Life in the Bay Area and housing costs

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Norcalkenny
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Life in the Bay Area and housing costs

Post by Norcalkenny »

Hello today,
My wife and I are government employees living in the South Bay. We've found it tough to buy a home where we live (Santa Clara) and we're giving strong consideration to moving away from Califonia. Other people feel this way at times? Just feels tough to make it here at times.
Cheers!
fareastwarriors
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Re: Life in the Bay Area and housing costs

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Last edited by fareastwarriors on Thu Apr 10, 2014 12:50 pm, edited 2 times in total.
niceguy7376
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Re: Life in the Bay Area and housing costs

Post by niceguy7376 »

That is not a rant, more of a boast.

As for the OP, relocating to another state involves a lot more than just the lower home prices. You said you are govt employees. How is your skillset comparable to private sector in other places? What about any pensions or other benefits that govt employees have.

Personally, there were tons of posts on cost of living in CA on this forum in the last one month. Please do read them for perspective on either side of opinions. There are some that vouch to live there and enjoy life and weather at such high COL while the outsiders (mostly) are reluctant to move there. So it is a personal decision.
hicabob
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Re: Life in the Bay Area and housing costs

Post by hicabob »

As with most jobs, govt employees make more $$ in Santa Clara than most of the US. The other day my kid sent me a rant with an attached employment ad for a Santa Clara County building painter offering $76k/year + govt pension + govt benefits. Not too shabby for a blue collar job.
steve_14
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Re: Life in the Bay Area and housing costs

Post by steve_14 »

Google maps tells me Santa Clara is pretty much San Jose, a major city. I bet you could find a place to live there.
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FrogPrince
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Re: Life in the Bay Area and housing costs

Post by FrogPrince »

Norcalkenny wrote:Hello today,
My wife and I are government employees living in the South Bay. We've found it tough to buy a home where we live (Santa Clara) and we're giving strong consideration to moving away from Califonia. Other people feel this way at times? Just feels tough to make it here at times.
Cheers!
For folks like you, owning a home in the Bay Area is quite honestly going to be tough. Perhaps a town home or condo might work, but a house in a decent neighborhood will be tight on the budget. If you like California, I'd recommend exploring smaller cities and towns within the state if that's possible given your job situation. There are nice towns like SLO that aren't too expensive, not to mention places in the Central Valley. But yeah - the Bay Area is probably the most unaffordable real estate situation.
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baw703916
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Re: Life in the Bay Area and housing costs

Post by baw703916 »

If by government the OP means the federal government, then for a given pay grade the pay is adjusted by the locality adjustment.

https://www.opm.gov/policy-data-oversig ... saltbl.pdf

For the Bay Area, the adjustment is 35%--meaning that a Federal employee will earn 35% more than the "basic salary" for that grade.

That sounds like quite a bit, until you discover that the locality pay for "rest of U.S." is 14%. So a Federal worker in San Jose will earn 18% more than one at the same salary grade level in some random low cost area. Or 9% more than in DC, or 11% more than in Sacramento.

So the pay is higher, but only modestly so.
Most of my posts assume no behavioral errors.
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Watty
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Re: Life in the Bay Area and housing costs

Post by Watty »

Norcalkenny wrote:Hello today,
My wife and I are government employees living in the South Bay. We've found it tough to buy a home where we live (Santa Clara) and we're giving strong consideration to moving away from Califonia. Other people feel this way at times? Just feels tough to make it here at times.
Cheers!
It was the 1980's but I was living in Sunnyvale right after college and got some great experience and easily saved up the down payment for a house. About all the house I could have afforded there was one like a friend of mine had just bought in Santa Clara. It was something like a two bedroom one bath with maybe 900 square feet and it need to be basically gutted and redone. I looked at several different cities and after several trips I decided that Portland Oregon was my first choice.

I was able to find a job with the same salary there. If I had stayed in the Bay Area I would have likely gotten a good bump in pay if I had changed jobs so it was a bit less than a lateral move.

Within a year I bought a house in Portland that cost at least 20% less than my friend's house and it was more than twice as large and in pretty good shape. It was on about a quarter acre lot that backed up to a seasonal pond and wetlands.

Not only was it a great move financially but the quality of life was a lot better, if not nearly so sunny.

Working in the Bay Area for a while was a good choice before I was ready to settle down but later moving was one of the best decisions I have ever made.

One thing that I saw several times when I was living in the Bay Area was that people that worked in good paying jobs were able to make it work financially but when their kids grew up many of the kids did not have the high tech skills needed to make it enough to live OK there. I remember one co-worker that has a 20-somthing daughter that was a good kid but she didn't make it through college and was working at some sort of retail job and could not even afford to share an apartment with someone her age. She was still living in their house and there were not any major blowups but it was not an ideal situation. If you have kids in the Bay Area then when they are grown they may end up having to move to someplace far from you to find an affordable situation.

In contrast I am in Atlanta now and I have a son that is in his mid 20's and he is in the process of buying his first house about six miles from us and the house he is getting is priced very affordably. The prices vary greatly by area here but you can still find a nice starter house in a decent area for maybe $150K or even less.
lightheir
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Re: Life in the Bay Area and housing costs

Post by lightheir »

Not be a downer here, but that small chepo house you passed on 1980 would probably be worth over half a million dollars today in Sunnyvale, much more if it's a freestanding with land. That may have been one of the biggest financial 'virtual losses' you have made in your life in terms of opportunity cost. (Of course, that doesn't consider any of the life factors.) Just think which would have netted you more money - the Portland house or the Sunnyvale house, if sold on the market today, or even 15 years ago?

As prohibitively expensive as the South Bay of Norcal is, very few people in Sunnyvale to Palo Alto have lost money on a home, as home prices have increased faster in these pricey areas than anywhere else. Even when you think they can't go higher, they rocket ahead.
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Watty
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Re: Life in the Bay Area and housing costs

Post by Watty »

lightheir wrote:Not be a downer here, but that small chepo house you bought in 1980 and sold would probably be worth over half a million dollars today in Sunnyvale. That may have been one of the biggest financial 'virtual losses' you have made in your life in terms of opportunity cost. (Of course, that doesn't consider any of the life factors.)
That is pretty close, the house was on an oddly named street that I remember and I have looked it up on Zillow. It origionally cost a bit less than $100K, with even the most basic work it needed a comparable price would have been ten or twenty thousand higher back then.

