6 ms·

Let me try and complicate this :) First, I submit that $430,000 is still expensive. Instead of buying the median home in Pittsburg and commuting 60+ minutes on

Let me try and complicate this :) First, I submit that $430,000 is still expensive. Instead of buying the median home in Pittsburg and commuting 60+ minutes on BART to downtown SF, I could add an h and buy a huge home in my favorite neighborhood in Pittsburgh PA for about the same price and have a chill bicycle commute: https://www.zillow.com/homes/for_sale/Pittsburgh-PA/pmf,pf_pt/house,condo_type/11288076_zpid/26529_rid/ https://www.zillow.com/homes/for_sale/Pittsburgh-PA/pmf,pf_p... (Obvious and legitimate objections: fewer job options, snow.) This is just me trying to say, $430k for that arrangement does not strike me as "cheap" given alternatives in other metros. I agree that with a tech salary it's possible to save up for a down payment and buy in the Bay Area. But the risk seems unacceptable to me. Paying ~$1M for a house is a big bet that the Bay Area housing market stays hot. I don't want my wealth to be so tied up in a hyperlocal bet like that. I see things going one of two ways (and this is probably over-simplistic). Option 1: A $1M starter home is the new normal. Prices stay flat or keep rising over the long haul. In that case my investment is sound. But I don't want to live in that kind of place. Where will my kids' teachers live? How will I cope with the moral ickiness of living in a place where housing costs create extreme spatial segregation of the professional class from the service class? Option 2: The vision painted above is unsustainable. Something has to give (maybe a big financial crash; maybe just state-mandated upzoning that quickly increases housing supply) and the value of my investment drops by a lot. Either way, I'm planning to save up on the West Coast and use my nest egg back in the Rust Belt.

joefranklinsrs 8y ago
You make compelling arguments. For me, a house isn't an investment but it's a place where I house my family. (sure, houses in silicon valley have gone up 1.5-2X in a few years. However, stocks have gone up 2-10X). If you're young, there's no point of getting a house. If you are close to have a family, one of the most important thing is KEEPING your job. If you are remote in Pittsburg, and you have to get a new job, it might take a few months of interviewing and flying in for interviews to find a remote job that pays your old salary. Do you want to risk that even to your family? most likely you wouldn't. You have 18 years of mortgage and college tuitions to pay for.
- WillEngler 8y ago
  Agreed on most of what you're saying here. > For me, a house isn't an investment but it's a place where I house my family. I really want to view the world this way :) I wish housing were a boring commodity that depreciates in value over time like a car. With prices being what they are, I am _forced_ to think of housing as an investment because of how much of my net worth will be tied up in it.
  - fro0116 8y ago
    Exactly this. A house _is_ an investment, regardless of how someone wants to think about it. Buying a house involves a significant opportunity cost over renting since it requires locking up capital (a down payment, or the entire value of the house if buying in cash) in an illiquid asset that could have been invested in liquid assets like stocks (that have historically performed better than real estate over longer time horizons for most housing markets, and often more than makes up for the fixed costs of renting once maintenance costs, taxes, and mortgage interest rates are taken into account, but that's only tangential to the point I'm trying to make). Also, most people buy their houses on mortgages, so they're investing with 5-10x leverage over the down payment and paying interest for that leverage. This level of leverage would be considered outright insane for any other long term investment, but most people won't even think twice before locking a large majority of their net worth behind a down payment. This puts their financial well-being at the mercy of the whims of the local real estate market due to the 5-10x amplified gains/losses, and practically removes their ability to meaningfully diversify and de-risk their portfolio. Now of course I'm not saying buying a house can never make sense financially or otherwise, just that refusing to think of it as an investment can be dangerous because it can blind you to the nuanced risk/reward calculations involved in one of the most impactful financial decisions you can make in your lifetime. For myself, the right time to buy a house would likely have to be when I've saved up enough money that the upfront investment for the purchase of the house is about 30% of my net worth if I'm buying with cash, or less than 10% of my net worth if I'm buying with a mortgage, to counteract the extra exposure to real-estate from the 5-10x leverage. That may mean that the time to buy a house in the Bay Area may never come for me, but I'm perfectly fine with that because the alternative would compromise my ability to keep my investments reasonably liquid and diversified, which could prove to be disastrous in these uncertain financial times ahead of us.
closeparen 8y ago
+1. Between unicorn RSUs and salary, I have more than enough long exposure to the Bay Area tech industry’s fortunes. I’m not sure that my anxiety about homeownership even makes sense.
eldavido 8y ago
Your view on this broadly aligns with mine (33-year old, live in Oakland). We bought a cheap (for the area, about 670k) condo just off of BART. It's a pure consumption expense in that I expect to get 1-2% appreciation/year while carrying a manageable debt load. It might go up a bit but that's not the point. We're right off a train line, not paying too much in interest, and building equity. Plus it's a great place to live, lots of young people moving in and we're doing a lot to improve it (lots of deferred maintenance we're working through). Worst-case scenario, we'll rent it our or sell if we move somewhere else; there will always be demand as it's a small, convenient unit in a renter-friendly building, just off of transit. I share your negative view of the Option 1 dystopia. I have absolutely zero interest in living somewhere on the peninsula like Belmont, Atherton, or even most of San Mateo at this point, where you're basically walled off from anyone of lower socioeconomic class who's your age. Not sure "moral ickiness" is the world I'd choose (maybe just bland? do you really want all your neighbors to have the same job as you?) but it does indeed suck. I think people who are banking on tons of appreciation buying today in the SFBA really need a reality check. There's just not much higher these prices can go. The common perception is that everyone in tech makes like $300k, which is so far from reality to be laughable.
- woolvalley 8y ago
  Depends what is driving the housing appreciation. You can end up like Toronto & Vancouver where it keeps on going up anyway despite local incomes being far far away from those purchase prices, for a decade+
  - dlwdlw 8y ago
    Yea, even if the local working population can’t afford them, the bay area can still be viewed as a hot spot to be causing housing to go up because they represent scarce investments/stores-of-value. Pressure could then push salaries higher into a positive feedback loop.
    - Apocryphon 8y ago
      This might only apply to white collar jobs in tech. People in the service industries and public servants don't receive the same sort of rising pay bumps that engineers and managers do.

