Bay Area Real Estate

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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unclescrooge
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Re: Bay Area Real Estate

Post by unclescrooge » Wed Oct 04, 2017 7:40 pm

HomerJ wrote:
Wed Oct 04, 2017 5:25 pm
visualguy wrote:
Wed Oct 04, 2017 5:13 pm
HomerJ wrote:
Wed Oct 04, 2017 4:45 pm
There are not enough high income people to support that.
I think that's where you're wrong. Why wouldn't the income and wealth (such as stock holdings and RSUs and foreign money) of enough people in the area keep up with the rate of growth of the stock market?
Because the companies that pay those people are not run by morons.

If housing costs 100x, then they will have to pay programmers at least 50x the salary. Right now, they pay programmers 2.5x as much, and the programmers get 1/2 the house they could afford elsewhere (which makes up for the 5x differential in housing).

If housing continues to go up at 10% a year, they will have to pay programmers even more. At some point (3x salary? 5x salary?, 10x salary?), startups and even established companies will migrate to other areas where they can get the the same good people but paying 1/3 or 1/5 or 1/10 as much.

It's happening NOW.

https://www.cnbc.com/2017/03/17/silicon ... attle.html

As the differential grows, more companies and people will leave.

100x will never happen. 5x is already too much. At some point, it will tip over. It cannot grow to the sky forever. So you CANNOT think that SF real-estate will grow at 10% forever. This is basic logic. There will not be a point where SF is worth more than the rest of the country combined.

But maybe it will double again. Maybe it's a good investment for a few more years, or a decade or two. Or maybe it will crash tomorrow. But the next 40-50 years will not return the same as the last 40-50 years. The entire U.S. is only worth $30 trillion. SF is currently at $1 trillion. 7 doubles over the next 50 years will make SF worth $30 trillion all by itself (in today's dollars).
Do you have similar numbers for Vancouver vs Canada?

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Hyperborea
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Re: Bay Area Real Estate

Post by Hyperborea » Wed Oct 04, 2017 8:00 pm

visualguy wrote:
Wed Oct 04, 2017 5:13 pm
[A more likely scenario, in my opinion, is that the core parts of the Bay Area will continue to appreciate at the rates that we've seen over the last few decades, with lower and more volatile (but still high) appreciation in the periphery.
The spread of really high prices and the disappearance of anything dilapidated has continued to spread out from Palo Alto, roughly the epicentre of all this. At one time, maybe 15-20 years ago, Mountain View, the town over, was the place to buy because Palo Alto was too expensive. Then it was Sunnyvale. Now it's being said that Santa Clara is the new Sunnyvale. The prices in Sunnyvale haven't been exactly low before but we are now starting to see some steep rises in these other peninsula towns. You can see old dilapidated strip malls along the main thoroughfare of the peninsula, El Camino Real, being torn down and new multi-story rentals with commercial on the ground floor replacing them.

runner540 wrote:
Wed Oct 04, 2017 5:49 pm
The Paragon site has an interesting chart showing that this year for the first time since 2008/2009, employment declined in the Bay Area...any locals that can provide more background?
I'm pretty clear on my LinkedIn profile that I'm retired yet I'm still getting recruiters banging on my door pretty constantly. From a whole range of companies ranging from the biggies to stealth startups with big money behind them. I hear similar from my non-retired friends too. Seems like a lot of people are hiring or at least trying to.

Another contra-indicator is the traffic. We're back to the h#ll of non-summer traffic again. I just got back from a lesson and had to wade through the traffic. It's still horrible. There's no sign of lighter employment out there.

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HomerJ
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Re: Bay Area Real Estate

Post by HomerJ » Wed Oct 04, 2017 8:21 pm

https://www.cbsnews.com/media/americas- ... he-coasts/
Hear the words "tech economy," and you're likely to think of the major cities that house the country's biggest companies: the San Francisco Bay area, Seattle, New York, possibly Boston.

But if you're looking for a job in tech, you might have a better chance looking elsewhere.

The places with the biggest growth in the sector aren't on the coasts, but are mostly small and midsize cities in the U.S. interior.

Job-listing company ZipRecruiter looked at a year's worth of job postings for technical jobs and ranked the 20 locations that had the biggest growth. The results were surprising. Cincinnati, Ohio, was No. 11 on the list, with a 96 percent increase in tech job listings from last year. Cleveland and Columbus were Nos. 12 and 14, respectively, each with growth rates over 80 percent.

ZipRecruiter defined a technical job by its content, not its employer. For example, receptionists working for software companies didn't count as tech jobs, but network administrators did, regardless of what company they worked for.

"We're getting to a moment where our largest cities are becoming almost an untenable living situation for young people. They're so expensive and crowded. In order to live somewhere affordable, you have to live one-and-a-half hours away from the city center," said Cathy Barrera, chief economic adviser for ZipRecruiter.

"A lot of younger people are looking to move to more manageable cities," she added.

These cities fit the bill. With populations between 100,000 and 1.5 million, in most of them a median house can be had for $200,000 -- affordable on a tech salary.
#3 is Phoenix, a great city that I may move to soon:
Phoenix has the advantage of being relatively close to California and the West Coast's tech ecosystem as well as being just a few hours away from the Mexico border. And housing is still more affordable than in many parts of the country, with the median house selling for just $216,000
#5 is my current home town, Kansas City:
The city straddling the Missouri-Kansas border has seen 157 percent growth in year-over-year listings for tech jobs. Project managers and network engineers are the most in-demand jobs, according to ZipRecruiter.

Sprint (S), Garmin (GRMN), Cerner (CERN), Bushnell and HNTB, an infrastructure planning company, are all major employers in the region. Kansas City proper has a population approaching half a million, with 2 million people in the greater metro region. And it remains affordable, especially on a tech salary: Median rent is below $900, and the median house costs $207,000.

visualguy
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Re: Bay Area Real Estate

Post by visualguy » Wed Oct 04, 2017 8:24 pm

Hyperborea wrote:
Wed Oct 04, 2017 8:00 pm
The spread of really high prices and the disappearance of anything dilapidated has continued to spread out from Palo Alto, roughly the epicentre of all this. At one time, maybe 15-20 years ago, Mountain View, the town over, was the place to buy because Palo Alto was too expensive. Then it was Sunnyvale. Now it's being said that Santa Clara is the new Sunnyvale. The prices in Sunnyvale haven't been exactly low before but we are now starting to see some steep rises in these other peninsula towns. You can see old dilapidated strip malls along the main thoroughfare of the peninsula, El Camino Real, being torn down and new multi-story rentals with commercial on the ground floor replacing them.
By periphery I meant the more distant parts of the East Bay as well as Morgan Hill and Gilroy, and places on the Santa Cruz mountains and west of the mountains. Appreciation isn't as good in those areas, they tend to be more volatile, and I think that will continue. The domino effect that you're describing is real, and the Sunnyvale jump is indeed happening in Santa Clara now. There are definitely opportunities to make money on Bay Area real estate if you have the capital, but it's serious capital.

