Who is buying overpriced RBA real estate in Mountain View, Sunnyvale and Palo Al
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2011 Oct 9, 3:38am 17,625 views 54 comments
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ndeed- all of the open houses that I went to in Silicon Valley were two parent double income (DINK) folks attending. So, that tells me as a single guy I would need to make almost 300-400k to buy a place here. Unless I become a VP thats impossible to make this much as an engineer.
Well... my wife and I are DINKS and we make good Silicon Valley incomes but there's no way that I'd ever spend that kind of bank on a house- ever. Its just outright stupid in my opinion. 800k... for a house? I even scoff at the 500k being asked for houses in the area we live in the east bay. We too are likely leaving the Bay Area, but only after we've saved enough to semi-retire elsewhere.
That said, I don't deny that there are loads of folks like us-DINKS and with good incomes- who could probably barely squeeze into one of those houses and they're just desperate to do just that if only they could qualify. hence the mantra of the Bay Area- its special here and burying yourself in debt is absolutely worth it to be a part of the party.
There are houses in every price range; don't think that the rich aren't debt slaves themselves. It's an unwritten rule that the majority of people feel compelled to buy a house that forces them to live paycheck to paycheck.
bubblesitter
2011 Oct 10, 3:01am
hence the mantra of the Bay Area- its special here and burying yourself in debt is absolutely worth it to be a part of the party.
Good way to summarize.
That said, I don't deny that there are loads of folks like us-DINKS and with good incomes- who could probably barely squeeze into one of those houses and they're just desperate to do just that if only they could qualify.
We certainly had DINKS back in the 80s and early 90s BUT home prices never inflated to these levels. Many infact made reasonable purchases...
It is difficult to get a 3BR/2Bath accommodation with a decent floor plan in these areas for rent at reasonable prices. If somebody who can afford the down payment and sick of landlords decides to buy for 800K, it is not surprising.
Not familiar with the fortress area market but the question that always arose for me when looking at houses a few years ago in Marin was this: Would a person or couple that could actually afford the 600,000 2 bed room near tear down want to live in it. If I am making 200K a year do I see myself living in such a house? The answer was typically no so they bought a house they couldn't afford leaving the 600K POS to someone with a 100K or less income who couldn't afford it but with the lending practices of the time could get the loan. Marin has floated a bit down to earth, particularly the condo market, doesn't sound like the fortress area has moved much.
It is difficult to get a 3BR/2Bath accommodation with a decent floor plan in these areas for rent at reasonable prices.
But its not that hard to travel 20 minutes down the freeway and find a 3 BR house for a much cheaper rental cost. In my opinion renting in the fortress area is just about as bad as buying: Both options are costly. Again- its not like there are cheaper alternatives.
But its not that hard to travel 20 minutes down the freeway and find a 3 BR house for a much cheaper rental cost. In my opinion renting in the fortress area is just about as bad as buying: Both options are costly. Again- its not like there are cheaper alternatives.
Well.. it is an option. When you move out of fortress areas, you need to consider the time spent on traffic on daily basis.
Well.. it is an option. When you move out of fortress areas, you need to consider the time spent on traffic on daily basis.
Done it for years. Truth be known at one time I worked in the heart of the fortress. The traffic was pretty awful. Getting from the freeway to the center of Menlo park took me on average 15-20 minutes due to all the morning traffic: people taking their kids to school and so forth. At present my commute from the East Bay to where I work in SV takes me 35-40 minutes each way. We pay $1,750 for a 4 bedroom house in a safe neighborhood. The same house in most comparable SV cities would cost twice that amount. To me the extra 30-40 minutes I spend per day commuting is a small price to pay to rent a nice house for a lot less and in turn bank the savings. Had we decided to rent closer we wouldn't have the savings we have now, which at this point is considerable. The more money we have the faster we can move out of here and buy a house for cash somewhere else.
To each their own. Personally I think there is way too much emphasis placed on commuting times. Is it nice to lice closer to work? Sure. Is it worth paying 2 and 3 times as much to do so? Not in my opinion anyway.
who would pay 800k for a tiny 2 bedroom home in Mountain View!
