patrick.net

"Who is buying" - well, could be the heir of a deceased parent's estate or life insurance policy.

The life insurance policy benefit could give the buyer enough for a 20 percent down, depending.

Could also be a person whose parents or relatives live in a country where its easier to hide income from taxation and so the family is able to come up with the $$$$ to buy outright or with a substantial down.

~Misstrial

Ahem, see the other thread

SJ says

http://patrick.net/?p=1080674#comment-770423

I'm not sure who is buying them, but I know how they can do it:

With new jumbo limit of $625,500, they just need to save up $174.5K:

800000-625500 = 174500

They push the risk of default onto taxpayers for the $625.5K, and it puts them nicely over 20% for their downpayment:

174500 / 800000 = .218

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. Quite do-able on $100K year, and probably seems reasonable if you ignore all the other costs of owning. But it's those other costs that make buying financially stupid:

property tax
insurance
house value loss
purchase costs
sale costs (a whopper, at 6% or so)

True well those Asians must have tons of $$$ after most of the good jobs have been offshored to China and India with none left in the USA.

APOCALYPSEFUCK is Tony Manero says

Well, it comes with a view of Page and Brin's 747 taking off from Moffett. You get to wave as they fly over and empty the onboard loo in your back yard, or take pot shots at your pets from an open door.

Google uses the runway at Moffett Field? Why? That is a military installation. At least some of it still is. (I'm on base from time to time)

Same people who will go belly on their home purchase.

Well my game plan is to eventually leave bay area so I can afford a home in a place like Texas, Arizona, or Florida. If I can keep my job or work remote thats the goal. I lived in southern California for six years and never wanted to leave but the economy tanked there so will see what happens here in bay area. I do see more jobs here though in the tech sector than when I lived in San Diego and Orange County and salaries are way higher as well.

jvolstad says

Google uses the runway at Moffett Field? Why? That is a military installation.

The US military now does whatever the corporate billionaires tell them to do.

Don't you forget who is really in charge here, or they will "bring democracy" to you too.

jvolstad says

Google uses the runway at Moffett Field? Why? That is a military installation. At least some of it still is. (I'm on base from time to time)

Goog struck a deal with NASA AMES where, IIRC, they get to store their aircraft at Moffet and use the runway, and in return they pay some rent and NASA gets to mount scientific instruments on their planes and use them from time to time for data collection.

I almost bought a $900k home in MV last summer. I had about 30 per cent down, but even with the low interest rates, it was going to cost about $1300 per month more than my current rent (not quite as nice a place, but fine for me). The deal came to near-parity with renting if I figured in a $1000 per month income tax savings. But what spooked me was the realization of how much I would be relying on that mortgage interest deduction. It could well be that for "higher income people" (folks working in silicon valley) that could be phased out. I'm glad I didn't buy. :)

My guess is that this house was bought by a dual-income family making 200K+ a year and 20%+ down payment saved up. Not that uncommon here in silicon valley.

Los Altos Renter says

But what spooked me was the realization of how much I would be relying on that mortgage interest deduction.

Congratulations on understanding what millions will never understand.

Married couple making 100K+ each can easily do it. The rule is,be a debt slave even after making that much.

Indeed- 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.

SJ says

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.

edvard2 says

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.

edvard2 says

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.

dellman says

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.

edvard2 says

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.

dellman says

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.

SJ says

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.

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.

bmwman91 says

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!!!!

thomas.wong1986 says

bmwman91 says

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.

bmwman91 says

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.

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.

thomas.wong1986 says

edvard2 says

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.

bmwman91 says

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.

alpo says

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.

alpo says

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.

alpo says

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!

edvard2 says

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.

thomas.wong1986 says

"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.

thomas.wong1986 says

edvard2 says

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

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.

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.

BobbyS says

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.

BobbyS says

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.

BobbyS says

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.

corntrollio says

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.