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Hyperborea
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Re: Bay Area Real Estate

Post by Hyperborea » Wed Oct 04, 2017 8:37 pm

HomerJ wrote:
Wed Oct 04, 2017 8:21 pm
ZipRecruiter defined a technical job by its content, not its employer. For example, receptionists working for software companies didn't count as tech jobs, but network administrators did, regardless of what company they worked for.
I'm sorry but counting "network administrator" at a non-tech company and comparing it to many of the heavy-lifting tech jobs is like comparing pay day loan tellers in Montana with hedge fund managers because they are both in finance. Not in the same league.
HomerJ wrote:
Wed Oct 04, 2017 8:21 pm
<snip> a lot of low housing prices
Pretty meaningless without salary levels (base + bonus + stock) to compare against.

roamin survivor
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Re: Bay Area Real Estate

Post by roamin survivor » Wed Oct 04, 2017 8:39 pm

fnmix wrote:
Wed Oct 04, 2017 6:53 pm
While Stanford and Berkeley are major contributors (I have an affiliation with one of these), there are other educational institutions that have contributed over the years: UC Davis (Agg technology), UCSF (Medical advances), UC Hastings (Law), Santa Clara University (oldest operating institute in California for higher-ed). I am less familiar with other schools in the area (UC Santa Cruz, CMU Silicon Valley, Wharton west) but these too contribute.
visualguy wrote:
Wed Oct 04, 2017 6:38 pm
To be accurate, San Jose isn't really where it happened. It was the peninsula and south bay. That area had Stanford University, and Berkeley not too far. Galveston has a port and hurricanes...
I was using Galveston as a bad example. Maybe a better one would be the new tech center being Eugene, OR where the University of Oregon decided to create a hard light program that resulted in the birthplace of the newest #1 hard light tech company that makes $1 trillion and explodes the city and surrounding area to a population of 5 million.

Point though was that a LCOL region can boom with the right conditions with the local higher education providing the knowledge base and supply as a major factor for a boom and CA with its college system really contributed to the success of the Bay Area and state.

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Watty
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Re: Bay Area Real Estate

Post by Watty » Wed Oct 04, 2017 8:54 pm

mervinj7 wrote:
Wed Oct 04, 2017 5:35 pm
Watty wrote:
Wed Oct 04, 2017 4:42 pm
That is a bad analogy.

Over the long term the value of stock funds grow mostly because companies earn a profit and either pay more dividends that can be reinvested, invest the profit and grow, or do stock buybacks. There is no limit on how much the value of the companies and stock index can grow and it can rationally double in value in real terms every 20 years or so.

A million dollar house in the Bay Area might 40 years old and be a 1,000 square foot cottage. 20 years from now it will still be a 1,000 square foot cottage, but it will be 60 years old. Will it be worth two million inflation adjusted dollars by then? There is now way to know but at some point it will not be able to increase any more.
The house I currently rent (for a short while longer) is almost a 100 years old and about 1200 sq ft. It was likely worth much less than a $1M 20 years ago but now its worth $2.3M. The next person who buys it will likely tear it down (assuming there are no heritage laws protecting it) and rebuild it. Of course, there's no way to know whether it will double in another 10 years but its worth has nothing to do with the house. Generally, land will appreciate while buildings will depreciate.
That is a lot different than a stock fund where the earnings of the companies result in long term growth, not just a perpetual increase in demand.

That is also a big assumption that the land will always appreciate. I've been researching my family tree and I have found land records from 200 years ago showing where land has been purchased. Even with modest steady appreciation that land would have become astronomically expensive today. None if that land is still in the family as far as I know but from what I know of the area the land is still modestly priced.

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Re: Bay Area Real Estate

Post by fnmix » Wed Oct 04, 2017 10:02 pm

I don't think the emphasis here is on "always" for appreciation.

Practically nobody can look ahead 200 years. it is very unlikely that a single country's stock index is guaranteed (or even has a high likelhood) to perform well over that period. Just like it is very unlikely that a single geo is going to have guaranteed appreciation of land prices over the same period.

In any case, for many (most) people on this forum, stocks and real-estate (as in the house that they live in) is not an "OR" question but an "AND" one.
Watty wrote:
Wed Oct 04, 2017 8:54 pm
<SNIP>

That is also a big assumption that the land will always appreciate. I've been researching my family tree and I have found land records from 200 years ago showing where land has been purchased. Even with modest steady appreciation that land would have become astronomically expensive today. None if that land is still in the family as far as I know but from what I know of the area the land is still modestly priced.
Last edited by fnmix on Wed Oct 04, 2017 10:09 pm, edited 1 time in total.

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Re: Bay Area Real Estate

Post by fnmix » Wed Oct 04, 2017 10:08 pm

HomerJ wrote:
Wed Oct 04, 2017 4:45 pm

Interest rates going up is not exactly a black swan event. As prices go up, and higher interest rates make mortgages more expensive, the demand part of the equation will decrease.

<SNIP>
In the context of this thread, there is nothing special about the Bay Area wrt interest rates. Sure the interest rates will move up at some time in the future - that it will happen is predictable (and not a black swan). Will it hurt the Bay Area any more than any other geo in the US? Who knows? One can argue that given the high proportion (at least anecdotally) of transactions that happen with all cash or a high cash component in the bay area, real estate in the bay area may be more resilient that the average geo in the US.

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HomerJ
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Re: Bay Area Real Estate

Post by HomerJ » Wed Oct 04, 2017 11:22 pm

fnmix wrote:
Wed Oct 04, 2017 10:08 pm
HomerJ wrote:
Wed Oct 04, 2017 4:45 pm

Interest rates going up is not exactly a black swan event. As prices go up, and higher interest rates make mortgages more expensive, the demand part of the equation will decrease.

<SNIP>
In the context of this thread, there is nothing special about the Bay Area wrt interest rates. Sure the interest rates will move up at some time in the future - that it will happen is predictable (and not a black swan). Will it hurt the Bay Area any more than any other geo in the US? Who knows? One can argue that given the high proportion (at least anecdotally) of transactions that happen with all cash or a high cash component in the bay area, real estate in the bay area may be more resilient that the average geo in the US.
San Francisco actually has one of the lowest percentages of all-cash offers. Most cash-offers for homes are in Florida.

http://www.sfchronicle.com/business/net ... 682285.php

Higher interest rates will absolutely lower demand for housing since less people will be able to afford $1 million mortgages.

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HomerJ
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Re: Bay Area Real Estate

Post by HomerJ » Wed Oct 04, 2017 11:43 pm

Hyperborea wrote:
Wed Oct 04, 2017 8:37 pm
HomerJ wrote:
Wed Oct 04, 2017 8:21 pm
ZipRecruiter defined a technical job by its content, not its employer. For example, receptionists working for software companies didn't count as tech jobs, but network administrators did, regardless of what company they worked for.
I'm sorry but counting "network administrator" at a non-tech company and comparing it to many of the heavy-lifting tech jobs is like comparing pay day loan tellers in Montana with hedge fund managers because they are both in finance. Not in the same league.

Yeah not the greatest article... No idea on their methods for calculating "IT jobs".