Actually, I didn't do an in-depth look, but it's not clear that anyone did that in September:
http://www.julianalee.com/reinfo/sold-MV.htm
Even the most likely candidates due to low square footage (#8, #10, and #18) were all 3BR houses per description.
That's not to say houses in Mountain View are cheap, just that I didn't find any of the type you were complaining about.
bmwman91
2011 Oct 10, 9:28am
I used to wonder the same thing (as the question posed in the title). The thing is that the BA is one of the most populous places in the nation with "good" schools and a pretty good number of high tech jobs. There will always be people that are fine with borrowing fiscally irresponsible amounts of money to get into houses in the highest-rated areas. As frustrating as it is, this is probably how it will continue to be for a long time. As prices slowly decline, some people may go delinquent on their payments, or cut losses & sell. Still, until a large loan requires 20%+ down (the government gets out of the loan business), prices will seem unreasonable to the "financially savvy" crowd.
It is a really simple matter of supply and demand. Supply is intentionally restricted by zoning & permitting policies, artificially restricted by the shadow foreclosure inventory and actually restricted because big loans are still relatively easy to acquire. Demand is very high, and this demand is great enough to make a larger number (than supply) willing and marginally able to mortgage every penny away.
Synopsis:
(Demand > supply) + easy to get big loans + huge pool of consumers that couldn't balance a checkbook if their life depended on it = inflated RBA prices. Plain and simple. As much as I wish it would change, I don't realistically see it doing so any time in the next decade unless something fundamental changes, like the end of FHA & government-backed loans.
I used to wonder the same thing (as the question posed in the title). The thing is that the BA is one of the most populous places in the nation with "good" schools and a pretty good number of high tech jobs
For the most part, when people hear of California, it was SoCal..LA, SD, etc etc. (second most populous in the United States, after New York City).
The Beachs, the Babes, Hollywood, Weather... USC, UCLA, UCSD etc etc
BA didnt even register a blip to most people until 1998-2000.
Places like San Francisco, are much colder and not as glam as LA. LOL! do you really want to live around a bunch of nerds!!!!
bmwman91
2011 Oct 10, 8:28pm
I used to wonder the same thing (as the question posed in the title). The thing is that the BA is one of the most populous places in the nation with "good" schools and a pretty good number of high tech jobs
For the most part, when people hear of California, it was SoCal..LA, SD, etc etc. (second most populous in the United States, after New York City).
The Beachs, the Babes, Hollywood, Weather... USC, UCLA, UCSD etc etc
BA didnt even register a blip to most people until 1998-2000.
Places like San Francisco, are much colder and not as glam as LA. LOL! do you really want to live around a bunch of nerds!!!!
lol
It must be one of those non-linear positive feedback systems. The BA was relatively obscure at one point, but once a certain price/demand threshhold was reached, people everywhere suddenly took notice & figured that the high price must mean that they too want to live there.
As a whole, I think that the human species is probably the dumbest one, of all the animals.
As a whole, I think that the human species is probably the dumbest one, of all the animals.
I agree to some extent with what you said in the first part of your reply. I think its that humans are more easily susceptible at reacting with basic human emotions than they care to admit and that leads to often irrational behavior. Perfect example is the fortress areas. I had heard for years about how wonderful this mystical corner of the Bay Area was. Then I got a job working in it. Truth be known I didn't find it that remarkable. Its a 1950's suburb that appears to have been more recently overtaken by people with money. Its not the actual place but that the people that live there compete with each other because humans are naturally competitive and money simply makes that competition more intense and nevermore obvious and present than in wealthy enclaves. Looking in from my outward perspective I thought it was all sort of silly. Who has the newest, shiniest, most expensive new toy and so on and so on. Who bought a house in the best school district and various other things.
Likewise as someone who grew up elsewhere the same could be said for the Bay Area. I have relatives who lived here all throughout the 70's and back then it wasn' t that great using today's gauges. It was still in a hangover from its more working class roots. When the money started rolling in from tech then it suddenly became "desirable". I would be willing to put money on a bet that if Detroit were to suddenly become "The" place to go and loads of cash began flowing in that people who knew nothing about the city would flock there for the same reasons they yearn for Silicon Valley Fortress areas.
SJ
2011 Oct 11, 12:20pm
Well since jobs are not stable anymore in the USA, it makes more sense to rent, save/invest and remain mobile to survive long term.
