazy when you see the number of small shacks and 4 stories building in many places.
    - Tempest1981 10y ago
      If only our commuter rails were a unified system, vs CalTrain, VTA LightRail, BART, and Altamont Express.
      - ac29 10y ago
        3 of the 4 of those go to the same station (San Jose Diridon), and the last one (BART) is planned, though unclear if the money will ever be found.
        Tempest1981 10y ago
        Sort of a star topology, vs. a grid. I guess rail is that way.
- flukus 10y ago
  Isn't the Japanese population declining?
  - drawnwren 10y ago
    Yes, but the Tokyo population is increasing. [1] 1 - http://www.metro.tokyo.jp/ENGLISH/ABOUT/HISTORY/history03.htm http://www.metro.tokyo.jp/ENGLISH/ABOUT/HISTORY/history03.ht...
  - deleted 10y ago
    [deleted]
- bbcbasic 10y ago
  deflation still going in Japan though
- hkmurakami 10y ago
  And your average college grad makes $30k out of school there.
  - ac29 10y ago
    Aside from engineering/software development (which is maybe 10-20% of the job market), the average college grad only makes about $40k in Silicon Valley out of college.
- seanmcdirmid 10y ago
  Housing also depreciates in Japan, which is unique to that market. I mean, the actual building does....
giancarlostoro 10y ago
That website screwed up my scrolling on Chrome, works fine with scroll wheel but the trackpad two-finger scrolling just does weird side scrolling.
- freshyill 10y ago
  Something really weird is going on there. There's something really odd in Safari too.
- captainarab 10y ago
  Hmm, doesn't happen to me! I'm on version 55 fwiw.
fourstar 10y ago
> “My client was maxed out,” Wang said. “He wanted to be self-sufficient: `I’m independent. I don’t want my parents to help me.’ But now he’s realized he’s got to have that conversation with his mother to borrow a couple of hundred thousand dollars, just in case that situation happens again.” Must be nice to have parents who can just loan you ~$200k to make an offer on a 2 million dollar house in Sunnyvale of all places. I can't get over how ridiculous the market in the bay area is right now.
- froindt 10y ago
  >"the median home value is $961,600, according to Zillow." Being from the Midwest, this is such a foreign concept to me. Looking at Des Moines, $955,000 will get you a 5 bedroom with 3 full and 2 half bathrooms, 1.26 acres, 7037 square feet, and a 5 car garage. And that house has a really nice interior too! That house in the first picture of the article would probably be $100,000 or so based on its size. I understand larger cities offer a higher salary, and that the salary can more than offset the cost of living increase, but it would pain me to think about spending that much money on housing (whether renting or buying). http://www.zillow.com/homedetails/15-Greenwood-Ter-Des-Moines-IA-50312/794318_zpid/ http://www.zillow.com/homedetails/15-Greenwood-Ter-Des-Moine...
  - friedman23 10y ago
    The advantage is that even with the insane housing costs I'm still able to save significant amounts of money. For example 2 years out of school a developer can command $160k salary at the best companies (and those companies have a lot of positions to fill). Assuming $3600 a month on rent you have about $65k after taxes. (I guestimated most of these calculations in 5 seconds so be easy on my math)
    - wavefunction 10y ago
      I get that in a different part of the country, plus great music and culture and - SV culture. With a significant fraction of your salary.
    - 10y ago
hkmurakami 10y ago
This has been true in Manhattan for how long?
- __derek__ 10y ago
  Comparing Silicon Valley to Manhattan is disingenuous. What's the Queens, Staten Island, or northern New Jersey for Silicon Valley?
  - aliston 10y ago
    South San Francisco, Brisbane, San Mateo, Albany, Pacifica, Daly City, San Leandro, Castro Valley...
thenewwazoo 10y ago
Is this news? I could buy a Ferrari before I could buy a house here.
- velodrome 10y ago
  Buying a Ferrari is not a problem, it's the maintenance that gets you.
- closeparen 10y ago
  You could lease a Ferrari before you could lease a parking space a Honda Civic here.
peteretep 10y ago
This will end up being what normalises remote working
- milesokeefe 10y ago
  Hopefully, otherwise remote working will increase in popularity at about the same rate it is currently but people will just continue to leave such high rent areas.
tayo42 10y ago
What are all the people going to the bay area planning on doing long term? Was it never a long term place for most people? Just not thinking about it? Renting and living with roomates forever?
- kylestlb 10y ago
  Some of us have always lived here, and find it hard to move away from friends/family. I'm in that camp at the moment, but if I ever want to own a 'middle class' house, my partner and I will undoubtedly move (she teaches preschool and I'm a software engineer). Renting seems like the more 'sane' option because home loans are front-loaded with interest and non-equity payments anyways.
  - kobeya 10y ago
    You could probably afford something in San Jose.
    - kylestlb 10y ago
      Depends on where - we basically live in SJ (Campbell) and the prices are still near 1M for a decent place. A friend just bought a >1M house in South SJ, far away from just about everything except Netflix. Midtown SJ is cheaper, and hopefully on the up-and-up. East SJ is cheap but sketchy. Downtown is getting nicer but is definitely on the more expensive side unless you want to live under a freeway.
- closeparen 10y ago
  Several of my coworkers are entering "long term" and having their first kids. Among this cohort, a 90-minute commute is luxuriously short. They walk at least a mile to their nearest BART stations (BART won't provide even close to adequate parking, or price it high enough to bring the waitlists under 3+ years), then stand elbow-to-elbow on the fully packed trains for 50+ minutes. They are the front lines, gentrifying the furthest places from San Francisco that are still part of its transit ecosystem. As they bid up property, their strategy will stop working soon, but by then they'll be owners. Extremely leveraged, house-poor owners, but owners. And they'll convince themselves that 3+ hours of dead time every day isn't a huge waste of life. I do something similar because my mental health goes down the toilet when I come home to the inescapable sound of other people's TV and phone conversations (and I already blast headphones all day at my open-plan office). The only people on my team with sub-30-minute commutes share apartments in the stabbier neighborhoods in the city. Oh, how I wish I could be content in a low-rise cube farm in the rust belt where I grew up. The scenery isn't pretty, but commuting on a freeway that actually moves is incredible. And the average door-to-door time is like 25 minutes.