The house that I bought in Oregen for $78K is like likely worth in the low $300's now so it isn't all that dramatic a difference over a bit less that 30 years.
lightheir
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Re: Life in the Bay Area and housing costs

Post by lightheir »

Watty wrote:
lightheir wrote:Not be a downer here, but that small chepo house you bought in 1980 and sold would probably be worth over half a million dollars today in Sunnyvale. That may have been one of the biggest financial 'virtual losses' you have made in your life in terms of opportunity cost. (Of course, that doesn't consider any of the life factors.)
That is pretty close, the house was on an oddly named street that I remember and I have looked it up on Zillow. It origionally cost a bit less than $100K, with even the most basic work it needed a comparable price would have been ten or twenty thousand higher back then.

The house that I bought in Oregen for $78K is like likely worth in the low $300's now so it isn't all that dramatic a difference over a bit less that 30 years.
True. But $500-600k vs $300k is a pretty big difference. Not to say anything was wrong at all with the home in Oregon, which is also a lovely place to live.
john94549
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Re: Life in the Bay Area and housing costs

Post by john94549 »

Life is full of "ah, well, if only". That modest 1600 square foot house we bought in Sunnyvale in 1973 for $43K is now north of a million, if one believes Zillow. On the other hand, the house we bought in Lafayette in 1978 for $180K, well, add a zero. The irony is, although we'd be tempted to sell, downsize, and yield our abode to a young family, the capital gains (federal) and ordinary income tax (state) is a major deterrent. Even with the $500K exclusion.

The path of least resistance is to leave it all to the kids, with a step-up in basis.
surfstar
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Re: Life in the Bay Area and housing costs

Post by surfstar »

I don't see the need/want/desire to purchase a home in such an expensive place to live.

Super high cost of living areas seem to favor renting. I'm fine with that and understood that when continuing to live here after college. I would think two federal incomes go much further than my single county income here when it comes time to living expenses. Rent cheap, save and invest the extra as you'll continue to have housing costs later in life. Or you move.
Not sure why these topics keep coming up over and over, as I don't see the issue or solutions changing.
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JMacDonald
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Re: Life in the Bay Area and housing costs

Post by JMacDonald »

Over 30 years ago, I visited the home of friends who had paid 100k for a very small house in San Pedro that sat on the cliff overlooking the Pacific Ocean. It was a spectacular view from the living room with large windows. That amount of money was unbelievable for me then. Well, now the house is in the range of one to one and a half million dollars. That amount is still unbelievable for me, but the view is worth every penny.
Best Wishes, | Joe
RenoJay
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Re: Life in the Bay Area and housing costs

Post by RenoJay »

I grew up in South Bay. The weather is lovely, but there's really no reason to stay there unless you're a high tech employee with lots of unvested, valuable stock options or if you have a strong connection to the area. I moved to Reno about 10 years ago and haven't regretted. The cost of everything is much lower, including taxes!
hicabob
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Re: Life in the Bay Area and housing costs

Post by hicabob »

RenoJay wrote:I grew up in South Bay. The weather is lovely, but there's really no reason to stay there unless you're a high tech employee with lots of unvested, valuable stock options or if you have a strong connection to the area. I moved to Reno about 10 years ago and haven't regretted. The cost of everything is much lower, including taxes!
Does the infamous "Reno wind" become tiresome?
jumpsalty
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Re: Life in the Bay Area and housing costs

Post by jumpsalty »

I live with my girlfriend in Mountain View (one of the more costly cities for those not in the bay area) and our HHI is $310k/yr with a mix of base, bonus and RSU stock. We can barely if at all afford to buy a house in this city where houses are going for 1.2-1.3M on average and for those that know mountain view they are old and not very big lots but the location is very desirable. We also have no debt or car payment...a mortgage would mean paying at least $5k-6k a month. If you are talking San Francisco itself forget about it...completely insane pricing.

We could move to the south or east bay and get a lot more for our money but then we are looking at 1-1.5 hour plus commutes which seems silly to me. I don't want to spend my life at work or in traffic so I can have a nice house.
westcoastinvestor
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Re: Life in the Bay Area and housing costs

Post by westcoastinvestor »

It is a trade off between quality of life, job opportunities, and the high cost of housing. Few places have the depth of job opportunities for public sector employees as the Bay Area, with its 120 cities and counties and many other public entities. I had a similar situation, although my partner worked in the private sector. We rented for a long time, saved our money, and then bought a house when the market crashed. One truism of the Bay Area is that there is always a boom and a bust.
random_walker_77
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Re: Life in the Bay Area and housing costs

Post by random_walker_77 »

The problem w/ houses in the south bay is that, for the money, you don't get much house. Especially for the price of most stand-alone starter homes, you're likely to get something w/ asbestos and lead paint.

One way of looking at it is that there's very few ways to get as much speculation leverage as when you buy a house. If you borrow 500K and the house price goes up 25%, you've made ~$100K after transaction costs. If things crash, well, you can turn in the keys and walk away w/ nothing worse than 7 yrs of bad credit. This was the kind of thinking prevalent in '05... and as we saw, it gets ugly if the market ever tanks, but only if you're forced to sell. For now, there's demand driven by foreign money flooding into the bay area real estate market, and lots of money being made by tech workers on RSUs. The bay area is desirable, and for tech workers, the career opportunities there are incomparable. It's hard to say if house prices are appropriate given the amount of demand from well-paid workers. But if interest rates ever get back up to 6%, or if the tech companies have another downturn, one could imagine that home prices might be hard to sustain. I still think it's crazy that my dual-engineer friends have all bought so-so houses for $1.2-$1.6. And crazier still that house prices in good areas are enumerated as 2 digit prices.
RenoJay
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Re: Life in the Bay Area and housing costs

Post by RenoJay »

hicabob wrote:
RenoJay wrote:I grew up in South Bay. The weather is lovely, but there's really no reason to stay there unless you're a high tech employee with lots of unvested, valuable stock options or if you have a strong connection to the area. I moved to Reno about 10 years ago and haven't regretted. The cost of everything is much lower, including taxes!
Does the infamous "Reno wind" become tiresome?
Yes, the Reno wind sucks, but depending on your location it's not always that bad. As long as you're not living on top of a hill, it's only really bad about 5-10 times per year, usually in the middle of the night. We did have some bad wind about two weeks ago that blew my kids wooden playhouse 20 feet away and rendered it unusable. The good things about this area: Generally nice weather, though not nearly as good as bay area. Great access to skiing, hiking, Lake Tahoe. No traffic. No state income tax. Affordable homes. A few good schools if you choose the right area. No poison oak!! (We're above the poison oak line. Sounds silly, but I got P.O. virtually every time I hiked in the bay area, and now it's a non-issue.)
random_walker_77
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Re: Life in the Bay Area and housing costs

Post by random_walker_77 »

Norcalkenny wrote:we're giving strong consideration to moving away from Califonia. Other people feel this way at times?
We actually bought our starter home in east san jose, but the craziness of the valley did make us strongly consider moving away. So strongly in fact, that we did it.