But I did think this rang true
We're getting to a moment where our largest cities are becoming almost an untenable living situation for young people. They're so expensive and crowded. In order to live somewhere affordable, you have to live one-and-a-half hours away from the city center
We've heard that a lot from posters here about the terrible commute and traffic problems in San Francisco.
HomerJ wrote:
Wed Oct 04, 2017 8:21 pm
<snip> a lot of low housing prices
Pretty meaningless without salary levels (base + bonus + stock) to compare against.
A decent programmer (with experience) in KC makes around $100k-$130k. A very good programmer, one that would be hired by Google, etc. could make $150k, maybe even $200k (at certain companies who are smart enough to value that) in KC.

Quick internet search tells me those numbers are only a little lower than the average Google employee, although I'm sure their rockstar programmers make a ton more.

The big difference is that you can actually buy a house in KC. A NICE house, not a 1000 square-foot, 60-year old shack.

And you don't have to go to the Midwest. Plenty of places on both coasts or in the mountains or near lakes or in cities that are nearly as pretty as San Francisco, but cost 5x less.

Five times more is pretty significant. Compare $5000 rent to $1000 rent, or $1.5 million to $300,000 for a nice house.

If it keeps growing faster than the rest of the country, it will be 10x more at some point, and then 15x more. People WILL move at some point.

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Re: Bay Area Real Estate

Post by visualguy » Thu Oct 05, 2017 12:01 am

Where would a very good programmer work in KC? How many such employers are there? What happens if you want to start a company? Venture capital? Talent?

You are missing the RSUs and bonuses which double the income (or more) of many strong engineers in the Bay Area these days.

Also, a fast appreciating real estate market is actually financially good for owners, so once you're able to buy into it, you actually benefit from it. You lose that in KC.

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HomerJ
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Re: Bay Area Real Estate

Post by HomerJ » Thu Oct 05, 2017 9:20 am

visualguy wrote:
Thu Oct 05, 2017 12:01 am
Where would a very good programmer work in KC? How many such employers are there? What happens if you want to start a company? Venture capital? Talent?
First off, I'm not talking just about KC. 95% of the U.S. is cheaper than NYC/SF/LA. California only has 10% of the Fortune 500 companies, NY has another 10%. 80% are elsewhere... Plenty of those kind of jobs outside Silicon Valley.

Venture capital is indeed harder to find outside of Silicon Valley. There are indeed real advantages to living there. But did you know 90% of 1-billion dollar plus businesses in this country were built without venture capital? I worked at a start-up in Kansas City that made the founders very rich. So rich that they have started their own venture capital fund for Mid-America start-ups. But they built their company on their own.

And they hired some talent locally, took only the best they could find, and paid them very well. Some they actually poached from SV. Got them to move back home, paid them somewhat less than SV, but they still did better because housing is so much cheaper. (Those smart people who go to MIT and Stanford and then on to SV come from all other parts of the country you know).
You are missing the RSUs and bonuses which double the income (or more) of many strong engineers in the Bay Area these days.
That is correct. That is how Bay Area engineers afford to pay 5x the cost for housing. (Some of them) get 2x-2.5x the pay, and then they get 1/2 the house for their money.

So what happens when housing costs 6x, 7x, 10x as much as other areas? Will companies pay their engineers 5x more than they would have to elsewhere? Or will they expect them to live in 1/4 of the house, or maybe commute 2+ hours?
Also, a fast appreciating real estate market is actually financially good for owners, so once you're able to buy into it, you actually benefit from it. You lose that in KC.
Oh absolutely. If the real estate market continues to fast appreciate, one should sink every cent into housing in SF. But basic economics, basic math, basic common sense shows that real estate in SF cannot continue to appreciate far faster than the rest of the country forever.

Maybe for another 10-20 years? Sure. I don't know where the tipping point is. But maybe for only another 1-3 years? I don't know. You don't know. You act like you know, but you don't know.
Last edited by HomerJ on Thu Oct 05, 2017 10:17 am, edited 1 time in total.

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HomerJ
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Re: Bay Area Real Estate

Post by HomerJ » Thu Oct 05, 2017 9:59 am

Here's another interesting article

https://www.cnbc.com/2017/05/12/heres-w ... alley.html
Still, Silicon Valley obviously maintains an appeal for many would-be entrepreneurs, as it offers deep funding and talent reservoirs that are largely unrivaled. But as people now have unprecedented access to technology and resources from just about anywhere in the globe, that preeminence may be increasingly less important.
Telecommuting could be a big game-changer.

But look, SV may be a great place for a real-estate investment for years to come still. I don't know. SV still "offers deep funding and talent reservoirs that are largely unrivaled." But one more double in real-estate values will make SV housing cost 10x as much as the rest of the country. Another double will make housing 20x as expensive as the rest of the country. It will tip over someday.

SV Housing doesn't have to crash, by the way. It could stabilize at 6x, 7x in 2-3 years, and then just be stagnant for a decade or two. But 10% annual increases going forward long-term is very unlikely.

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Re: Bay Area Real Estate

Post by mervinj7 » Thu Oct 05, 2017 10:48 am

HomerJ wrote:
Thu Oct 05, 2017 9:59 am
SV Housing doesn't have to crash, by the way. It could stabilize at 6x, 7x in 2-3 years, and then just be stagnant for a decade or two. But 10% annual increases going forward long-term is very unlikely.
I was looking through the thread again, I don't think anybody is saying that the RE here will continue to appreciate 10% YoY. And definitely no one thinks it will double every 7-10 years for the next 200 years. In any case, OP's original question is whether he/she should go through with buying in this "crazy market." If they are still on this thread, let's help them with that question. Otherwise, this will end up like every other Bay Area real estate thread on BH for the last 7 years, with the majority of posters arguing against buying with a small minority who live here saying to buy if you can (conservatively) afford it (e.g. min 20% down, not using RSUs for loan qualification, low PITI to income ratio even after maxing out tax-deferred accounts, 1 year of reserves in cash equivalent).

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HomerJ
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Re: Bay Area Real Estate

Post by HomerJ » Thu Oct 05, 2017 11:13 am

mervinj7 wrote:
Thu Oct 05, 2017 10:48 am
HomerJ wrote:
Thu Oct 05, 2017 9:59 am
SV Housing doesn't have to crash, by the way. It could stabilize at 6x, 7x in 2-3 years, and then just be stagnant for a decade or two. But 10% annual increases going forward long-term is very unlikely.
I was looking through the thread again, I don't think anybody is saying that the RE here will continue to appreciate 10% YoY. And definitely no one thinks it will double every 7-10 years for the next 200 years.
visualguy does.
Not sure why people can accept that the stock market can do something like double in value every 10 years on average, but cannot accept that real estate in the economically strongest and most attractive areas in the US is likely to do something similar.
There was also another thread where another poster said it's easy to get rich quick with zero risk. Just invest in SF real-estate, sit back, and retire in 3-5 years. My apologies for carrying over some of my frustration in THAT thread to this thread.