That said, I don't deny that there are loads of folks like us-DINKS and with good incomes- who could probably barely squeeze into one of those houses and they're just desperate to do just that if only they could qualify.
We certainly had DINKS back in the 80s and early 90s BUT home prices never inflated to these levels. Many infact made reasonable purchases...
There are a lot more women in workforce now than in 1980s. More women in workforce means more DINKs, more DINKs means more spending on housing which means house price inflation.
Also, despite the recession, this is STILL a rich country. Rich country means, lot of well-to-do parents who can and do help out their children financially in buying a house. LOL, I even know some DINKS who despite having a 200K+ income took financial help/gifts from their parents to buy a SFH in silicon valley - not that uncommon.
These two factors do contribute to skewing the housing price to income ratio.
people everywhere suddenly took notice & figured that the high price must mean that they too want to live there.
Yes, but after the year 2000 it was too late to lay claim after all has been done.. yes too late. You would have had better luck back 25-30 years ago.
There are a lot more women in workforce now than in 1980s. More women in workforce means more DINKs, more DINKs means more spending on housing which means house price inflation.
Rubish on both! There were many women in the workforce back in the 80s. We had women who founded or co-founded SV companies like ASK Computers and Cisco. Others became CEOs like Carol Bartz at Autodesk. There were plenty of middle level managers in Accounting, Finance, Marketing, MIS, Operations, Sales when SV was booming.
Back in my Big 8 days our staffing was certainly 50-50, with plenty of managers/partners who were women. That was nearly 30 years ago. Back in my college years at SJSU Business Schools we also had 50-50 split in gender.
As for home prices. Yes it went up but that was due to the boom years with new industries going on line. But prices never doubled or tripled in a short period of time as we seen 1998-2005.
So the DINK was not a factor around in SV to explain price appreciation. That was another piece of REA propaganda.
Rich country means, lot of well-to-do parents who can and do help out their children financially in buying a house. LOL, I even know some DINKS who despite having a 200K+ income took financial help/gifts from their parents to buy a SFH in silicon valley - not that uncommon
Not common back in my day and doubtful its true today, unless your still sucking on your moms boobs at age 30. Your success was driven by your own labor not some rich daddy's gift from back east. Its now how we roll around here.
These two factors do contribute to skewing the housing price to income ratio.
And that would explain why prices have been tanking for some time now. Brillant!
Silicon Valley Fortress areas.
"Fortress"... an alien term of unkown origin, never used in years before the bubble. Certianly not used by natives who lived here for years. Perhaps its a term used by folks from the East Coast who divide their regions of the cities based on what ever....
No, this isnt Boston, or Philly, or NYC.
"Fortress"... an alien term of unkown origin, never used in years before the bubble. Certianly not used by natives who lived here for years. Perhaps its a term used by folks from the East Coast who divide their regions of the cities based on what ever....
No, this isnt Boston, or Philly, or NYC.
Hey, I didn't make up the term, that's something that's been used around here for years. And no- I'm not from the east coast either.
But- I do think the name is rather fitting. It refers to the fact that places like Palo Alto, Menlo Park, and Atherton might as well be exclusive gated communities or some sort of exclusive resort because of the high costs of living and the general attitudes that seem to waft from those areas.
Misstrial
2011 Oct 12, 2:22am
Silicon Valley Fortress areas.
"Fortress"... an alien term of unkown origin, never used in years before the bubble. Certianly not used by natives who lived here for years. Perhaps its a term used by folks from the East Coast who divide their regions of the cities based on what ever....
No, this isnt Boston, or Philly, or NYC.
"Fortress cities" is a new term.
I have been contributing to housing blogs since 2005 and although that term has not been used until the last three months, its OK by me since this term accurately describes the resistance to lower prices by sellers.
btw, "Fortress City(ies)" is being used on drhousingbubble, irvinehousingblog and cotohousingblog.
~Misstrial
FortWayne
2011 Oct 12, 2:56am
Whats the average salary out there like? Because this is very very expensive.
Where the Chinese are, the real estate is expensive. Look at Vancouver and Toronto. Look at the San Gabriel Valley of LA. Chinese people buy with cash and have large households that can out-compete the typical 2.5 persons household. It's really quite simple. Also, many immigrate here with loads of money and skills for high paying jobs.