Between crazy house prices, a workaholic tech culture, and the over-stressed "vibe" in the air, we moved 7 yrs ago to a blue town in a red state. We miss the restaurants, our friends, and the weather. On the other hand, it's prettier here, our quality of life is much better now, and moving has been a very big win financially. We're also a dual-engineer household, and our income is now substantially higher than it was when we left the bay area, though almost definitely lower than what it'd be if we'd stayed in the bay area.

So we make more money than before, spend a lot less, and live in a safe beautiful neighborhood w/ superb schools. We have a roomy newer house w/ neither asbestos nor lead paint, and it cost us much less than our starter home. And we benefit from a much more family-friendly culture, and have a much lower baseline expenditure rate, which means that early retirement is going to be feasible someday.

Do we have any real regrets? No, though our thought that the savings would finance trips back to CA was way off (yes, we have the money to do so, but once we had kids, we lost the inclination to fly).

But that's us. I know people who've moved the other direction and it was worth it to them. If you're about maximizing salary progression and career opportunities, moving to the bay area can make sense. Alternatively, if your entire family is in the bay area, that just might offset the financial cost of living there. But purely financially, it seems like an awfully steep price.

Though as I said earlier, bay area housing is almost like a casino. If you have the guts and are willing to take the risks, the leverage and craziness of the housing market has paid off in a lot of upside for a lot of people, and the downsides are capped since CA is a non-recourse state. (full disclaimer: we were one of those who took the bet and got lucky in just 3 years, cashing out just in the nick of time -- I guess that was just one more reason to move).
freddie
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Re: Life in the Bay Area and housing costs

Post by freddie »

Don't the kids also get your Prop13 tax basis? As an american it is you patriotic duty to make sure that property never gets assessed at true market value. :)
john94549 wrote:Life is full of "ah, well, if only". That modest 1600 square foot house we bought in Sunnyvale in 1973 for $43K is now north of a million, if one believes Zillow. On the other hand, the house we bought in Lafayette in 1978 for $180K, well, add a zero. The irony is, although we'd be tempted to sell, downsize, and yield our abode to a young family, the capital gains (federal) and ordinary income tax (state) is a major deterrent. Even with the $500K exclusion.

The path of least resistance is to leave it all to the kids, with a step-up in basis.
NorCalDad
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Re: Life in the Bay Area and housing costs

Post by NorCalDad »

Norcalkenny, there are many places in California outside the South Bay where government employees can buy a home and have a good life. For your profession, I don't see why you'd choose one of the highest COL areas in the state to work unless you have family there or really love the South Bay. You didn't say which type of government work you do, but you could work in state government in Sacramento or in county government in the North Bay and find cheaper housing. There are areas in Southern California that would be cheaper than the South Bay, too.
Leemiller
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Re: Life in the Bay Area and housing costs

Post by Leemiller »

I'm in DC, which is a high COL area as well. If we weren't making the money that we do here, I'd move in a heartbeat. I'm in the govt and many of my friends at work complain about money - even thought agency pays over the GS scale. My husband is in the private sector, so our combined income makes a big quality of life difference. Still, we just paid about $1.1 for a house with both lead paint and abestos that also needs a lot of work. In Texas or Carolina we could have probably just paid cash for a great house.
lightheir
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Re: Life in the Bay Area and housing costs

Post by lightheir »

random_walker_77 wrote:
Norcalkenny wrote:we're giving strong consideration to moving away from Califonia. Other people feel this way at times?
We actually bought our starter home in east san jose, but the craziness of the valley did make us strongly consider moving away. So strongly in fact, that we did it.

Between crazy house prices, a workaholic tech culture, and the over-stressed "vibe" in the air, we moved 7 yrs ago to a blue town in a red state. We miss the restaurants, our friends, and the weather. On the other hand, it's prettier here, our quality of life is much better now, and moving has been a very big win financially. We're also a dual-engineer household, and our income is now substantially higher than it was when we left the bay area, though almost definitely lower than what it'd be if we'd stayed in the bay area.

So we make more money than before, spend a lot less, and live in a safe beautiful neighborhood w/ superb schools. We have a roomy newer house w/ neither asbestos nor lead paint, and it cost us much less than our starter home. And we benefit from a much more family-friendly culture, and have a much lower baseline expenditure rate, which means that early retirement is going to be feasible someday.

Do we have any real regrets? No, though our thought that the savings would finance trips back to CA was way off (yes, we have the money to do so, but once we had kids, we lost the inclination to fly).

But that's us. I know people who've moved the other direction and it was worth it to them. If you're about maximizing salary progression and career opportunities, moving to the bay area can make sense. Alternatively, if your entire family is in the bay area, that just might offset the financial cost of living there. But purely financially, it seems like an awfully steep price.

The big price-corrector that would have a local impact here is a big earthquake, as it is a fault line area. Even then, I strongly suspect that even if it takes 5-7 years to fully rebuild infrastructure, you'll see the real estate rocket back up to prequake prices.

Though as I said earlier, bay area housing is almost like a casino. If you have the guts and are willing to take the risks, the leverage and craziness of the housing market has paid off in a lot of upside for a lot of people, and the downsides are capped since CA is a non-recourse state. (full disclaimer: we were one of those who took the bet and got lucky in just 3 years, cashing out just in the nick of time -- I guess that was just one more reason to move).
I'd disagree with the casino part. As mentioned before, owning property in the silicon valley area, especially anything from Palo Alto to Campbell and even beyond, has been nothing but all win for anyone who has owned. EVEN in the 'downturn' - the housing prices in this territory just slowed their increase, but never dipped for the most part. The combo of great schools, great weather, multiculturalism, and beautiful outdoors will pretty much always be a draw. Unfortunately, cost of entry is super steep, but it's not even close to a casino in terms of risk. In fact, pretty much in the past, almost without fail, the more you spent, the better off you did on housing in this area almost without exception. (Of course assuming you could pay the mortgage.)