joefranklinsrs 8y ago

You make compelling arguments. For me, a house isn't an investment but it's a place where I house my family. (sure, houses in silicon valley have gone up 1.5-2X in a few years. However, stocks have gone up 2-10X). If you're young, there's no point of getting a house. If you are close to have a family, one of the most important thing is KEEPING your job. If you are remote in Pittsburg, and you have to get a new job, it might take a few months of interviewing and flying in for interviews to find a remote job that pays your old salary. Do you want to risk that even to your family? most likely you wouldn't. You have 18 years of mortgage and college tuitions to pay for.

WillEngler 8y ago
Agreed on most of what you're saying here. > For me, a house isn't an investment but it's a place where I house my family. I really want to view the world this way :) I wish housing were a boring commodity that depreciates in value over time like a car. With prices being what they are, I am _forced_ to think of housing as an investment because of how much of my net worth will be tied up in it.
- fro0116 8y ago
  Exactly this. A house _is_ an investment, regardless of how someone wants to think about it. Buying a house involves a significant opportunity cost over renting since it requires locking up capital (a down payment, or the entire value of the house if buying in cash) in an illiquid asset that could have been invested in liquid assets like stocks (that have historically performed better than real estate over longer time horizons for most housing markets, and often more than makes up for the fixed costs of renting once maintenance costs, taxes, and mortgage interest rates are taken into account, but that's only tangential to the point I'm trying to make). Also, most people buy their houses on mortgages, so they're investing with 5-10x leverage over the down payment and paying interest for that leverage. This level of leverage would be considered outright insane for any other long term investment, but most people won't even think twice before locking a large majority of their net worth behind a down payment. This puts their financial well-being at the mercy of the whims of the local real estate market due to the 5-10x amplified gains/losses, and practically removes their ability to meaningfully diversify and de-risk their portfolio. Now of course I'm not saying buying a house can never make sense financially or otherwise, just that refusing to think of it as an investment can be dangerous because it can blind you to the nuanced risk/reward calculations involved in one of the most impactful financial decisions you can make in your lifetime. For myself, the right time to buy a house would likely have to be when I've saved up enough money that the upfront investment for the purchase of the house is about 30% of my net worth if I'm buying with cash, or less than 10% of my net worth if I'm buying with a mortgage, to counteract the extra exposure to real-estate from the 5-10x leverage. That may mean that the time to buy a house in the Bay Area may never come for me, but I'm perfectly fine with that because the alternative would compromise my ability to keep my investments reasonably liquid and diversified, which could prove to be disastrous in these uncertain financial times ahead of us.

closeparen 8y ago

+1. Between unicorn RSUs and salary, I have more than enough long exposure to the Bay Area tech industry’s fortunes. I’m not sure that my anxiety about homeownership even makes sense.

eldavido 8y ago

Your view on this broadly aligns with mine (33-year old, live in Oakland). We bought a cheap (for the area, about 670k) condo just off of BART. It's a pure consumption expense in that I expect to get 1-2% appreciation/year while carrying a manageable debt load. It might go up a bit but that's not the point. We're right off a train line, not paying too much in interest, and building equity. Plus it's a great place to live, lots of young people moving in and we're doing a lot to improve it (lots of deferred maintenance we're working through). Worst-case scenario, we'll rent it our or sell if we move somewhere else; there will always be demand as it's a small, convenient unit in a renter-friendly building, just off of transit. I share your negative view of the Option 1 dystopia. I have absolutely zero interest in living somewhere on the peninsula like Belmont, Atherton, or even most of San Mateo at this point, where you're basically walled off from anyone of lower socioeconomic class who's your age. Not sure "moral ickiness" is the world I'd choose (maybe just bland? do you really want all your neighbors to have the same job as you?) but it does indeed suck. I think people who are banking on tons of appreciation buying today in the SFBA really need a reality check. There's just not much higher these prices can go. The common perception is that everyone in tech makes like $300k, which is so far from reality to be laughable.

woolvalley 8y ago
Depends what is driving the housing appreciation. You can end up like Toronto & Vancouver where it keeps on going up anyway despite local incomes being far far away from those purchase prices, for a decade+
- dlwdlw 8y ago
  Yea, even if the local working population can’t afford them, the bay area can still be viewed as a hot spot to be causing housing to go up because they represent scarce investments/stores-of-value. Pressure could then push salaries higher into a positive feedback loop.
  - Apocryphon 8y ago
    This might only apply to white collar jobs in tech. People in the service industries and public servants don't receive the same sort of rising pay bumps that engineers and managers do.