LOL, I even know some DINKS who despite having a 200K+ income took financial help/gifts from their parents to buy a SFH in silicon valley - not that uncommon.
That's not uncommon, but it's also not uncommon in NY or LA either among the relatively well off. I'm not sure why people think the Bay Area is particularly unique in this regard.
Look at the San Gabriel Valley of LA.
Alhambra? Rosemead? You can't treat the San Gabriel Valley as an undivided whole. Sure, Arcadia, South Pas, San Marino, and La Canada are expensive, but not everywhere. Also, there are many Chinese people in the Sunset district of SF, but that's not the most expensive part of the city.
Also, many immigrate here with loads of money and skills for high paying jobs.
Many people say this, but again offer no proof. There is a discussion about this on another active thread and several inactive ones. There's no evidence that this is happening in large numbers, and H1-Bs are probably the most common visa, and they usually result in lower pay than market.
It is more often people who might be immigrants, but who are longtime permanent residents, that we're really talking about.
This is really more post hoc -- Chinese (and other Asian immigrants like Indians) tend to flock to good schools which tend to be in expensive neighborhoods.
Where the Chinese are, the real estate is expensive
There are many places that don't have expansive real estate with high numbers of Chinese. Immigrants sill tend to go to the gateway cities (NY, LA, SF, Toronto, Vancouver) first then spread out. That's where the jobs and social/cultural infrastructure exists. There is a difference between effect and causation.
B.A.C.A.H.
2011 Oct 12, 5:21am
immigrants ...) tend to flock to good schools which tend to be in expensive neighborhoods
This is hilarious. I went to public K-12 in a part of the county that is beneath the contempt of even a sneer of Fortress Residents. Those immigrant kids did just as well in the schools that I attended as the ones from The Fortress. Not only that they learned how to live among people who are not the same as them. An important life skill.
Fast forward some decades, that aspect has not changed as kids-of-immigrants thrive in the same schools that my kids attend nowadays, kids going to the top UC's, Ivies, Stanford, etc. It just that, unlike The Fortress public K-12, they're not the "typical" students.
The keys are that students are physically safe, and that the school has a critical mass of AP courses, etc. for these students.
The Surge of Immigrants to Fortress Enclaves that have public K-12 high standardized test scores is because of the parents themselves, not because of the schools. Tiger Kids of Tiger Parents do not need to attend Tiger K-12 in Tiger Fortress enclaves; as long as the non-Tiger-non-Fortress K-12 is safe and has the right AP courses, those Tiger Kids of Tiger Parents will get Tiger SAT scores and Tiger Admission to Tiger Universities.
B.A.C.A.H.
2011 Oct 12, 5:25am
Fortress cities" is a new term
First time I read it was on this blog, posted several years ago by someone who went by "OO", explaining how the west valley and Peninsula is like behind Fortress walls against the decline of house prices.
A Fortress of ever appreciating equity.
Also, many immigrate here with loads of money and skills for high paying jobs.
Transfering out of foreign currencies are not easy in other countries. I dont know why your applying some fabled laws that dont exist.
5. Export of Indian Currency is strictly prohibited. However Indian residents when they go abroad are allowed to take with them Indian currency not exceeding Rs. 7500.
http://www.cbec.gov.in/travellers.htm
btw, "Fortress City(ies)" is being used on drhousingbubble, irvinehousingblog and cotohousingblog.
Only during bubble years. What does that say about decades past.
Also, many immigrate here with loads of money and skills for high paying jobs.
In SV, are you going to pick some immigrate from unknown school compared to local known schools the hiring manager attented. Try getting a verifcation of degree. Or better some references...
In addition would you hire someone like that over a well known US born worker with 15-20 years of experience working for well known US tech company in SV.
I think not....
Whats the average salary out there like? Because this is very very expensive.
Starting compensation for a fresh graduate with a computer science degree at the larger employees is around $100K. Senior positions can pay 50-60% more. Double that for DINKs.
Patrick
2011 Oct 12, 5:57am
$25k a year is $2083 per month. I don't think you can rent a house in 'the fortress' for $2083.