I've never been one to consider home as a true investment, given the real risks of real estate, but I'd consider housing in this area as close to a sure thing as you could get in real estate ownership in terms of expecting price appreciation. Even if prices somehow do fall in the far future, it is guaranteed that the rest of the country will be hit harder by many multiples well before your house decreases in price.
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HomerJ
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Re: Life in the Bay Area and housing costs

Post by HomerJ »

lightheir wrote:I'd disagree with the casino part. As mentioned before, owning property in the silicon valley area, especially anything from Palo Alto to Campbell and even beyond, has been nothing but all win for anyone who has owned. EVEN in the 'downturn' - the housing prices in this territory just slowed their increase, but never dipped for the most part. The combo of great schools, great weather, multiculturalism, and beautiful outdoors will pretty much always be a draw. Unfortunately, cost of entry is super steep, but it's not even close to a casino in terms of risk. In fact, pretty much in the past, almost without fail, the more you spent, the better off you did on housing in this area almost without exception. (Of course assuming you could pay the mortgage.)

I've never been one to consider home as a true investment, given the real risks of real estate, but I'd consider housing in this area as close to a sure thing as you could get in real estate ownership in terms of expecting price appreciation. Even if prices somehow do fall in the far future, it is guaranteed that the rest of the country will be hit harder by many multiples well before your house decreases in price.
"Past Performance is no guarantee of Future Results".

Are you going to make up the OP's losses if going forward from today, Bay Area housing turns out to NOT be a sure thing?

The fact that it has been so good for so many years should be red flag. Trees do not grow to the sky... Prices cannot continue to rise faster than salaries forever... The fact that they have done so for 30 years should be a little scary for most people. Sure, they could continue to rise at the same rate for another 10-20 years... But to say it's a near-sure thing is not accurate.

And why would you think the rest of the country would be hit harder?
lightheir
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Re: Life in the Bay Area and housing costs

Post by lightheir »

As said:

- Great weather
- Great beauty
- Great schools
- Multicultural area
- etc

Again, outside of Norcal, I am 100% with you. I consider real estate to NOT be a 'investment' and more of a cost. But I would make exception for Norcal bay area. If the area doesn't even dip during the big recent housing recession, and actually INCREASES in price when the rest of the country is -20% if not more on average, I'd be willing to bet on it again, as many of the reasons of why people buy in the area will still be here for a long, long time.

Your comment about 'it's hitting the ceiling' has been said by people here for the past 30 years, and is old news, despite sounding very reasonable.
random_walker_77
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Re: Life in the Bay Area and housing costs

Post by random_walker_77 »

lightheir wrote:As said:

" I'd consider housing in this area as close to a sure thing as you could get in real estate ownership in terms of expecting price appreciation. "

"If the area doesn't even dip during the big recent housing recession, and actually INCREASES in price when the rest of the country is -20% if not more on average, I'd be willing to bet on it again, as many of the reasons of why people buy in the area will still be here for a long, long time."

"Your comment about 'it's hitting the ceiling' has been said by people here for the past 30 years, and is old news, despite sounding very reasonable."
You make good sounding arguments for why the Palo Alto real estate market is different. And it's possible that this could turn into the next Manhattan. But I just don't have the faith. It sounds and feels risky to me, and that's why I characterized it as a casino. If we were talking about anything else, those comments would be associated with a bubble. But this could be different.

You could be right, and as long as enough people agree with you that it's a sure thing, then prices will appreciate. It just seems to me that the prices are so high that it's almost completely decoupled from salary and that the only way these prices are sustainable is if people continue to make Millions off of stocks ($2M in RSU's is more like $1M after taxes). Maybe that gravy train won't end...

I'd also point out that Santa Clara county's average price did dip quite a bit during the last downturn, from $730 to $560. I know that the house I sold at $700 dropped down to ~$400 before recovering somewhat, and the guy who bought it from me is still underwater on it. But that was in a rougher part of san jose, and Palo Alto is indeed a different ballpark.
cheapskate
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Re: Life in the Bay Area and housing costs

Post by cheapskate »

OP - Bay Area real estate is currently driven by the Social Media/Internet and IPO bubbles. If you are not directly benefiting from either of these bubbles, it makes no sense to buy right now. I own in the Cupertino area near Apple (got lucky and bought before the real estate rush re-commenced) and have a ringside view at the way things are unfolding (25-40 bids on homes on market, crazy overbidding etc).

As government employees, you could get a much better quality of life (and only take a small salary hit) in most of the rest of the country. The pacific northwest and the central CA coast are 2 places which I think are geographically nicer than the Bay Area. Although you don't get the same nice weather year round in the pacific northwest. If you don't want to move out of the Bay Area, just rent. Fortunately, rentals a bit further south of Santa Clara have not been very impacted by the current bubble.

One good anecdote is a post in this thread where the author has a HHI of 310K/year and would find home ownership in Mtn View a real stretch (and for the 1.2-1.3 that he is talking about, he will get a ~1000 sq footer, almost a fixer-upper in Mtn View, requiring a fairly healthy cash injection to make the home nicely liveable).

To me, South Bay real estate does feel like a casino. Home owner friends I talk to are convinced that they simply cannot lose. People don't want to think about what is driving the current RE bubble (crazy Social Media/Internet and IPO valuations - that surely must come back down to earth).
NorCalDad
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Re: Life in the Bay Area and housing costs

Post by NorCalDad »

lightheir wrote:Again, outside of Norcal, I am 100% with you. I consider real estate to NOT be a 'investment' and more of a cost. But I would make exception for Norcal bay area. If the area doesn't even dip during the big recent housing recession, and actually INCREASES in price when the rest of the country is -20% if not more on average, I'd be willing to bet on it again, as many of the reasons of why people buy in the area will still be here for a long, long time.