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Hyperborea
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Re: Bay Area Real Estate

Post by Hyperborea » Thu Oct 05, 2017 11:54 am

HomerJ wrote:
Thu Oct 05, 2017 11:13 am
mervinj7 wrote:
Thu Oct 05, 2017 10:48 am
HomerJ wrote:
Thu Oct 05, 2017 9:59 am
SV Housing doesn't have to crash, by the way. It could stabilize at 6x, 7x in 2-3 years, and then just be stagnant for a decade or two. But 10% annual increases going forward long-term is very unlikely.
I was looking through the thread again, I don't think anybody is saying that the RE here will continue to appreciate 10% YoY. And definitely no one thinks it will double every 7-10 years for the next 200 years.
visualguy does.
Not sure why people can accept that the stock market can do something like double in value every 10 years on average, but cannot accept that real estate in the economically strongest and most attractive areas in the US is likely to do something similar.
There was also another thread where another poster said it's easy to get rich quick with zero risk. Just invest in SF real-estate, sit back, and retire in 3-5 years. My apologies for carrying over some of my frustration in THAT thread to this thread.
And really the return on real estate is just icing on the cake. The real return of buying in the Bay Area is to be able to live and work here. It is investing in the return on your own talent and work. Sure, you can rent but the cost of owning over a 10-20 year period has been cheaper than renting.

Again, the suggestions to get a tech job elsewhere is mostly the same as suggesting that NY high finance folks get a job at a bank in Des Moines so they can buy a cheaper house. The range of tech jobs available is huge. If you work for a startup and it goes bust then there's another job around the corner even in some pretty specialized areas. If you've moved to a smaller regional tech centre then you may be working for the only company that has jobs that interest you. Sure, you could take a generic programming job if that fails (not just company failure but career blockage or lack of interesting projects) but it won't pay as well and may not be as intellectually rewarding. By moving to those locations you have hitched your wagon to the only horse in town.

Heck, Walmart, yes Walmart, has a tech centre here in Silicon Valley. If the Valley is so "yesterday" to so many (at least here on this thread) then why didn't they do that in Bentonville Arkansas?
Last edited by Hyperborea on Thu Oct 05, 2017 12:24 pm, edited 1 time in total.

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Re: Bay Area Real Estate

Post by fnmix » Thu Oct 05, 2017 12:24 pm

Comparing San Francisco (http://www.jackandpatty.com/2016/03/03/ ... francisco/) to New York City (https://www.nytimes.com/2016/07/24/real ... later.html): San Fransico all cash offers ~37%, NYC All cash offers ~44%. Different, but not different.

I can't comment on Florida as I have never lived there and have no specific expertise in Florida. I have lived in the NYC metro area and am familiar with the dynamics. The Bay Area feels similar to NYC wrt real-estate, although the source of wealth and the specific drivers for higher prices is different.
HomerJ wrote:
Wed Oct 04, 2017 11:22 pm

San Francisco actually has one of the lowest percentages of all-cash offers. Most cash-offers for homes are in Florida.

http://www.sfchronicle.com/business/net ... 682285.php

Higher interest rates will absolutely lower demand for housing since less people will be able to afford $1 million mortgages.
Last edited by fnmix on Thu Oct 05, 2017 12:35 pm, edited 2 times in total.

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Re: Bay Area Real Estate

Post by ray.james » Thu Oct 05, 2017 12:31 pm

HomerJ wrote:
Thu Oct 05, 2017 9:59 am
But look, SV may be a great place for a real-estate investment for years to come still. I don't know. SV still "offers deep funding and talent reservoirs that are largely unrivaled." But one more double in real-estate values will make SV housing cost 10x as much as the rest of the country. Another double will make housing 20x as expensive as the rest of the country. It will tip over someday.

SV Housing doesn't have to crash, by the way. It could stabilize at 6x, 7x in 2-3 years, and then just be stagnant for a decade or two. But 10% annual increases going forward long-term is very unlikely.
I personally feel this is how it will end up. Also, the price drops will become more immune to recessions in increasingly larger 'prime' areas as time goes. Looking at how Hong Kong, Mumbai, Zurich, Oslo have fared over centuries it will stabilize at some multiplier and will remain increasingly immune to major drops in recessions over time. The valley is still a young-ling even compared to NewYork.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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Re: Bay Area Real Estate

Post by fnmix » Thu Oct 05, 2017 12:33 pm

Hyperborea wrote:
Thu Oct 05, 2017 11:54 am
And really the return on real estate is just icing on the cake. The real return of buying in the Bay Area is to be able to live and work here. It is investing in the return on your own talent and work. Sure, you can rent but the cost of owning over a 10-20 year period has been cheaper than renting.

Again, the suggestions to get a tech job elsewhere is mostly the same as suggesting that NY high finance folks get a job at a bank in Des Moines so they can buy a cheaper house. The range of tech jobs available is huge. If you work for a startup and it goes bust then there's another job around the corner even in some pretty specialized areas. If you've moved to a smaller regional tech centre then you may be working for the only company that has jobs that interest you. Sure, you could take a generic programming job if that fails (not just company failure but career blockage or lack of interesting projects) but it won't pay as well and may not be as intellectually rewarding. By moving to those locations you have hitched your wagon to the only horse in town.

Heck, Walmart, yes Walmart, has a tech centre here in Silicon Valley. If the Valley is so "yesterday" to so many (at least here on this thread) then why didn't they do that in Bentonville Arkansas?
This.

OP - if you are still here, re-read the above.

There are a couple of scenarios in which buying in the bay area makes sense. One is that you like tech, are in tech, are relatively young, have an upward pointing career trajectory and expect to stay in the bay area for 10+ (perhaps even 15+ years). Another is that you have already made significant money, like the bay area, and will have a portion of your assets to spare even if you buy a house. (There are other such profiles I am only listing a couple that I have seen first hand).

Buying real-estate here, and sitting back for 3-5 years to let it make money for you (as someone stated earlier in the thread) is likely not going to lead to a good outcome.

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HomerJ
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Re: Bay Area Real Estate

Post by HomerJ » Thu Oct 05, 2017 12:34 pm

fnmix wrote:
Thu Oct 05, 2017 12:24 pm
Comparing San Francisco (http://www.jackandpatty.com/2016/03/03/ ... francisco/) to new york city (https://www.nytimes.com/2016/07/24/real ... later.html): San Fransico all cash offers ~37%, NYC All cash offers ~44%. Different, but not different.

I can't comment on Florida as I have never lived there and have no specific expertise in Florida. I have lived in the NYC metro area and am familiar with the dynamics. The Bay Area feels similar to NYC wrt real-estate, although the source of wealth and the driver for higher prices is different.
HomerJ wrote:
Wed Oct 04, 2017 11:22 pm

San Francisco actually has one of the lowest percentages of all-cash offers. Most cash-offers for homes are in Florida.

http://www.sfchronicle.com/business/net ... 682285.php

Higher interest rates will absolutely lower demand for housing since less people will be able to afford $1 million mortgages.
Well someone is wrong. One newspaper reports one set of numbers, the others report completely different numbers.

Note this part of the sfchronicle story
To make their offers more competitive, some buyers — especially in the Bay Area — make an all-cash offer, often with help from family members. Then, shortly after the purchase, they take out a mortgage.

RealtyTrac analyzed almost 1.5 million homes nationwide purchased with all cash in 2013 and 2014 and found that almost 8 percent subsequently had a mortgage taken out. On average, the loan was recorded about 6½ months after the purchase.