blinkingled 10y ago
I wonder what the thought process of people buying $1MM+ houses in SV really is. I mean how much more are the prices going to go, so that's clearly not an investment. Even if the only job you could get was in SV, required you to stay close by _and_ paid enough, you are still paying a big chunk of it towards housing! Oh and you're going to live in a smaller house too! It makes little financial sense. You'd be much better off earning less in the southeast or midwest and living big. Also wonder what the sweet spot is wrt city/jobs/salary/savings/housing.
- elastic_church 10y ago
  > I mean how much more are the prices going to go, so that's clearly not an investment. Except it is. You forget that in most scenarios your initial capital and what you paid toward the place is still there, and you'll keep paying it even if you wind up underwater, and you can generate cash flow from the place, and a lot of that is tax deductible, resulting in decent windfalls from the government annually. Its an ok place to park your money. Yes, there is risk of loss and illiquidity.
- hkmurakami 10y ago
  It just entirely depends on people's priorities. Some may feel that the particular career opportunities they have access to here are a very high priority for them. Also, if someone had built a social circle over the early part of their careers, and are now thinking of these need for a larger place to raise a family, the social ties may be hard to give up. If they have no ties to the Midwest, done may be adverse to building a social circle and foundation from scratch again, even if the economics are favorable.
- froindt 10y ago
  > I wonder what the thought process of people buying $1MM+ houses in SV really is. I think at that order of magnitude, it you would have to consider it a true investment, and you should be really bummed if you're holding on to it when the prices drop. I would be hesitant to question how much more the prices can go up. People say the same thing with the stock market all the time, but the long term trend remains up. I'm from the Midwest, so I'm not exactly up on everything in California, but from a number of articles I've read I understand that San Francisco is really worried about maintaining their skyline. Because of this they don't want to develop anything really tall. Venture capital firms are mostly in the same area (San Jose?), and the further out your startup is from there, the less likely they are to consider you. I'm guessing it's a waiting game for a big tech bust leading to a housing bust of some sort. I'll take my $830/month rent for a 2 bedroom, 2 bathroom (cable and internet included) in Iowa for the time being.
georgeburdell 10y ago
I live in the Bay Area. My wife and I, early thirties and a few years out of grad school, make about $300k combined and in our area (Sunnyvale) there are maybe 2 or 3 houses for sale at any given time under our rough budget of $1.2 million, which would be below the median list value for a house in the city. I say this as dispassionately as possible, but I would really like to know more about who is able to afford these houses. The article gives one example (doctor married to an engineer, no age given), but I wonder if that case is typical.
- ec109685 10y ago
  Your mortgage on that 1.2M house is 5k a month (assuming 20% down). And most of that is tax deducatable. How did you determine 1.2M is the most you can afford?
  - wapz 10y ago
    1.2M is also going to have ~14-16k/year for property tax and insurances associated with it. He said his budget is 1.2M not the max he could afford. I was looking in housing in the east bay and the cheapest over there in a decent neighborhood was 650k. Far, far more than I can afford.
  - georgeburdell 10y ago
    Our jobs are high stress, evidenced by the median tenure at our jobs being about 3 years. The people that leave are not job hopping, they're having existential crises and changing career paths. Basically, we don't want to risk being shackled to our jobs to pay the mortgage.
    - Xcelerate 10y ago
      > "Our jobs are high stress" — georgeburdell Georgia Tech grad by any chance?
    - dpark 10y ago
      Then, honestly, why are you looking to buy? Why do you have a budget of 1.2MM if you don't want to be shackled to your house? If you legitimately don't know what you're going to be doing in 3 years, buying an expensive house is a terrible idea.
opportune 10y ago
So is this due to zoning regulations or what? Seems kind of ironic for the former hippy capital of the world (speaking of the bay in general here) to be pricing non-millionaires out of the area.
- Inconel 10y ago
  It's a combination of a number of reasons but yes, it is in large part due to zoning and NIMBYism. SF and the Bay Area as a whole are incredibly expensive places to build housing. Much of the peninsula is completely hostile to density, and to an only slightly lesser extent, so is SF. It doesn't help that through subsidies such as Prop 13 and rent control, a large part of the voting block is essentially insulated from the horrible policy decisions they support. In addition, you shouldn't be so surprised that this is what has become of the former hippy capital of the world. SF style liberals aren't actually nearly as progressive as they would like the world to think. Many of those who you might identify as hippies are simply self entitled white people from middle class and above childhoods. The real working class of this country didn't have the ability to move to SF in the 60's to be part of the whole counter culture movement. It should come as no surprise that those who did aren't too fond of poor working class people living in "their" city.
  - Tempest1981 10y ago