Your comment about 'it's hitting the ceiling' has been said by people here for the past 30 years, and is old news, despite sounding very reasonable.
The Bay Area was far from immune to declines during the housing collapse. I know people in the South Bay who were underwater after buying at the peak. It's just that the Bay Area did not suffer as steep a decline as other areas and saw a quicker recovery. Median prices still have not yet returned to their pre-collapse level across the Bay Area (though that may not be the case in select areas on the Peninsula and in SF):
Dataquick wrote:The median price paid for a home in the Bay Area in February was $540,000. That was up 2.9 percent from $525,000 in January and up 33.3 percent from $405,000 in February last year. On a year-over-year basis, the median has risen the last 23 months, with gains above 20 percent for the last 16 months.

The Bay Area median peaked at $665,000 in June and July 2007, then dropped as low as $290,000 in March 2009. While much of the median's ups and downs since its peak can be attributed to shifts in the types of homes sold, it now appears most of the year-over-year gain in the median reflects a rise in home values.
http://www.dqnews.com/Articles/2014/New ... 40313.aspx
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HomerJ
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Re: Life in the Bay Area and housing costs

Post by HomerJ »

lightheir wrote:As said:

- Great weather
- Great beauty
- Great schools
- Multicultural area
- etc

Again, outside of Norcal, I am 100% with you. I consider real estate to NOT be a 'investment' and more of a cost. But I would make exception for Norcal bay area. If the area doesn't even dip during the big recent housing recession, and actually INCREASES in price when the rest of the country is -20% if not more on average, I'd be willing to bet on it again, as many of the reasons of why people buy in the area will still be here for a long, long time.

Your comment about 'it's hitting the ceiling' has been said by people here for the past 30 years, and is old news, despite sounding very reasonable.
I didn't say "it's hitting the ceiling"... I said it WILL hit the ceiling... Could be another 30 years from now, could be next year. It won't and can't grow faster than salaries forever... It's certainly not a SURE thing that it will continue to grow at the same pace for another decade or two.
harikaried
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Re: Life in the Bay Area and housing costs

Post by harikaried »

RenoJay wrote:I grew up in South Bay. The weather is lovely, but there's really no reason to stay there unless you're a high tech employee with lots of unvested, valuable stock options or if you have a strong connection to the area.
Both my wife and I grew up in the Bay Area and moved out to Reno after working a few years in Silicon Valley. We love the outdoors (plenty of biking and skiiing -- without needing to shovel too much snow!), affordable homes (probably 1/3 to 1/4 the price of a similarly sized Bay Area house), and lack of traffic. We used to carpool 45 minutes each way (often longer if there's backups near 87, 17, 280, 237), and now we just bike 7 minutes to the Reno Collective co-working space near downtown. And that space is a great place for tech employees interested in start-ups too -- that 1st street area now has flags for "Startup Row."

Also, the local Reno community is great. It's pretty nice seeing familiar faces in different contexts: "oh you /also/ do this? and that?" Never really felt that way in the Bay Area.
lightheir
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Re: Life in the Bay Area and housing costs

Post by lightheir »

HomerJ wrote:
lightheir wrote:As said:

- Great weather
- Great beauty
- Great schools
- Multicultural area
- etc

Again, outside of Norcal, I am 100% with you. I consider real estate to NOT be a 'investment' and more of a cost. But I would make exception for Norcal bay area. If the area doesn't even dip during the big recent housing recession, and actually INCREASES in price when the rest of the country is -20% if not more on average, I'd be willing to bet on it again, as many of the reasons of why people buy in the area will still be here for a long, long time.

Your comment about 'it's hitting the ceiling' has been said by people here for the past 30 years, and is old news, despite sounding very reasonable.
I didn't say "it's hitting the ceiling"... I said it WILL hit the ceiling... Could be another 30 years from now, could be next year. It won't and can't grow faster than salaries forever... It's certainly not a SURE thing that it will continue to grow at the same pace for another decade or two.
If/when the select areas of the S Bay hit the ceiling, it is almost certain that most of the the entire country will be hard harder first. Sure, it may stall out, but you can be sure that other areas will stall out faster.

That article above referred to the 'whole' South Bay as well; the areas I mentioned between Palo Alto and Campbell were almost immune to housing drops during the latest downturn. I can say for sure that that 'mean Bay Area house price' quote in that DQ article of $290k in March 2009 indicatees they're almost certainly including the far-lying non-Silicon valley bay area - you could barely even find a 1bdrm condo for $290k in 2009 in real silicon valley so those figures don't apply at all. (If you think they do, good luck to you looking for a house for even $350k in the heart of Silicon Valley.)

I don't think the casino analogy holds any water whatsoever here. You're paying for real, tangible assets - weather, beauty, protected land, proximity to water, multiculturalism. It probably won't rocket at the blistering pace of the past years in the future, but it will always hold value compared to other real estate.

Note that I'm not saying it's necessarily the best investment - real estate as a whole could go flat/decrease as it did in the last housing downturn, where you were MUCH better off holding stocks as opposed to even holding real estate in Palo Alto for those years in terms of investment returns. But historically, it's been about as solid as you can get in terms of real estate purchases, totally different than the housing bubbles in lesser developed areas like Vegas or parts of Arizona that swing +/- 40% with market swings.
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mmmodem
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Re: Life in the Bay Area and housing costs

Post by mmmodem »

I love these type of posts. It just reaffirms how great it is to live here.

We make a median Silicon Valley household income, $80k a year. We are a single family income with 2 kids and stay-at-home mom. We live in a 3 bed,/2 bath house. We even have the white picket fence. Pretty average stuff here. And when Bart finishes construction in Milpitas, we'll be connected to the rest of the Bay Area. I may take public transportation to work. Hopefully, our $500k home appreciates with the connection. We fully max our 401k and Roth IRA for both every year. It's not that hard. It's not easy but it's not the dire straits that most thinks it is.

1. Pay for your car in cash - I drive a $32,000 Plug in hybrid and she drives a 2009 Sonata both purchased new from the dealer. We're not exactly being frugal here buying brand new cars. Our previous cars were each 6 years old when we upgraded. So we didn't exactly follow the Boglehead ideals of buying used and driving the car to the ground. What we did follow was paying for it in cash.
2. Lower your expectations - We bought a tiny 2 bed home in a nice neighborhood. We had a child and then sold the tiny home. I can't stress enough that having a kid and planning on having a kid are not the same thing. It may take 2-3 years before said child arrives, meanwhile, you could be saving. We purchased our current home with the equity in 2011. Our mortgage is $1300, that's less than what we paid for rent when we were dating. Mortgage, utilities, taxes, and everything is a breeze at my salary level without car payments.