The counties with the highest percentage of post-purchase mortgages were San Francisco (24 percent), followed by Denver County, Colo. (21 percent), Marin (20 percent), and San Mateo and Santa Clara counties (19 percent each).

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Re: Bay Area Real Estate

Post by fnmix » Thu Oct 05, 2017 12:40 pm

Yeah - hard to put full faith in these numbers without running the numbers oneself.

That said, NYTimes reports something very similar about NYC: “Someone puts in an all-cash offer and takes their liquid assets to buy the property for all cash, and then gets preapproval for a loan,” said Bradley Wayman, the mortgage sales director at Citibank in Manhattan. “In many cases, they’ll have a loan in process and close with all cash.”

HomerJ wrote:
Thu Oct 05, 2017 12:34 pm
Well someone is wrong. One newspaper reports one set of numbers, the others report completely different numbers.

Note this part of the sfchronicle story
To make their offers more competitive, some buyers — especially in the Bay Area — make an all-cash offer, often with help from family members. Then, shortly after the purchase, they take out a mortgage.

RealtyTrac analyzed almost 1.5 million homes nationwide purchased with all cash in 2013 and 2014 and found that almost 8 percent subsequently had a mortgage taken out. On average, the loan was recorded about 6½ months after the purchase.

<SNIP>

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Re: Bay Area Real Estate

Post by Watty » Thu Oct 05, 2017 1:05 pm

HomerJ wrote:
Wed Oct 04, 2017 11:43 pm
A decent programmer (with experience) in KC makes around $100k-$130k. A very good programmer, one that would be hired by Google, etc. could make $150k, maybe even $200k (at certain companies who are smart enough to value that) in KC.
It is pretty much the same here in Atlanta but I would agree the the RSU's are generally not anything like what people post about in the Bay Area. My son got a CS degree about five years ago and is working as a software engineer. He and his college friends have no problem with finding interesting new jobs to jump to every few years if they want to. Most of them work at small companies and startups that you would never have hear off. At least one of his friends works in computer security at very large company and apparently get an outrageous amount of pay.

As I said in my prior post if you get paid the big bucks then the housing cost if Bay Area is not a big factor and it can be worthwhile.

The problem is that the Bay Area has a population of about 7 million and I would be surprised if there are even 100,000 people that would really qualify as tech "superstars". As a wild guess I would think that there might be a couple of hundred thousand people that are working in non-superstar tech jobs.

It was a long time ago but in the 1980's I worked at Apple in Cupertino and I would guess that maybe 70% of the employees at Apple back then had jobs like accounting, payroll, sales, corporate IT, purchasing, HR, etc that any large company would have. Of the 30% of that were actually tech employees a lot of those were in more support and staff positions and somewhere around 5% of employees were the actual highly valued tech employees and maybe 1% of them would be considered "superstars". When I was in Silicon Valley I worked at four different companies and the proportions of the real tech workers were similar.

I have no regrets about having worked in Silicon Valley and a lot of what I learned there shaped the rest of my career but even though I was a software developer I was not really a superstar so leaving made a lot of sense to me.

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Re: Bay Area Real Estate

Post by HomerJ » Thu Oct 05, 2017 1:18 pm

Hyperborea wrote:
Thu Oct 05, 2017 11:54 am
Again, the suggestions to get a tech job elsewhere is mostly the same as suggesting that NY high finance folks get a job at a bank in Des Moines so they can buy a cheaper house.
You have a very limited view of the rest of the country.

BATS exchange, which was started and is headquartered in Kansas City suburb, is the 2nd largest stock exchange in the country.
Bats has an 18.4 percent market share, compared with 21.7 percent for NYSE and 18.1 percent for Nasdaq
I just happen to know about that one since it's local.

There are plenty of high-paying finance jobs in other cities besides NY. Charlottesville, Chicago, Austin, even Pittsburgh and St. Louis. NY pays the best of course, but the cost of living is so high that one can do nearly as well in the other cities.

High Frequency Trading firms can be located anywhere. They pay for hosted servers co-locations near the stock exchanges, but the businesses themselves are not all located in NY. There are traders in KC that make as much as NY traders, yet have 1/5 the living expenses.
The range of tech jobs available is huge. If you work for a startup and it goes bust then there's another job around the corner even in some pretty specialized areas. If you've moved to a smaller regional tech centre then you may be working for the only company that has jobs that interest you. Sure, you could take a generic programming job if that fails (not just company failure but career blockage or lack of interesting projects) but it won't pay as well and may not be as intellectually rewarding. By moving to those locations you have hitched your wagon to the only horse in town.
First, most cities have far more than one horse, although less than Silicon Valley, true. Second, no one is "hitched" anymore to a town with the increase in telecommuting jobs, and of course, being willing to move is always an option.

But I understand your point... I'm not saying Silicon Valley is dying, or even in danger of crashing soon.

I'm responding to people who think housing will keep going up like it has in the past. I'm saying there are pressures NOW on SV companies and employees. If housing doubles again, the incentives for people and/or companies to move somewhere else will increase dramatically.

SV real-estate can't keep increasing faster than the rest of the country. That doesn't mean it has to crash. It could stay steady and increase slowly like everyone else for decades to come. It just can't keep growing at the same fast clip it has in the past for too much longer. The imbalances will continue to grow, and people and companies WILL start to balk at paying 10x, 15x, 20x as much as everywhere else.

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Re: Bay Area Real Estate

Post by Hyperborea » Thu Oct 05, 2017 1:56 pm

HomerJ wrote:
Thu Oct 05, 2017 1:18 pm
First, most cities have far more than one horse, although less than Silicon Valley, true. Second, no one is "hitched" anymore to a town with the increase in telecommuting jobs, and of course, being willing to move is always an option.
I keep seeing the telecommuting point being brought up in these types of threads, mostly by you IIRC. This has such a great sound to it and it's always coming real soon now and has been for the last 20-30 years. It hasn't worked out. The tech has gotten better, way better, and will likely continue to do so but it's not the tech, it's the human factors that have stopped it.

There are really only two sorts of long term jobs/types of people that it works for. There's the drudge jobs where you are doing some simple work that doesn't need human interaction. You aren't going to be promoted from there or given really interesting projects. Maybe some types of entry work or sysadmin stuff.

Then there's the mega-super-star type who wants to go live in some remote location and the company desperately wants to keep them so they not only ok it but provide a ton of gear to keep it working. Even these folks commute in on a regular basis to meet face to face.

Finally, there's the people in the middle grounds between those points. They do it for a while and it works ok. But they're not interacting with others in the office. They don't know about any changes happening, the big new projects, having lunches with the people a tier or two above them in the company, mentoring the junior engineers and other corporate "civic duty", having day to day design discussions with other engineers thereby putting them out of the loop on their own projects, etc.. These people are not going to be promoted, get on exciting and rewarding new projects, and when there's a change in management they can be the first on the block. It's a great way to ease into a new location with some residual high income for a few years but I wouldn't count on it lasting longer term. It hasn't for any of my friends/ex-coworkers who've done it.