Sure you can. The median rent for 2BR places in Mountain View over the last year is less than $2000 per month, from the Patrick.net Data Service:
TechGromit
2011 Oct 12, 6:18am
So they get a 30-year at 4% and pay $25K in interest per year, which is only a little higher than monthly rent for the same thing.
$25k a year is $2083 per month. I don't think you can rent a house in 'the fortress' for $2083.
However, with property tax, insurance etc it might be even.
Tax benefits might make up for maintenance expenses.
I think someone needs to go back and recheck there math. A 625,500 mortgage at 4% for 30 years is $2983.85 a month. Add in an average yearly property taxes for Sunnyvale, CA, that's another $5,500 a year, or $458 a month, At least another $100 a month in property insurance give you a grand total of $3,541 a month. that's over $42k in housing expenses a year. That's 70% of your take home pay after income taxes on your 100k income. There's no way this is affordable, my Wife and I make well over 110k combined and struggle with a 32k in housing expenses a year.
Rents on the other had are around 3k for a 3 bedroom apartment.
Patrick
2011 Oct 12, 9:36am
Actually, all 2brs in Mountain View that I have are either multifamily or unspecified. So right, it's not house data.
It would be more instructive to do the whole thing with 3brs.
alpo says
LOL, I even know some DINKS who despite having a 200K+ income took financial help/gifts from their parents to buy a SFH in silicon valley - not that uncommon.
That's not uncommon, but it's also not uncommon in NY or LA either among the relatively well off. I'm not sure why people think the Bay Area is particularly unique in this regard.
Bay area is not unique in this regard. These are just factors that go into skewing the housing price vs income ratio. If I ever sell my house, it will be in my favor to make sure that it appeals to dual-income families because they are the once who have the ability to pay.
There are other factors as well that may skew the housing precises: low or high interest rates, people getting money from their rich parents, baby boomers retiring in larger numbers and selling their houses, people feeling comfortable about their employment situation, etc.
house price to income is only a "theoretical" ratio. One has to take into account all the "skew" factors to get to real world prices either positive or negative.
5. Export of Indian Currency is strictly prohibited. However Indian residents when they go abroad are allowed to take with them Indian currency not exceeding Rs. 7500.
LOL. No body really cares about such procedures these days. You can withdraw money from your bank account in India through debit card at any ATM in US. I am sure same is true for China. Chinese have more money than Indians do and there are plenty of legitimate and illegitimate ways to transfer money out of both the countries.
If you think house prices in Palo Alto are high, house prices in Vasant Vihar in New Delhi will blow your mind away along with the income to house price ratio.
But yes, I seriously doubt this "foreign investors propping up house prices" issue. There is plenty of money in this country, to skew prices, even if I don't get to see much of that money.
LOL. No body really cares about such procedures these days. You can withdraw money from your bank account in India through debit card at any ATM in US. I am sure same is true for China. Chinese have more money than Indians do and there are plenty of legitimate and illegitimate ways to transfer money out of both the countries.
By all means, as a US Citizen try opening a Swiss Bank Account... Good Luck on that one.
Bay area is not unique in this regard. These are just factors that go into skewing the housing price vs income ratio.
No, but that's the point. The Bay Area is absolutely not unique in this regard. Every housing market has some amount of skewing of the housing price vs. income ratio, but my last calculation showed that the Bay Area's was still higher than it was a few years ago.
LOL. No body really cares about such procedures these days. You can withdraw money from your bank account in India through debit card at any ATM in US. I am sure same is true for China. Chinese have more money than Indians do and there are plenty of legitimate and illegitimate ways to transfer money out of both the countries.
But you would withdraw the money in dollars. The issue is not taking money out of the country (you could just change it all to another currency), but rather taking physical rupees out. This is what thomas.wong missed. But he is right in his followup comment that trying to open a foreign bank account can be a challenge in some cases.
If you think house prices in Palo Alto are high, house prices in Vasant Vihar in New Delhi will blow your mind away along with the income to house price ratio.
Not really. From an informal survey, even Vasant Vihar is basically high-ish, but not super-high-end San Francisco/Peninsula price.
http://articles.economictimes.indiatimes.com/2011-07-15/news/29778040_1_carpet-area-bhk-vasant-vihar
22 crore = $4.48M at the exchange rate as quoted by Google of 49.13 rupees to the dollar. For 4000 sqft, that's 1119/sqft, which is still cheaper than many houses in uber-prime SF, e.g. high-end Pacific Heights.