The only tough thing is knowing what a half million dollar mansion could be in the rest of the country, not my dinky little ranch house. But then I walk outside and see that the polar vortex this winter avoided California. The nationwide heatwave last summer found me not using home AC a single time. (Actually, I turned it on once, but it was broken. When it was repaired the next day, temperatures were cool again.) 8-)
cheapskate
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Re: Life in the Bay Area and housing costs

Post by cheapskate »

lightheir wrote: If/when the select areas of the S Bay hit the ceiling, it is almost certain that most of the the entire country will be hard harder first.
I don't see why the rest of the country will be hit harder first.

- The current Bay Area Boom (Bubble) is driven by (a) soaring internet and social media valuations (b) soaring IPO valuations (c) soaring startup valuations. Airbnb was valued at $10B.
Clearly this has to burst. There is a dramatic skew in overvaluations of Silicon Valley (new tech if you will) companies compared to the rest of the stock market. This tells me at least
that Bay Area new tech companies could crash a lot harder than then rest of the economy. In fact, the new tech outfits will crash a lot harder than old tech (Intel/Oracle/HP/IBM).
- As we know, most of these new tech companies have nearly $0 sales, let alone profits. The valuations is mostly based on hope.
- I recall the 2000-2002 tech bust very clearly. In 2002, it felt like nuclear winter here in the valley. Everyone was absolutely dazed and shell shocked. The rest of the country wasn't in
anywhere near as bad a shape in 2002.

We have to agree to disagree on this one :)
lightheir
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Re: Life in the Bay Area and housing costs

Post by lightheir »

cheapskate wrote:
lightheir wrote: If/when the select areas of the S Bay hit the ceiling, it is almost certain that most of the the entire country will be hard harder first.
I don't see why the rest of the country will be hit harder first.

- The current Bay Area Boom (Bubble) is driven by (a) soaring internet and social media valuations (b) soaring IPO valuations (c) soaring startup valuations. Airbnb was valued at $10B.
Clearly this has to burst. There is a dramatic skew in overvaluations of Silicon Valley (new tech if you will) companies compared to the rest of the stock market. This tells me at least
that Bay Area new tech companies could crash a lot harder than then rest of the economy. In fact, the new tech outfits will crash a lot harder than old tech (Intel/Oracle/HP/IBM).
- As we know, most of these new tech companies have nearly $0 sales, let alone profits. The valuations is mostly based on hope.
- I recall the 2000-2002 tech bust very clearly. In 2002, it felt like nuclear winter here in the valley. Everyone was absolutely dazed and shell shocked. The rest of the country wasn't in
anywhere near as bad a shape in 2002.

We have to agree to disagree on this one :)
Ok we disagree.

I don't think the good valuations here are only driven by the tech bubble. Yes, the tech growth definitely helps prices, no doubt, but the area has so many of its own draws (weather and nature in particular, but also high education and multiculturalism) that it would be considered an extremely desirable place to live even without the tech industry.

The argument you've made has been made by countless people who have 'waited to buy for the bubble to pass' here for the past 30 years, and it has yet to happen. Not saying it's impossible, but by now, there are so many other things to Silicon valley that it's far, far from being a one-trick pony, unlike the new developments in the middle of the desert that really are one-trick ponies looking for a bubble.

If you think housing prices from Palo Alto to Campbell are going to drop 10-15% or more in the next few years, especially if the rest of the country is not dropping, I'd love to bet against you.
fareastwarriors
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Re: Life in the Bay Area and housing costs

Post by fareastwarriors »

cheapskate wrote:
lightheir wrote: If/when the select areas of the S Bay hit the ceiling, it is almost certain that most of the the entire country will be hard harder first.
I don't see why the rest of the country will be hit harder first.

- The current Bay Area Boom (Bubble) is driven by (a) soaring internet and social media valuations (b) soaring IPO valuations (c) soaring startup valuations. Airbnb was valued at $10B.
Clearly this has to burst. There is a dramatic skew in overvaluations of Silicon Valley (new tech if you will) companies compared to the rest of the stock market. This tells me at least
that Bay Area new tech companies could crash a lot harder than then rest of the economy. In fact, the new tech outfits will crash a lot harder than old tech (Intel/Oracle/HP/IBM).
- As we know, most of these new tech companies have nearly $0 sales, let alone profits. The valuations is mostly based on hope.
- I recall the 2000-2002 tech bust very clearly. In 2002, it felt like nuclear winter here in the valley. Everyone was absolutely dazed and shell shocked. The rest of the country wasn't in
anywhere near as bad a shape in 2002.

We have to agree to disagree on this one :)

Yes you're right lots these social media companies barely have any revenue and no profits. But the tech giants like Google, Apple, Facebook are raking it in.
fareastwarriors
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Re: Life in the Bay Area and housing costs

Post by fareastwarriors »

lightheir wrote:
cheapskate wrote:
lightheir wrote: If/when the select areas of the S Bay hit the ceiling, it is almost certain that most of the the entire country will be hard harder first.
I don't see why the rest of the country will be hit harder first.

- The current Bay Area Boom (Bubble) is driven by (a) soaring internet and social media valuations (b) soaring IPO valuations (c) soaring startup valuations. Airbnb was valued at $10B.
Clearly this has to burst. There is a dramatic skew in overvaluations of Silicon Valley (new tech if you will) companies compared to the rest of the stock market. This tells me at least
that Bay Area new tech companies could crash a lot harder than then rest of the economy. In fact, the new tech outfits will crash a lot harder than old tech (Intel/Oracle/HP/IBM).
- As we know, most of these new tech companies have nearly $0 sales, let alone profits. The valuations is mostly based on hope.
- I recall the 2000-2002 tech bust very clearly. In 2002, it felt like nuclear winter here in the valley. Everyone was absolutely dazed and shell shocked. The rest of the country wasn't in
anywhere near as bad a shape in 2002.

We have to agree to disagree on this one :)
Ok we disagree.

I don't think the good valuations here are only driven by the tech bubble. Yes, the tech growth definitely helps prices, no doubt, but the area has so many of its own draws (weather and nature in particular, but also high education and multiculturalism) that it would be considered an extremely desirable place to live even without the tech industry.