Where the remote meeting thing can work is in coordination between complete teams in separate locations. The teams are self-sufficient in the own project but use the tech of the team in another location. I've been involved in this kind of work before and it can work because the interactions between the two teams would mostly still be scheduled meetings even if they were co-located. Even still, the remote teams have some of the same issues in being remote depending on the size of the remote location and the importance of their piece of the project(s).
HomerJ wrote:
Thu Oct 05, 2017 1:18 pm
SV real-estate can't keep increasing faster than the rest of the country.
Silicon Valley real estate can increase faster than the rate of the rest of country. It does and can as long as the salaries (in fact total compensation) paid in the Valley increase faster than in the rest of the country and they have. Will they tomorrow? I don't know and neither do you.

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Re: Bay Area Real Estate

Post by wstrdg » Thu Oct 05, 2017 2:26 pm

Permanent renters in the Bay area:
http://www.mercurynews.com/2017/10/05/l ... -the-nose/

I don't think anyone has mentioned the Bay area's unique geography, especially compared to a city like Houston. There just isn't much undeveloped land within a 2 hour drive of the Bay area job centers. Between water, hills and protected "open spaces" (a mixture of land preserves, water district runoff and parks) the land is chopped up with limited road access. We have 7 bridges across the Bay, all of them a nightmare during commute. We have dangerous mountain roads (think 92, 17, 84) and passes that become impassable from time-to-time due to rains/landslides (think Niles Canyon, Crow Canyon, Sunol). New developments are applauded but the number of new housing units is frightfully small (maybe a couple of dozen -- rather than the hundreds you might see in Houston). The lack of land is going to keep new development suppressed.

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Re: Bay Area Real Estate

Post by cheapskate » Thu Oct 05, 2017 2:43 pm

Long term residents of the bay area (myself included - I've lived here since 1989), suffer from recency bias and confirmation bias. We've also lived in the reality distortion field for too long. First, we have lived through (and profited from) one of the biggest booms this country has seen - we want this to continue forever. Second, we pay such a heavy price to live here (not just in $ terms, but also in crushing commutes, long waits at restaurants, for doctor visits etc), that we want to believe that life elsewhere really sucks :)

I am curious to see what Amazon picks as its HQ2 - I'd be very surprised if Amazon picks a HCOL coastal city. If Amazon picks a non-HCOL city as its HQ2, workers will come. And Amazon will make it work (as a company they are as smart as it gets). Amazon's salaries/packages today are lower than comparable big tech, and I believe cost is the big reason they are looking for a HQ2. This might set the stage for other big tech realizing that they too can move off geographies with insane costs. At the end of the day, the high salaries they have to pay makes a serious dent to the bottom line - especially as the sectors they are in mature and growth and margins drop.

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Re: Bay Area Real Estate

Post by Hyperborea » Thu Oct 05, 2017 6:57 pm

Hyperborea wrote:
Thu Oct 05, 2017 1:56 pm
HomerJ wrote:
Thu Oct 05, 2017 1:18 pm
First, most cities have far more than one horse, although less than Silicon Valley, true. Second, no one is "hitched" anymore to a town with the increase in telecommuting jobs, and of course, being willing to move is always an option.
I keep seeing the telecommuting point being brought up in these types of threads, mostly by you IIRC. This has such a great sound to it and it's always coming real soon now and has been for the last 20-30 years. It hasn't worked out. The tech has gotten better, way better, and will likely continue to do so but it's not the tech, it's the human factors that have stopped it.
Serendipity. I was reading an article I had got a reference to on another thread here on Bogleheads (about the social and psychological problems of the wealthy - $20M plus) at the Atlantic. At the end of the article was a link to a new article out this month on telecommuting.

https://www.theatlantic.com/magazine/ar ... rk/540660/
This brings us to a point about electronic communications technologies. Notionally, they are cheap and instantaneous, but in terms of person-hours spent using them, they are actually expensive and slow. Email, where everything must literally be spelled out, is probably the worst. The telephone is better. Videoconferencing, which gives you not just inflection but expression, is better still. More-recent tools like the workplace-communication app Slack integrate social cues into written exchanges, leveraging the immediacy of instant-messaging and the informality of emoji, plus the ability to create a channel to bond over last night’s #gameofthrones.

Yet all of these technologies have a weakness, which is that we have to choose to use them. And this is where human nature throws a wrench into things. Back in 1977, the MIT professor Thomas J. Allen looked at communication patterns among scientists and engineers and found that the farther apart their desks were, the less likely they were to communicate. At the 30-meter mark, the likelihood of regular communication approached zero.

The expectation was that information technology would flatten the so-called Allen Curve. But Ben Waber, a visiting scientist at MIT, recently found that it hasn’t. The communications tools that were supposed to erase distance, it turns out, are used largely among people who see one another face-to-face. In one study of software developers, Waber, working alongside researchers from IBM, found that workers in the same office traded an average of 38 communications about each potential trouble spot they confronted, versus roughly eight communications between workers in different locations.

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Re: Bay Area Real Estate

Post by SeaToTheBay » Thu Oct 05, 2017 6:57 pm

mervinj7 wrote:
Wed Oct 04, 2017 11:25 am
+1. I've been reading BH for years and have seen many Bay Area real estate posts over the years. In them, you will find sound and sage advice from many well-meaning BHers recommending you to NOT buy a home here. And yet, considering the appreciation over the last few years, I would think that almost every poster would have been better off if they had bought a home at any point in the past (even at the pre-recession peak). However, whether it still makes sense in 2017, is up to you to decide. Study the data (e.g. market trends, local neighborhood factors, impact of Prop 13), and make a decision you can sleep with at night. At the very least, be prepared for a 10%-15% dip.
That said, after 10 years of renting here and seeing my rent increase over time from $1.8k/month to $4.3k/month for a 2 bedroom while moving further and further away from the city (SF), I took the plunge this year and bought a duplex. Should I have done it five years ago? Perhaps. Best not to have regrets.
This was my thinking as well when deciding to buy a place in Silicon Valley a year ago after getting priced out farther and farther from the core. I thought sure, I'm buying at a much higher price than a couple of years ago. But even if at some point in the next 5 years the value drops 10-20%, I'll be fine as long as appreciation in the other years in that period is +5-10%. Sure enough, in the first year in our home it has appreciated about 20-25%, giving us a cushion for a drop over the several years we plan to live there. Beats the yearly increases we had while renting. Sure, it could drop more, but I think people forget that 2008 was a major anomaly in terms of severity - hopefully the next dip in housing won't be quite as drastic.

I do think the craziness is moderating in terms of price growth, however. For over a year now the monthly RE reports have shown SF at 6.x% appreciation, which is just above the national average. If I had to guess, I'd predict the next 2-3 years will be about the same - continued price increases, but at a moderate level as tech continues to expand.
bigred77 wrote:
Wed Oct 04, 2017 12:11 pm
Houston had/has a large healthcare industry and plenty of SLED (never heard that term before) jobs, as well as representation from a variety of industries (tech and finance included). But it's dominated by Energy just like the Bay Area is dominated by Tech. There are upstream (E&P) companies, midstream (pipeline, transportation and storing) companies, downstream (refiners, chemical companies) companies, and oilfield services companies. They are about as diversified, if not more so, than Facebook and Intel. But when it goes, it goes.
My question is, where will tech "go?" Oil and gas have substitutes. Tech is tech, and I don't see how in the future we will decide to get lower-tech. Even if tech shifts to different concentrations and specialties, you see Amazon, Google, Facebook, etc. getting into all different realms - cloud computing, AI, life sciences, automated cars... they're investing in staying ahead of the next big thing while their current "thing" (advertising, e-commerce, etc.) puts food on the table, so to speak.