    I have friends who are NIMBYs, so I've come to understand how they feel. I don't think it helps to label and disparage them. They feel a bit like the Native Americans felt when white men took over their land. They were here first, living peacefully. The NIMBYs didn't ask for tech companies to take over their cities, and try to drive them out. Some still want to stay, because they grew up here, and all their friends are here. Others are sick of the congestion we've created, and would like to move outward to, say, Woodside or Saratoga, but those places are even more expensive. And yes, property tax would be brutal if they moved. So can't capture the gains on their homes either. They're stuck. I wish I could suggest a good alternative to them... are there any?
    - Inconel 10y ago
aresant 10y ago
Two things are powering this insanity. 1 - low interest rates and speciality jumbo programs to lock in high earners are providing balloon capital. When this pops people won't lose houses because they have fixed rates, but they will be equity poor or underwater as prices will correct at least 20% with interest rates rising. 2 - cash investors chasing yield and security. The "cash" offers clogging every market are disproportionally inbound from foreign nationals and now even starting to be private placement. Blackstone and other huge PE firms now consider "single family" to be a category akin to multi-family and are placing billions to buy and rent homes for yield. All this blows up when interest rates normalize - eg investors would rather own treasuries / CDs / etc at 5% vs homes at 5%. Sam Zell - an infamous CRE investor nw $5b - has recently said he believes there is a material value of 10-15% a year of holding CASH - eg that the market is just about ready for a major correction and I agree wholeheartedly(1) (1) http://www.horizonkinetics.com/sm_cash_as_liability_zell.asp http://www.horizonkinetics.com/sm_cash_as_liability_zell.asp PS - Some further evidence around interest rates driving home prices from this bloomberg article last year outlining the 0% down and "equity as collateral" from bay area landers -=> https://www.bloomberg.com/news/articles/2016-07-27/zero-down-on-a-2-million-house-is-no-problem-in-silicon-valley https://www.bloomberg.com/news/articles/2016-07-27/zero-down...
- bbcbasic 10y ago
  Whats the rental yield on a SF property? Here in Sydney you are lucky to get gross 4% on an apartment, 3% on a house. It kind of implies that there isn't "too many people" because if so the rents would shoot up too.
homakov 10y ago
Or four of them in much of the entire world.
NTDF9 10y ago
I don't know. I personally am more scared of carrying such a huge mortgage on myself. A home worth $1M means $200,000 liquid cash + $800,000 in mortgage principal + $570,000 in interest + $300,000 in taxes...over 30 years. Will house values keep growing to offset $570,000+$300,000? At what point does this greater fool theory end?
- kobeya 10y ago
  Don't buy a home you can't afford the mortgage on.
  - NTDF9 10y ago
    My point is: Are those mortgage and tax levels sustainable over 30 years, considering how fickle the tech industry is? The downside risk seems so much greater than upside potential
- aaronblohowiak 10y ago
  Is your interest calculation tax adjusted?
- sigterm 10y ago
  The house value does not need rise enough to offset the interest + taxes unless you're buying it and leaving it unoccupied for all this time. If you need a house to live in, the monthly rent for a 1MM house is likely going to be over $3k. Over 30 years this will come out to be $1.08M, much more than the $870k in mortgage interest + taxes for owning the house. On top of that there's the 20-30% tax discount on the mortgage interest that will make owning even more favorable.
  - NTDF9 10y ago
    >> If you need a house to live in, the monthly rent for a 1MM house is likely going to be over $3k.Over 30 years this will come out to be $1.08M, much more than the $870k in mortgage interest + taxes for owning the house Over 30 years, if house prices go down due to whatever reason, so will rents (more or less). Homeowners will be underwater and suck up all the downside risk. Renters will remain free of crushing debt. The only way homeowners are protected is if the house appreciates enough to eat up that downside risk before a future catastrophe arrives, right?
partycoder 10y ago
For a downpayment in Silicon Valley you can start a career as landlord in Latin America.
- flubert 10y ago
  My favorite part is where they are talking about $40k down payment, when you can buy a house for $40k. http://www.zillow.com/homedetails/309-W-Maple-Ave-Mc-Cracken-KS-67556/91263818_zpid/ http://www.zillow.com/homedetails/309-W-Maple-Ave-Mc-Cracken... http://www.zillow.com/homedetails/403-W-1st-St-Pratt-KS-67124/91250312_zpid/ http://www.zillow.com/homedetails/403-W-1st-St-Pratt-KS-6712... http://www.zillow.com/homedetails/603-5th-Ave-Chester-SD-57016/2095669920_zpid/ http://www.zillow.com/homedetails/603-5th-Ave-Chester-SD-570... http://www.zillow.com/homedetails/1109-11th-Corso-Nebraska-City-NE-68410/97890840_zpid/ http://www.zillow.com/homedetails/1109-11th-Corso-Nebraska-C...
  - partycoder 10y ago
    And you can buy a foreclosed place for even less.
losteric 10y ago
I've wondered why SV companies don't lobby hard for pro-density policies. Wouldn't they benefit from lower salaries (due to lower rent/costs of living) and higher productivity/lower turnover due to shorter commutes?
lokedhs 10y ago
At least you're not in Singapore. Here, 1 million USD won't even get you a small condo. A house will cost you around 2 million USD,and that would be a cheap one. In a prime location the price goes up to several times that amount.
elchief 10y ago
There's no rational financial calculus going on. It's part of the Pacific Ring Asian hot-money bubble. Same as in Vancouver and Sydney. /r/vancouver has some good investigatory articles $2 trillion left China illegally, and this is where some went This doesn't end well, by the way. Neighborhoods turn into ghost towns because "renters damage property". Great businesses close. Vancouver had something like 30 empty multimillion dollar houses burn down last year.
- shshhdhs 10y ago
  Are they burning the houses for insurance fraud, to cash out and essentially launder the money?
  - elchief 10y ago