The argument you've made has been made by countless people who have 'waited to buy for the bubble to pass' here for the past 30 years, and it has yet to happen. Not saying it's impossible, but by now, there are so many other things to Silicon valley that it's far, far from being a one-trick pony, unlike the new developments in the middle of the desert that really are one-trick ponies looking for a bubble.

If you think housing prices from Palo Alto to Campbell are going to drop 10-15% or more in the next few years, especially if the rest of the country is not dropping, I'd love to bet against you.


People should've bought during 2009-2012!
lightheir
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Re: Life in the Bay Area and housing costs

Post by lightheir »

fareastwarriors wrote:
lightheir wrote:
cheapskate wrote:
lightheir wrote: If/when the select areas of the S Bay hit the ceiling, it is almost certain that most of the the entire country will be hard harder first.
I don't see why the rest of the country will be hit harder first.

- The current Bay Area Boom (Bubble) is driven by (a) soaring internet and social media valuations (b) soaring IPO valuations (c) soaring startup valuations. Airbnb was valued at $10B.
Clearly this has to burst. There is a dramatic skew in overvaluations of Silicon Valley (new tech if you will) companies compared to the rest of the stock market. This tells me at least
that Bay Area new tech companies could crash a lot harder than then rest of the economy. In fact, the new tech outfits will crash a lot harder than old tech (Intel/Oracle/HP/IBM).
- As we know, most of these new tech companies have nearly $0 sales, let alone profits. The valuations is mostly based on hope.
- I recall the 2000-2002 tech bust very clearly. In 2002, it felt like nuclear winter here in the valley. Everyone was absolutely dazed and shell shocked. The rest of the country wasn't in
anywhere near as bad a shape in 2002.

We have to agree to disagree on this one :)
Ok we disagree.

I don't think the good valuations here are only driven by the tech bubble. Yes, the tech growth definitely helps prices, no doubt, but the area has so many of its own draws (weather and nature in particular, but also high education and multiculturalism) that it would be considered an extremely desirable place to live even without the tech industry.

The argument you've made has been made by countless people who have 'waited to buy for the bubble to pass' here for the past 30 years, and it has yet to happen. Not saying it's impossible, but by now, there are so many other things to Silicon valley that it's far, far from being a one-trick pony, unlike the new developments in the middle of the desert that really are one-trick ponies looking for a bubble.

If you think housing prices from Palo Alto to Campbell are going to drop 10-15% or more in the next few years, especially if the rest of the country is not dropping, I'd love to bet against you.


People should've bought during 2009-2012!

Actually, people should have bought WHENEVER, but EARLIER in that area I'm referring to. You would have STILL gained home value in Palo Alto in 2009-2012, and then STILL gotten the 20% jump immediately afterwards. Same for Mountain View, Los Altos, etc, of the heart of Silicon Valley. You would have made more money even had you bought that house at the peak of the bubble had you managed to buy then.

As well, to clarify - do NOT confuse the wealth of Apple, Google corporations with wealth spread across the employeees. The average wage of a Silicon Valley engineer is just slightly higher than that of any other engineer. Adjusted for cost of living, it probably works out to lower. The huge wealth of Apple, Google is held by the corporation (145 billion in Apple's case), NOT by the employees. Even those crazy rich IPOs like WhatsApp go to a vanishingly few number of people like .0001% if not less. These IPO-wealthy gazillionaires are NOT the ones driving up home prices as there are simply too few of them - it's the 'normal' people who see enough value in Silicon Valley to be willing to pay a premium to live there. These are mostly hardworking day-job folks, not uberwealthy business magnates.
Last edited by lightheir on Fri Apr 11, 2014 12:05 pm, edited 2 times in total.
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HomerJ
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Re: Life in the Bay Area and housing costs

Post by HomerJ »

lightheir wrote:If/when the select areas of the S Bay hit the ceiling, it is almost certain that most of the the entire country will be hard harder first. Sure, it may stall out, but you can be sure that other areas will stall out faster.
Why do you say that? Serious question... I don't see why other areas of the country that are growing slowly would have to be hit harder than the Bay Area.
freddie
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Re: Life in the Bay Area and housing costs

Post by freddie »

And what happened to housing prices in 2000-2002 when the dot com bubble burst:) Maybe it is a bubble. Maybe it is just an adjustment of prices to a new reality and after these gains prices will go back to appreciating at inflation+1%. I wouldn't hazard a guess.
cheapskate wrote:
lightheir wrote: If/when the select areas of the S Bay hit the ceiling, it is almost certain that most of the the entire country will be hard harder first.
I don't see why the rest of the country will be hit harder first.

- The current Bay Area Boom (Bubble) is driven by (a) soaring internet and social media valuations (b) soaring IPO valuations (c) soaring startup valuations. Airbnb was valued at $10B.
Clearly this has to burst. There is a dramatic skew in overvaluations of Silicon Valley (new tech if you will) companies compared to the rest of the stock market. This tells me at least
that Bay Area new tech companies could crash a lot harder than then rest of the economy. In fact, the new tech outfits will crash a lot harder than old tech (Intel/Oracle/HP/IBM).
- As we know, most of these new tech companies have nearly $0 sales, let alone profits. The valuations is mostly based on hope.
- I recall the 2000-2002 tech bust very clearly. In 2002, it felt like nuclear winter here in the valley. Everyone was absolutely dazed and shell shocked. The rest of the country wasn't in
anywhere near as bad a shape in 2002.

We have to agree to disagree on this one :)
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HomerJ
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Re: Life in the Bay Area and housing costs

Post by HomerJ »

lightheir wrote:I don't think the good valuations here are only driven by the tech bubble. Yes, the tech growth definitely helps prices, no doubt, but the area has so many of its own draws (weather and nature in particular, but also high education and multiculturalism) that it would be considered an extremely desirable place to live even without the tech industry.
Tech is where is the money is coming from... Doesn't matter how nice the weather and views are... Houses won't sell for 1.5 million if people aren't making the money. Tech industry appears to be close to bubble territory. If the tech industry falters, the housing market in Silicon Valley will falter.
cheapskate
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Re: Life in the Bay Area and housing costs

Post by cheapskate »

fareastwarriors wrote: People should've bought during 2009-2012!
I bought in the Cupertino area in 2011, and by sheer luck seemed to have timed the buy at the bottom. I also nearly doubled the square footage (remodel) before home building costs here went way up, so I have nothing to complain about :)

But I certainly am not expecting that I will make any money off it. Partly because I have no plans to sell it and partly because my expectation is that my home will barely keep apace with inflation (since things are in such a bubble right now).