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Re: Bay Area Real Estate

Post by psteinx » Thu Oct 05, 2017 7:34 pm

SeaToTheBay wrote:
Thu Oct 05, 2017 6:57 pm
My question is, where will tech "go?" Oil and gas have substitutes. Tech is tech, and I don't see how in the future we will decide to get lower-tech. Even if tech shifts to different concentrations and specialties, you see Amazon, Google, Facebook, etc. getting into all different realms - cloud computing, AI, life sciences, automated cars... they're investing in staying ahead of the next big thing while their current "thing" (advertising, e-commerce, etc.) puts food on the table, so to speak.
It's not so much that tech will go away anytime soon, as that it's possible that the Bay Area has a smaller share of tech in the future.

In the 1970s and early 1980s, the Bay area was not especially dominant in tech. IBM is, I think, primarily in New York. DEC I think was Boston. Lots of other smaller players scattered around. For a while, it looked like Microsoft might dominate, and of course they're in Washington.

If I had to guess, I'd say the prime candidates, not so much to replace the Bay Area, as to sap some of the growth, would be where one or more strong, relatively large colleges are, in particular in favorable climates, with, ideally, some degree of access to larger metros and/or decent airports.

So, Austin, Pittsburgh maybe (Carnegie-Mellon), the research triangle in North Carolina. Maybe Ann Arbor and/or Charlottesville. Maybe the Boston area. There are a lot of other possibilities as well.

Basic startups can be bootstrapped, and/or tap into small-ish angel networks that are pretty widespread. For bigger dallops of VC cash, yes, there are advantages to the main areas like the Bay Area and perhaps Boston and a few others. And there will be incentives for fledgling startups that show promise to migrate to the Bay Area or whatever. But not all will.

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Re: Bay Area Real Estate

Post by psteinx » Thu Oct 05, 2017 7:37 pm

There's also the chance that some founder attached to his or her hometown or at least adopted town stumbles onto vast success. Was Bentonville, AR the obvious center of a massive future retailer, before Sam Walton got rolling?

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Re: Bay Area Real Estate

Post by freebeer » Thu Oct 05, 2017 7:49 pm

gloss151 wrote:
Tue Sep 26, 2017 10:04 am
...
...so long as you meet the following net worth metric after buying you can afford to buy.

Expected Net Worth = Age(years) * total_income * 10%
And the source for this net worth metric is... ??

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Re: Bay Area Real Estate

Post by runner540 » Thu Oct 05, 2017 9:18 pm

freebeer wrote:
Thu Oct 05, 2017 7:49 pm
gloss151 wrote:
Tue Sep 26, 2017 10:04 am
...
...so long as you meet the following net worth metric after buying you can afford to buy.

Expected Net Worth = Age(years) * total_income * 10%
And the source for this net worth metric is... ??
Looks like the Millionaire Next Door formula.

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Re: Bay Area Real Estate

Post by Cycle » Thu Oct 05, 2017 10:40 pm

Yes, millionaire next door metric. It's extremely flawed for people who invest a lot of money in their personal skill capital, like doctors, but it's a useful for the vast majority of people as a validator of prodigous accumulators of wealth or spendthrift Calvinists

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Re: Bay Area Real Estate

Post by HomerJ » Fri Oct 06, 2017 12:32 am

gloss151 wrote:
Thu Oct 05, 2017 10:40 pm
Yes, millionaire next door metric. It's extremely flawed for people who invest a lot of money in their personal skill capital, like doctors, but it's a useful for the vast majority of people as a validator of prodigous accumulators of wealth or spendthrift Calvinists
It's flawed because it uses "income" instead of "expenses".

I get a big promotion and a 20% raise, and suddenly, I'm doing worse, if you base the formula on "income". I get fired, and suddenly I'm doing better.

Expenses are what matter, not income.

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Re: Bay Area Real Estate

Post by fnmix » Fri Oct 06, 2017 7:46 am

The post below understates the underpinnings of technology centers. If anybody wants to go back and understand the history of silicon valley, check out some of the material put out by Steve Blank.

The east coast tech powerhouses like IBM and ATT/Lucent/Bell-Labs date to before the second world war. Their contributions were solid during the second world war and Bell Labs was a center for some of the major tech advances. For several decades after the second world war, Bell Labs and IBM (TJ Watson research center) continued to have a solid impact.

Around the second world war, Hewlett Packard was being formed. Immediately after the second world war, several defense funded projects were set up in the Bay Area. The defense projects led to development of an eco system in the area. In the 60s, 70s and 80s, Intel (https://en.wikipedia.org/wiki/Intel), BSD unix (https://en.wikipedia.org/wiki/Berkeley_ ... stribution), IBM Almaden (https://en.wikipedia.org/wiki/IBM_Research_-_Almaden) and Apple happened in the area (among other advances). A VC eco system developed and silicon valley VCs like Sequoia systematically broke down the sub-components of a computer when the PC era started and invested in companies to produce each of the sub components.

Software companies (Adobe, Intuit etc) sprung up to support the hardware eco system. Along with specialized system hardware companies (SGI, Cisco, etc). And then internet companies (Google, Yahoo, Ebay) and then Internet 2.0 companies (Facebook, Twitter, etc). And so on.

There are other tech. power centers around the world. But the Silicon Valley system survives and continues because of a long history of experiments, reinforcing inputs (venture capital, university research, lawyers, talent) and the cut throat darwinian fight between the local tech companies (that makes them even more cut throat and willing to kill the competition, be it in the local area or elsewhere).

Sure the bay area eco system can be surpassed by some other geo. But it is plain wrong to think that an area that is not a big center today (somebody gave the example of Eugene, OR earlier) will become as big or bigger in a decade or less. Silicon valley has been 70-80 years in the making.
psteinx wrote:
Thu Oct 05, 2017 7:34 pm

It's not so much that tech will go away anytime soon, as that it's possible that the Bay Area has a smaller share of tech in the future.

In the 1970s and early 1980s, the Bay area was not especially dominant in tech. IBM is, I think, primarily in New York. DEC I think was Boston. Lots of other smaller players scattered around. For a while, it looked like Microsoft might dominate, and of course they're in Washington.

If I had to guess, I'd say the prime candidates, not so much to replace the Bay Area, as to sap some of the growth, would be where one or more strong, relatively large colleges are, in particular in favorable climates, with, ideally, some degree of access to larger metros and/or decent airports.

So, Austin, Pittsburgh maybe (Carnegie-Mellon), the research triangle in North Carolina. Maybe Ann Arbor and/or Charlottesville. Maybe the Boston area. There are a lot of other possibilities as well.