For Palo Alto, houses #13, 15, 19, and 32 last month sold for more than that:
http://www.julianalee.com/reinfo/sold-PA.htm
In many foreign cities, there are areas where foreigners, expatriate businessmen, and ambassadors live that are quite expensive. Both the Economist and Mercer do a worldwide cost of living survey for this demographic, and some of the most expensive cities are third world -- Luanda, N'Djamena, and Libreville for example:
http://www.mercer.com/costofliving
http://www.economist.com/blogs/newsbook/2010/06/africas_expensive_cities
http://www.economist.com/blogs/gulliver/2011/07/worldwide-cost-living
This doesn't mean the average or run of the mill property in Delhi or Luanda costs this much by any means, as some people have exaggerated on Patnet in the past, but just that the safe, sterile, Green Zone-type places cost that much.
Vasant Vihar in New Delhi
Irrational Exhuberance. Happened to Japan, and is happening in US and Europe today. And will happen in New Delhi. Few if any will able to afford those prices. What are they expecting Rich US Companies enriching locals with lots and lots of high paying jobs.
They will fall, as have others.
Kind of hard to image for some folks even Beverly Hills / Malibu crashing.. but it has happened back in early 90s. Imagine that.
http://articles.economictimes.indiatimes.com/2011-07-15/news/29778040_1_carpet-area-bhk-vasant-vihar
22 crore = $4.48M at the exchange rate as quoted by Google of 49.13 rupees to the dollar. For 4000 sqft, that's 1119/sqft, which is still cheaper than many houses in uber-prime SF, e.g. high-end Pacific Heights.
The cost you are quoting (22 crore rupees i.e $4.48 million is for a single floor in a multi-unit building - probably around 3 floors).
If you are looking for a SFH in Vasant Vihar, that will cost you around 40 crores rupees (around $9M) with highest end SFH in vasant vihar going for 80 crores (approximately ~$18M). And these are no where near the size of mansions with large lots that you could buy for $4M+ in palo alto, Atherton, Hillsborough, etc. I don't think there is a so-called "green zone" in delhi or if there is then I don't know about it.
If you are looking for a mansion on a large lot, this is probably the highest end (as far as I know at least in delhi):
it will cost you $500 million USD.
But you would withdraw the money in dollars. The issue is not taking money out of the country (you could just change it all to another currency), but rather taking physical rupees out.
Rupee as a currency is only valuable within India. It's not a reserve currency like the dollar or even euro to some extent, so I am not sure what would be the practical use of trying to take rupees out of India. You might as well take old newspapers out.
But, the basic point that I am trying to make is that house price to income ratio is a academic ratio and has no value beyond that and you or I may not see the money, but their is plenty of money sloshing around in silicon valley and good ol' US of A
house price to income ratio is a academic ratio and has no value beyond
So like any other financial ratio, has no value ? What is risk and how do you measure low-hi risk and return.
house price to income ratio is a academic ratio and has no value beyond
So like any other financial ratio, has no value ? What is risk and how do you measure low-hi risk and return.
To put things in perspective, consider the following two statements:
1. the shortest distance between any two points is a straight line.
and
2. median house prices can only be 3 times the median income.
Point 1 above is a law of nature. If you break it, the universe won't exist, i.e its always true in the absolute sense, you can't tweak it, you can't bend it, you can't reinterpret it.
Point 2 above is probably based on a statistical model that some lowly accountant came up with sitting in his lonely office back in the 70s thinking why his girlfriend ditched him for that dancer. In other words, point 2 can be changed, tweaked, stretched, condensed, bend, reinterpreted, and be open to all sorts of subjective assessments without bringing an end to the universe.
So I won't loose too much sleep if I don't see median house prices at 3 times median income. However, if you have two points between which the shortest distance is not a straight line, let me know ASAP, before the universe ends and I loose my sleep :-)
Hope this makes sense.
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I am baffled as to who would pay 800k for a tiny 2 bedroom home in Mountain View! Google does not pay that way UNLESS you are early employee or have VP position. So who are the morons over paying now?
#housing