    I think it's more accidental fires from squatters.
shoefly 10y ago
In our case, we sold TWO houses that we owned outright in another state, and this was our down payment for our house in silicon valley.
deleted 10y ago
[deleted]
bankim 10y ago
I understand not everyone works in tech but it's not unusual for Bay Area couples to make $300k-$400k per year 6-8 years out of college working in tech. Consider an example of new grad with CS major working in major software company. Currently new grads start at $120k total package (base + RSU/stock + bonus). After maxing out 401k, taxes, rent(with roomates), car payments etc., one can save $35k-$40k per year. So for a couple having worked for 5 years each could save $35k * 5 * 2 = $350k in total. Use $250k to make downpayment to buy $1.25M home making most of mortgage interest deduction. That's how myself and most of my Indian tech friends in Bay Area bought homes. Being lucky in an IPO also helps. Above calculation assumes no student or credit card debt.
- bruxis 10y ago
  I'll never understand how this is not unusual. I make decent money and could offer my portion of the 300-400k total, but every girl I've dated out here is making < 40k/year. Is there a TechMeetDoctor dating site I'm missing?
  - bankim 10y ago
    It's more like engineer meets engineer. Meetings are arranged by parents, matrimonial sites or friends.
- Tempest1981 10y ago
  Just don't get divorced. I've seen it happen, and the couple usually is forced to sell the house. Esp. hard if they have kids -- moving down to a 2br appt in a new school district.
flukus 10y ago
This isn't just Silicon Valley, the same is happening in many parts of the world, like London, Vancouver and Sydney. At least in SV there are still a lot of people that can afford those inflated prices, the rest of us have to wait until the bubble pops.
tnt128 10y ago
Bay Area has a housing affordability issue for people who are in non-tech sectors. For those in the tech sector, there is no affordability issue, only entitlement issue If they are married, both in tech, their salary will be in the 300k-400k range, that's about 25k - 33k/month before tax, or about 15 - 20k/month after tax. with today's interest rate, $1MM house will need a monthly payment $4k - $5k/month including property tax. The couple will still have about 10k/month left after paying the mortgage. Assuming they are renting and are fiscally responsible, they should be able to save about 70 - 100k on 300 - 400k income/year. which means they will just need 2 years before they can save up for the down payment. So where is the issue? The issue is they jumped their league - Sunnyvale, Palo Alto, Mountain View, SF are the 'major leagues' - foreign cash buyers, tech execs or, more commonly , average Joe who sold their first house with $500k+ gain in tax free equity - (not hard to do in the bay area btw). First time home buyer will have a tough time competing in this league. Try the minor league instead, try east bay, dublin($900k), livermore still in the $700k - both good schools but 60min+ away, or how about places like Newark or Union City, still in the $700k, both within 30 mins drive (but so so schools). If they are struggling to buy a $2MM home because they have to buy in these neighborhoods. it's an entitlement problem, not an affordability issue.
- aaronblohowiak 10y ago
  Or they buy smaller and have a condo and kids share a room
  - obstinate 10y ago
    Absolutely! I definitely feel for the plight of those making <$80k or so here. But if you make more than that, I can't bring myself to have too much sympathy. You can afford a 2br apartment, to max your 401k, to feed and clothe yourself, and to take a few decent vacations a year, which is more than most Americans get. Separate bedrooms are not a human right, especially for children. Hell, my brothers and I slept in the same room for a long time even after our parents were able to afford a house with extra rooms. You wanna see someone taking it to a beautiful extreme, check out http://5kids1condo.com/ http://5kids1condo.com/
shalmanese 10y ago
Because consumers are primarily used to buying consumables, it results in them not having an intuitive sense when it comes to investments. Buying a house is essentially mostly an asset allocation problem, not a purchasing problem. Think of it this way, would you rather buy 1 house in Palo Alto or 5 houses in Des Moine? What would 5 houses in Des Moine get you? Well, you could rent the other 4 houses out and get some sort of rental income but you get a higher salary working in Palo Alto, both are income streams. After X number of years, your 5 houses in Des Moine will be worth some amount and your 1 house in Palo Alto will be worth a different amount. Your houses in Des Moine are probably $600,000 worth of brick and concrete which are guaranteed to depreciate over time and $400,000 worth of land which may appreciate. Your Palo Alto home is like, $200,000 of brick and concrete and $800,000 worth of land so much more likely the growth in land will make up for the depreciation in house. Plus, in Palo Alto, you can be a part of the NIMBY coalition that defends against any law that threatens the value of your house while encouraging office space to be built that increases it's value. You can apply the same calculus to say, buying a $200K Des Moine house and $800K of index funds or renting in Palo Alto and buying $1000K of index funds or any other asset allocation mix you like. At the end of the day, even though they look like big scary numbers, the relative impacts are much tinier because you're just shifting assets between different classes. Most asset classes grow at about the same risk adjusted rate because the market is efficient (excepting brick and concrete which is guaranteed to depreciate as a consumable). Of course, this is assuming every person has essentially access to infinite amounts of credit providing they can put up the collateral to back it up. Once you get into the nitty gritty of who can and cannot gain access to credit, then issues of privilege also get involved.
sillepl 10y ago
A couple hundred thousand is right - nobody is buying a home unless they're dual income couples making at least $100K/year each. That's just it. And that's why this area is soul sucking and tragic.