I would certainly not buy right now.
lightheir
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Re: Life in the Bay Area and housing costs

Post by lightheir »

HomerJ wrote:
lightheir wrote:If/when the select areas of the S Bay hit the ceiling, it is almost certain that most of the the entire country will be hard harder first. Sure, it may stall out, but you can be sure that other areas will stall out faster.
Why do you say that? Serious question... I don't see why other areas of the country that are growing slowly would have to be hit harder than the Bay Area.
We can agree to disagree.

I'm too far off the OP's topic now so I'll stop here. Suffice to say, I lived 30 years outside of CA, then moved here. I have seen enough of the Bay Area's advantages that I'm convinced this is the reality, and history of real estate prices here are completely on my side on this one, so I'm not alone. Yes, it sounds a bit 'wishful thinking' but I can assure you I'm by no means a Bay Area booster or wishful thinker and I actually strongly dislike real estate investing (I don't invest in it at all) because of the misplaced hopes so many people have on their houses in the US, but it's what I'm seeing, both in my own eyes and in the data. I often wish it wasn't this way, as it creates such a high cost barrier to entry to the area (as the OP is finding) and many perfectly excellent young families are turned away because housing prices are so prohibitive. But it is what it is - like anyone else, you're more than able to 'wait for the next bay area downturn' and come in to buy and flip for a quick buck. Good luck with that.
lightheir
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Re: Life in the Bay Area and housing costs

Post by lightheir »

cheapskate wrote:
fareastwarriors wrote: People should've bought during 2009-2012!
I bought in the Cupertino area in 2011, and by sheer luck seemed to have timed the buy at the bottom. I also nearly doubled the square footage (remodel) before home building costs here went way up, so I have nothing to complain about :)

But I certainly am not expecting that I will make any money off it. Partly because I have no plans to sell it and partly because my expectation is that my home will barely keep apace with inflation (since things are in such a bubble right now).

I would certainly not buy right now.
Zillow your house. I'll bet close to 100% your Zillow price went up over 10% compared to 2011, and closer to 15-20% unless something bad happened to your specific property.

I would also not buy now, but as said before, I've said that pretty much every year before, including 2011, and those prognostications have all turned out dead wrong as it's gone up every year, both before and after.
Bungo
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Re: Life in the Bay Area and housing costs

Post by Bungo »

Buy during a dip if possible. Contrary to what some have written above, Silicon Valley most definitely has a cyclic real estate market. There was a substantial price decline from 2008-2011 (and an earlier one following the tech bust). People did indeed lose their houses to foreclosure or short sales, even supposedly intelligent tech workers - I watched several co-workers go through this after overpaying during 2006-2008 and using risky loans. They overextended themselves when credit was loose, and couldn't hold on until prices came back.

If you buy during a down period, you get more bang for your buck and you can even get seller concessions. This is in stark contrast with today's market where bidding wars are the norm and prices have jumped 25-30% in the past two years.

In any case, buy only if you can comfortably afford it and owning a house makes sense for your lifestyle and career plans.
ThatGuy
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Re: Life in the Bay Area and housing costs

Post by ThatGuy »

It depends where you buy. As stated earlier, the heart of the Valley, like in Palo Alto, just didn't drop in recent memory. Play with this graph:

http://www.zillow.com/palo-alto-ca/home-values/

But look at median sales price. Prices didn't really drop in 2008-2011, and I can tell you from anecdotal experience that prices just kept going up during the recession. I can't find numbers for 2001 but my recollection is that the growth slowed, but Palo Alto did not drop in price.

Even Oakland is gentrifying like gang busters, which should help in future downturns.
Work is the curse of the drinking class - Oscar Wilde
Bungo
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Re: Life in the Bay Area and housing costs

Post by Bungo »

Palo Alto, Cupertino, and a few other very expensive locales weathered the storm better than most. But these are a relatively small fraction of the population of Silicon Valley, and unlikely to be within reach for government workers such as the OP. The "working class" towns such as Sunnyvale, Santa Clara, San Jose, Campbell all had significant price declines from 2008-2011. They have mostly bounced back now, but there was definitely a nice buying opportunity for a few years.
cheapskate
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Re: Life in the Bay Area and housing costs

Post by cheapskate »

lightheir wrote: Zillow your house. I'll bet close to 100% your Zillow price went up over 10% compared to 2011, and closer to 15-20% unless something bad happened to your specific property.
It is over 20%, in fact. I did not Zillow, but on my street, smaller homes (on smaller lots) in similar condition to the home I bought in 2011 have sold in the last 6 months for 20% more than what I paid. I should be thrilled, but in reality I am expecting things to revert to the mean :)

With each sale, we ask ourselves "who is paying so much for these houses ?". The demographic moving in is either (dual tech income) Asian/Indian couples with kids or Chinese all-cash investors that buy and rent the home out (for what seems like -ve cashflow). Both types of buyers are drawn in because of the good reputation of Cupertino public schools. We know a few of these dual tech income recent buyers - they are financially stretched to the max - they'd have to foreclose if husband or wife were to lose their job and not find one soon. So at least this class of buyers is very dependent on the health of tech employment.
cowboysFan
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Re: Life in the Bay Area and housing costs

Post by cowboysFan »

lightheir wrote:As said:

- Great weather
- Great beauty
- Great schools
- Multicultural area
- etc

Again, outside of Norcal, I am 100% with you. I consider real estate to NOT be a 'investment' and more of a cost. But I would make exception for Norcal bay area. If the area doesn't even dip during the big recent housing recession, and actually INCREASES in price when the rest of the country is -20% if not more on average, I'd be willing to bet on it again, as many of the reasons of why people buy in the area will still be here for a long, long time.

Your comment about 'it's hitting the ceiling' has been said by people here for the past 30 years, and is old news, despite sounding very reasonable.
30 years ago was before SV got flooded with new money from tech startups. I can see how those factors led to SV's current high real estate prices, but I don't see how they can justify SV real estate rising faster than real estate nationwide in the future. By now, all those factors should be fully reflected in the price of real estate.
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