91 points by akras14 10y ago

Fun fact: in Tokyo prices are 3x lower than in the bay area, in large part because new housing is legally much easier to build. If you want to make the bay area more affordable, check out the great work these folks are doing to legalize building new housing: http://www.sfyimby.org http://www.sfyimby.org.

ekianjo 10y ago
prices in tokyo are still insane compared to the median salary. thats why everyone commutes.
- cynicalkane 10y ago
  Tokyo also has the greatest public transit system in the world, and fewer restrictions on building near transit hubs. That probably helps a bit. The SF peninsula is full of commuter rail stations that should be surrounded by mid-rises, but aren't. It's an economic tragedy.
  - ekianjo 10y ago
    it helps but theres far not enough high rise habitations in tokyo itself. its crazy when you see the number of small shacks and 4 stories building in many places.
  - Tempest1981 10y ago
    If only our commuter rails were a unified system, vs CalTrain, VTA LightRail, BART, and Altamont Express.
    - ac29 10y ago
      3 of the 4 of those go to the same station (San Jose Diridon), and the last one (BART) is planned, though unclear if the money will ever be found.
      - Tempest1981 10y ago
        Sort of a star topology, vs. a grid. I guess rail is that way.
flukus 10y ago
Isn't the Japanese population declining?
- drawnwren 10y ago
  Yes, but the Tokyo population is increasing. [1] 1 - http://www.metro.tokyo.jp/ENGLISH/ABOUT/HISTORY/history03.htm http://www.metro.tokyo.jp/ENGLISH/ABOUT/HISTORY/history03.ht...
- deleted 10y ago
  [deleted]
bbcbasic 10y ago
deflation still going in Japan though
hkmurakami 10y ago
And your average college grad makes $30k out of school there.
- ac29 10y ago
  Aside from engineering/software development (which is maybe 10-20% of the job market), the average college grad only makes about $40k in Silicon Valley out of college.
seanmcdirmid 10y ago
Housing also depreciates in Japan, which is unique to that market. I mean, the actual building does....

giancarlostoro 10y ago

That website screwed up my scrolling on Chrome, works fine with scroll wheel but the trackpad two-finger scrolling just does weird side scrolling.

freshyill 10y ago
Something really weird is going on there. There's something really odd in Safari too.
captainarab 10y ago
Hmm, doesn't happen to me! I'm on version 55 fwiw.

fourstar 10y ago

> “My client was maxed out,” Wang said. “He wanted to be self-sufficient: `I’m independent. I don’t want my parents to help me.’ But now he’s realized he’s got to have that conversation with his mother to borrow a couple of hundred thousand dollars, just in case that situation happens again.” Must be nice to have parents who can just loan you ~$200k to make an offer on a 2 million dollar house in Sunnyvale of all places. I can't get over how ridiculous the market in the bay area is right now.

froindt 10y ago
>"the median home value is $961,600, according to Zillow." Being from the Midwest, this is such a foreign concept to me. Looking at Des Moines, $955,000 will get you a 5 bedroom with 3 full and 2 half bathrooms, 1.26 acres, 7037 square feet, and a 5 car garage. And that house has a really nice interior too! That house in the first picture of the article would probably be $100,000 or so based on its size. I understand larger cities offer a higher salary, and that the salary can more than offset the cost of living increase, but it would pain me to think about spending that much money on housing (whether renting or buying). http://www.zillow.com/homedetails/15-Greenwood-Ter-Des-Moines-IA-50312/794318_zpid/ http://www.zillow.com/homedetails/15-Greenwood-Ter-Des-Moine...
- friedman23 10y ago
  The advantage is that even with the insane housing costs I'm still able to save significant amounts of money. For example 2 years out of school a developer can command $160k salary at the best companies (and those companies have a lot of positions to fill). Assuming $3600 a month on rent you have about $65k after taxes. (I guestimated most of these calculations in 5 seconds so be easy on my math)
  - wavefunction 10y ago
    I get that in a different part of the country, plus great music and culture and - SV culture. With a significant fraction of your salary.
  - 10y ago

hkmurakami 10y ago

This has been true in Manhattan for how long?

__derek__ 10y ago
Comparing Silicon Valley to Manhattan is disingenuous. What's the Queens, Staten Island, or northern New Jersey for Silicon Valley?
- aliston 10y ago
  South San Francisco, Brisbane, San Mateo, Albany, Pacifica, Daly City, San Leandro, Castro Valley...

thenewwazoo 10y ago

Is this news? I could buy a Ferrari before I could buy a house here.

velodrome 10y ago
Buying a Ferrari is not a problem, it's the maintenance that gets you.
closeparen 10y ago
You could lease a Ferrari before you could lease a parking space a Honda Civic here.

peteretep 10y ago

This will end up being what normalises remote working

milesokeefe 10y ago
Hopefully, otherwise remote working will increase in popularity at about the same rate it is currently but people will just continue to leave such high rent areas.

tayo42 10y ago

What are all the people going to the bay area planning on doing long term? Was it never a long term place for most people? Just not thinking about it? Renting and living with roomates forever?

kylestlb 10y ago
Some of us have always lived here, and find it hard to move away from friends/family. I'm in that camp at the moment, but if I ever want to own a 'middle class' house, my partner and I will undoubtedly move (she teaches preschool and I'm a software engineer). Renting seems like the more 'sane' option because home loans are front-loaded with interest and non-equity payments anyways.
- kobeya 10y ago
  You could probably afford something in San Jose.
  - kylestlb 10y ago
    Depends on where - we basically live in SJ (Campbell) and the prices are still near 1M for a decent place. A friend just bought a >1M house in South SJ, far away from just about everything except Netflix. Midtown SJ is cheaper, and hopefully on the up-and-up. East SJ is cheap but sketchy. Downtown is getting nicer but is definitely on the more expensive side unless you want to live under a freeway.
closeparen 10y ago
Several of my coworkers are entering "long term" and having their first kids. Among this cohort, a 90-minute commute is luxuriously short. They walk at least a mile to their nearest BART stations (BART won't provide even close to adequate parking, or price it high enough to bring the waitlists under 3+ years), then stand elbow-to-elbow on the fully packed trains for 50+ minutes. They are the front lines, gentrifying the furthest places from San Francisco that are still part of its transit ecosystem. As they bid up property, their strategy will stop working soon, but by then they'll be owners. Extremely leveraged, house-poor owners, but owners. And they'll convince themselves that 3+ hours of dead time every day isn't a huge waste of life. I do something similar because my mental health goes down the toilet when I come home to the inescapable sound of other people's TV and phone conversations (and I already blast headphones all day at my open-plan office). The only people on my team with sub-30-minute commutes share apartments in the stabbier neighborhoods in the city. Oh, how I wish I could be content in a low-rise cube farm in the rust belt where I grew up. The scenery isn't pretty, but commuting on a freeway that actually moves is incredible. And the average door-to-door time is like 25 minutes.

blinkingled 10y ago

I wonder what the thought process of people buying $1MM+ houses in SV really is. I mean how much more are the prices going to go, so that's clearly not an investment. Even if the only job you could get was in SV, required you to stay close by _and_ paid enough, you are still paying a big chunk of it towards housing! Oh and you're going to live in a smaller house too! It makes little financial sense. You'd be much better off earning less in the southeast or midwest and living big. Also wonder what the sweet spot is wrt city/jobs/salary/savings/housing.

elastic_church 10y ago
> I mean how much more are the prices going to go, so that's clearly not an investment. Except it is. You forget that in most scenarios your initial capital and what you paid toward the place is still there, and you'll keep paying it even if you wind up underwater, and you can generate cash flow from the place, and a lot of that is tax deductible, resulting in decent windfalls from the government annually. Its an ok place to park your money. Yes, there is risk of loss and illiquidity.
hkmurakami 10y ago
It just entirely depends on people's priorities. Some may feel that the particular career opportunities they have access to here are a very high priority for them. Also, if someone had built a social circle over the early part of their careers, and are now thinking of these need for a larger place to raise a family, the social ties may be hard to give up. If they have no ties to the Midwest, done may be adverse to building a social circle and foundation from scratch again, even if the economics are favorable.
froindt 10y ago
> I wonder what the thought process of people buying $1MM+ houses in SV really is. I think at that order of magnitude, it you would have to consider it a true investment, and you should be really bummed if you're holding on to it when the prices drop. I would be hesitant to question how much more the prices can go up. People say the same thing with the stock market all the time, but the long term trend remains up. I'm from the Midwest, so I'm not exactly up on everything in California, but from a number of articles I've read I understand that San Francisco is really worried about maintaining their skyline. Because of this they don't want to develop anything really tall. Venture capital firms are mostly in the same area (San Jose?), and the further out your startup is from there, the less likely they are to consider you. I'm guessing it's a waiting game for a big tech bust leading to a housing bust of some sort. I'll take my $830/month rent for a 2 bedroom, 2 bathroom (cable and internet included) in Iowa for the time being.

georgeburdell 10y ago

I live in the Bay Area. My wife and I, early thirties and a few years out of grad school, make about $300k combined and in our area (Sunnyvale) there are maybe 2 or 3 houses for sale at any given time under our rough budget of $1.2 million, which would be below the median list value for a house in the city. I say this as dispassionately as possible, but I would really like to know more about who is able to afford these houses. The article gives one example (doctor married to an engineer, no age given), but I wonder if that case is typical.

ec109685 10y ago
Your mortgage on that 1.2M house is 5k a month (assuming 20% down). And most of that is tax deducatable. How did you determine 1.2M is the most you can afford?
- wapz 10y ago
  1.2M is also going to have ~14-16k/year for property tax and insurances associated with it. He said his budget is 1.2M not the max he could afford. I was looking in housing in the east bay and the cheapest over there in a decent neighborhood was 650k. Far, far more than I can afford.
- georgeburdell 10y ago
  Our jobs are high stress, evidenced by the median tenure at our jobs being about 3 years. The people that leave are not job hopping, they're having existential crises and changing career paths. Basically, we don't want to risk being shackled to our jobs to pay the mortgage.
  - Xcelerate 10y ago
    > "Our jobs are high stress" — georgeburdell Georgia Tech grad by any chance?
  - dpark 10y ago
    Then, honestly, why are you looking to buy? Why do you have a budget of 1.2MM if you don't want to be shackled to your house? If you legitimately don't know what you're going to be doing in 3 years, buying an expensive house is a terrible idea.

opportune 10y ago

So is this due to zoning regulations or what? Seems kind of ironic for the former hippy capital of the world (speaking of the bay in general here) to be pricing non-millionaires out of the area.

Inconel 10y ago
It's a combination of a number of reasons but yes, it is in large part due to zoning and NIMBYism. SF and the Bay Area as a whole are incredibly expensive places to build housing. Much of the peninsula is completely hostile to density, and to an only slightly lesser extent, so is SF. It doesn't help that through subsidies such as Prop 13 and rent control, a large part of the voting block is essentially insulated from the horrible policy decisions they support. In addition, you shouldn't be so surprised that this is what has become of the former hippy capital of the world. SF style liberals aren't actually nearly as progressive as they would like the world to think. Many of those who you might identify as hippies are simply self entitled white people from middle class and above childhoods. The real working class of this country didn't have the ability to move to SF in the 60's to be part of the whole counter culture movement. It should come as no surprise that those who did aren't too fond of poor working class people living in "their" city.
- Tempest1981 10y ago
  I have friends who are NIMBYs, so I've come to understand how they feel. I don't think it helps to label and disparage them. They feel a bit like the Native Americans felt when white men took over their land. They were here first, living peacefully. The NIMBYs didn't ask for tech companies to take over their cities, and try to drive them out. Some still want to stay, because they grew up here, and all their friends are here. Others are sick of the congestion we've created, and would like to move outward to, say, Woodside or Saratoga, but those places are even more expensive. And yes, property tax would be brutal if they moved. So can't capture the gains on their homes either. They're stuck. I wish I could suggest a good alternative to them... are there any?
  - Inconel 10y ago

aresant 10y ago

Two things are powering this insanity. 1 - low interest rates and speciality jumbo programs to lock in high earners are providing balloon capital. When this pops people won't lose houses because they have fixed rates, but they will be equity poor or underwater as prices will correct at least 20% with interest rates rising. 2 - cash investors chasing yield and security. The "cash" offers clogging every market are disproportionally inbound from foreign nationals and now even starting to be private placement. Blackstone and other huge PE firms now consider "single family" to be a category akin to multi-family and are placing billions to buy and rent homes for yield. All this blows up when interest rates normalize - eg investors would rather own treasuries / CDs / etc at 5% vs homes at 5%. Sam Zell - an infamous CRE investor nw $5b - has recently said he believes there is a material value of 10-15% a year of holding CASH - eg that the market is just about ready for a major correction and I agree wholeheartedly(1) (1) http://www.horizonkinetics.com/sm_cash_as_liability_zell.asp http://www.horizonkinetics.com/sm_cash_as_liability_zell.asp PS - Some further evidence around interest rates driving home prices from this bloomberg article last year outlining the 0% down and "equity as collateral" from bay area landers -=> https://www.bloomberg.com/news/articles/2016-07-27/zero-down-on-a-2-million-house-is-no-problem-in-silicon-valley https://www.bloomberg.com/news/articles/2016-07-27/zero-down...

bbcbasic 10y ago
Whats the rental yield on a SF property? Here in Sydney you are lucky to get gross 4% on an apartment, 3% on a house. It kind of implies that there isn't "too many people" because if so the rents would shoot up too.

homakov 10y ago

Or four of them in much of the entire world.

NTDF9 10y ago

I don't know. I personally am more scared of carrying such a huge mortgage on myself. A home worth $1M means $200,000 liquid cash + $800,000 in mortgage principal + $570,000 in interest + $300,000 in taxes...over 30 years. Will house values keep growing to offset $570,000+$300,000? At what point does this greater fool theory end?

kobeya 10y ago
Don't buy a home you can't afford the mortgage on.
- NTDF9 10y ago
  My point is: Are those mortgage and tax levels sustainable over 30 years, considering how fickle the tech industry is? The downside risk seems so much greater than upside potential
aaronblohowiak 10y ago
Is your interest calculation tax adjusted?
sigterm 10y ago
The house value does not need rise enough to offset the interest + taxes unless you're buying it and leaving it unoccupied for all this time. If you need a house to live in, the monthly rent for a 1MM house is likely going to be over $3k. Over 30 years this will come out to be $1.08M, much more than the $870k in mortgage interest + taxes for owning the house. On top of that there's the 20-30% tax discount on the mortgage interest that will make owning even more favorable.
- NTDF9 10y ago
  >> If you need a house to live in, the monthly rent for a 1MM house is likely going to be over $3k.Over 30 years this will come out to be $1.08M, much more than the $870k in mortgage interest + taxes for owning the house Over 30 years, if house prices go down due to whatever reason, so will rents (more or less). Homeowners will be underwater and suck up all the downside risk. Renters will remain free of crushing debt. The only way homeowners are protected is if the house appreciates enough to eat up that downside risk before a future catastrophe arrives, right?

partycoder 10y ago

For a downpayment in Silicon Valley you can start a career as landlord in Latin America.

flubert 10y ago
My favorite part is where they are talking about $40k down payment, when you can buy a house for $40k. http://www.zillow.com/homedetails/309-W-Maple-Ave-Mc-Cracken-KS-67556/91263818_zpid/ http://www.zillow.com/homedetails/309-W-Maple-Ave-Mc-Cracken... http://www.zillow.com/homedetails/403-W-1st-St-Pratt-KS-67124/91250312_zpid/ http://www.zillow.com/homedetails/403-W-1st-St-Pratt-KS-6712... http://www.zillow.com/homedetails/603-5th-Ave-Chester-SD-57016/2095669920_zpid/ http://www.zillow.com/homedetails/603-5th-Ave-Chester-SD-570... http://www.zillow.com/homedetails/1109-11th-Corso-Nebraska-City-NE-68410/97890840_zpid/ http://www.zillow.com/homedetails/1109-11th-Corso-Nebraska-C...
- partycoder 10y ago
  And you can buy a foreclosed place for even less.

losteric 10y ago

I've wondered why SV companies don't lobby hard for pro-density policies. Wouldn't they benefit from lower salaries (due to lower rent/costs of living) and higher productivity/lower turnover due to shorter commutes?

lokedhs 10y ago

At least you're not in Singapore. Here, 1 million USD won't even get you a small condo. A house will cost you around 2 million USD,and that would be a cheap one. In a prime location the price goes up to several times that amount.

elchief 10y ago

There's no rational financial calculus going on. It's part of the Pacific Ring Asian hot-money bubble. Same as in Vancouver and Sydney. /r/vancouver has some good investigatory articles $2 trillion left China illegally, and this is where some went This doesn't end well, by the way. Neighborhoods turn into ghost towns because "renters damage property". Great businesses close. Vancouver had something like 30 empty multimillion dollar houses burn down last year.

shshhdhs 10y ago
Are they burning the houses for insurance fraud, to cash out and essentially launder the money?
- elchief 10y ago
  I think it's more accidental fires from squatters.

shoefly 10y ago

In our case, we sold TWO houses that we owned outright in another state, and this was our down payment for our house in silicon valley.

deleted 10y ago

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bankim 10y ago

I understand not everyone works in tech but it's not unusual for Bay Area couples to make $300k-$400k per year 6-8 years out of college working in tech. Consider an example of new grad with CS major working in major software company. Currently new grads start at $120k total package (base + RSU/stock + bonus). After maxing out 401k, taxes, rent(with roomates), car payments etc., one can save $35k-$40k per year. So for a couple having worked for 5 years each could save $35k * 5 * 2 = $350k in total. Use $250k to make downpayment to buy $1.25M home making most of mortgage interest deduction. That's how myself and most of my Indian tech friends in Bay Area bought homes. Being lucky in an IPO also helps. Above calculation assumes no student or credit card debt.

bruxis 10y ago
I'll never understand how this is not unusual. I make decent money and could offer my portion of the 300-400k total, but every girl I've dated out here is making < 40k/year. Is there a TechMeetDoctor dating site I'm missing?
- bankim 10y ago
  It's more like engineer meets engineer. Meetings are arranged by parents, matrimonial sites or friends.
Tempest1981 10y ago
Just don't get divorced. I've seen it happen, and the couple usually is forced to sell the house. Esp. hard if they have kids -- moving down to a 2br appt in a new school district.

flukus 10y ago

This isn't just Silicon Valley, the same is happening in many parts of the world, like London, Vancouver and Sydney. At least in SV there are still a lot of people that can afford those inflated prices, the rest of us have to wait until the bubble pops.

tnt128 10y ago

Bay Area has a housing affordability issue for people who are in non-tech sectors. For those in the tech sector, there is no affordability issue, only entitlement issue If they are married, both in tech, their salary will be in the 300k-400k range, that's about 25k - 33k/month before tax, or about 15 - 20k/month after tax. with today's interest rate, $1MM house will need a monthly payment $4k - $5k/month including property tax. The couple will still have about 10k/month left after paying the mortgage. Assuming they are renting and are fiscally responsible, they should be able to save about 70 - 100k on 300 - 400k income/year. which means they will just need 2 years before they can save up for the down payment. So where is the issue? The issue is they jumped their league - Sunnyvale, Palo Alto, Mountain View, SF are the 'major leagues' - foreign cash buyers, tech execs or, more commonly , average Joe who sold their first house with $500k+ gain in tax free equity - (not hard to do in the bay area btw). First time home buyer will have a tough time competing in this league. Try the minor league instead, try east bay, dublin($900k), livermore still in the $700k - both good schools but 60min+ away, or how about places like Newark or Union City, still in the $700k, both within 30 mins drive (but so so schools). If they are struggling to buy a $2MM home because they have to buy in these neighborhoods. it's an entitlement problem, not an affordability issue.

aaronblohowiak 10y ago
Or they buy smaller and have a condo and kids share a room
- obstinate 10y ago
  Absolutely! I definitely feel for the plight of those making <$80k or so here. But if you make more than that, I can't bring myself to have too much sympathy. You can afford a 2br apartment, to max your 401k, to feed and clothe yourself, and to take a few decent vacations a year, which is more than most Americans get. Separate bedrooms are not a human right, especially for children. Hell, my brothers and I slept in the same room for a long time even after our parents were able to afford a house with extra rooms. You wanna see someone taking it to a beautiful extreme, check out http://5kids1condo.com/ http://5kids1condo.com/

shalmanese 10y ago

Because consumers are primarily used to buying consumables, it results in them not having an intuitive sense when it comes to investments. Buying a house is essentially mostly an asset allocation problem, not a purchasing problem. Think of it this way, would you rather buy 1 house in Palo Alto or 5 houses in Des Moine? What would 5 houses in Des Moine get you? Well, you could rent the other 4 houses out and get some sort of rental income but you get a higher salary working in Palo Alto, both are income streams. After X number of years, your 5 houses in Des Moine will be worth some amount and your 1 house in Palo Alto will be worth a different amount. Your houses in Des Moine are probably $600,000 worth of brick and concrete which are guaranteed to depreciate over time and $400,000 worth of land which may appreciate. Your Palo Alto home is like, $200,000 of brick and concrete and $800,000 worth of land so much more likely the growth in land will make up for the depreciation in house. Plus, in Palo Alto, you can be a part of the NIMBY coalition that defends against any law that threatens the value of your house while encouraging office space to be built that increases it's value. You can apply the same calculus to say, buying a $200K Des Moine house and $800K of index funds or renting in Palo Alto and buying $1000K of index funds or any other asset allocation mix you like. At the end of the day, even though they look like big scary numbers, the relative impacts are much tinier because you're just shifting assets between different classes. Most asset classes grow at about the same risk adjusted rate because the market is efficient (excepting brick and concrete which is guaranteed to depreciate as a consumable). Of course, this is assuming every person has essentially access to infinite amounts of credit providing they can put up the collateral to back it up. Once you get into the nitty gritty of who can and cannot gain access to credit, then issues of privilege also get involved.

sillepl 10y ago

A couple hundred thousand is right - nobody is buying a home unless they're dual income couples making at least $100K/year each. That's just it. And that's why this area is soul sucking and tragic.