Basic startups can be bootstrapped, and/or tap into small-ish angel networks that are pretty widespread. For bigger dallops of VC cash, yes, there are advantages to the main areas like the Bay Area and perhaps Boston and a few others. And there will be incentives for fledgling startups that show promise to migrate to the Bay Area or whatever. But not all will.
Last edited by fnmix on Fri Oct 06, 2017 9:04 am, edited 3 times in total.

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Re: Bay Area Real Estate

Post by fnmix » Fri Oct 06, 2017 7:58 am

No Bentonville was not an obvious center. But Sam Walton was from the area and started with a single store after the second world war. Over time, with grit and luck his enterprise (now Walmart) beat out other general merchandise companies such as Sears (Chicago) and Kmart (Memphis). That Walmart would prevail was obviously not pre-ordained.

It took decades for Bentonville to become the walmart supply-chain hub that it is today. But Bentonville is much smaller than silicon valley in economic activity as some of the other inputs were missing from the area (said with the benefit of hindsight obviously; also see my other post wrt silicon valley history).
psteinx wrote:
Thu Oct 05, 2017 7:37 pm
There's also the chance that some founder attached to his or her hometown or at least adopted town stumbles onto vast success. Was Bentonville, AR the obvious center of a massive future retailer, before Sam Walton got rolling?

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Re: Bay Area Real Estate

Post by fnmix » Fri Oct 06, 2017 8:07 am

Yeah people rationalize. But that is not unique to the bay area.

Back when I worked on the east coast more than a decade ago, my colleagues and friends rationalized that they should stay in the area and not pursue a (seemingly) more exciting career in silicon valley because California was expensive and they already had a nice house in a good school district and they had a social circle they were comfortable with etc.

The commutes on the NJ Turnpike, the DC beltway and MA Route 128 are not necessarily better.
cheapskate wrote:
Thu Oct 05, 2017 2:43 pm
Long term residents of the bay area (myself included - I've lived here since 1989), suffer from recency bias and confirmation bias. We've also lived in the reality distortion field for too long. First, we have lived through (and profited from) one of the biggest booms this country has seen - we want this to continue forever. Second, we pay such a heavy price to live here (not just in $ terms, but also in crushing commutes, long waits at restaurants, for doctor visits etc), that we want to believe that life elsewhere really sucks :)

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Re: Bay Area Real Estate

Post by Frisco Kid » Fri Oct 06, 2017 8:28 am

The Bay Area has ALWAYS been expensive. We bought back in 1983 a home that was 4x our combined income. Nothing fancy, a new construction tract home in the East Bay.

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Re: Bay Area Real Estate

Post by psteinx » Fri Oct 06, 2017 10:08 am

fnmix wrote:
Fri Oct 06, 2017 7:58 am
No Bentonville was not an obvious center. But Sam Walton was from the area and started with a single store after the second world war. Over time, with grit and luck his enterprise (now Walmart) beat out other general merchandise companies such as Sears (Chicago) and Kmart (Memphis). That Walmart would prevail was obviously not pre-ordained.

It took decades for Bentonville to become the walmart supply-chain hub that it is today. But Bentonville is much smaller than silicon valley in economic activity as some of the other inputs were missing from the area (said with the benefit of hindsight obviously; also see my other post wrt silicon valley history).
psteinx wrote:
Thu Oct 05, 2017 7:37 pm
There's also the chance that some founder attached to his or her hometown or at least adopted town stumbles onto vast success. Was Bentonville, AR the obvious center of a massive future retailer, before Sam Walton got rolling?
The point is, company locations are based on sometimes eccentric factors. The interests, hometown or whatever of a single individual (or a small group of them) who then go on to experience tremendous success. It's basically a randomizing factor - a chaos factor - in how industries, overall, develop geographically. The Bay Area is home to a high % of cutting edge tech jobs & companies, but a lower % of super-smart 18 or 22 year olds. For discussion's sake, let's say the first number is 30%, and the second number is 3%. So for the Bay Area to maintain its dominance, long term, then a lot of those ~97% of super-smart young folks who don't start in the Bay Area need to end up their - either with their fledgling companies or working for other more established companies.

Obviously, there's appeal to established industry centers, both in tech and in other fields, and yes, they do draw in outside workers. If you're a car enthusiast who wants to get into design, there's a pretty good chance you'll need to move to Detroit. But with tech companies, especially small startups, I think its less necessary to move to the Bay Area.

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Re: Bay Area Real Estate

Post by psteinx » Fri Oct 06, 2017 10:18 am

fnmix wrote:
Fri Oct 06, 2017 7:46 am
Sure the bay area eco system can be surpassed by some other geo. But it is plain wrong to think that an area that is not a big center today (somebody gave the example of Eugene, OR earlier) will become as big or bigger in a decade or less. Silicon valley has been 70-80 years in the making.
I think you're setting up a bit of a strawman there. Certainly I think it would be very unlikely for another area to surpass the Bay Area quickly, or a relative tech backwater like Eugene to even get in the ballpark. I don't think I've seen others here suggest a timescale like that either (for a backwater to surpass the Bay Area).

But it doesn't have to be about Eugene, or some other place, becoming bigger in tech than the Bay Area by 2027. What I'm thinking is that the option for tech companies to locate their HQ or at least branch development centers outside of the Bay Area will work as a sort of pressure relief valve on Bay Area housing prices. No, Apple won't suddenly decide to move (in scale, anyways) to Eugene, or Memphis, or Detroit. But if Bay Area housing prices significantly outstrip prices in other areas, then the equation that individuals and companies use to weigh locations tilts more and more against the Bay Area.

Remember, the Bay Area has other drawbacks, besides prices. Taxes in California ain't exactly modest. I don't know about the traffic, but others say it's bad. And, in my opinion anyways, San Jose lacks the urban appeal of a more established city, whether a West Coast city like LA or SF or a more established midwestern or eastern city like Chicago, Boston, etc.

Also, while the climate *is* pretty nice in SoCal, I'm don't think it's so compelling in the Bay Area. You don't get a long, warm beach season like you do in SoCal or various more easterly parts of the US, nor close proximity to skiing. To me (and again, I'm no expert, and haven't been to San Jose in a long time), San Jose combines a lot of the less appealing traits of suburbia with relatively few of the attractions that can be found in many other suburban/mid-density areas across the US.
Last edited by psteinx on Fri Oct 06, 2017 10:31 am, edited 2 times in total.

DrGoogle2017
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Re: Bay Area Real Estate

Post by DrGoogle2017 » Fri Oct 06, 2017 10:22 am

Hyperborea wrote:
Wed Oct 04, 2017 8:00 pm
visualguy wrote:
Wed Oct 04, 2017 5:13 pm
[A more likely scenario, in my opinion, is that the core parts of the Bay Area will continue to appreciate at the rates that we've seen over the last few decades, with lower and more volatile (but still high) appreciation in the periphery.
The spread of really high prices and the disappearance of anything dilapidated has continued to spread out from Palo Alto, roughly the epicentre of all this. At one time, maybe 15-20 years ago, Mountain View, the town over, was the place to buy because Palo Alto was too expensive. Then it was Sunnyvale. Now it's being said that Santa Clara is the new Sunnyvale. The prices in Sunnyvale haven't been exactly low before but we are now starting to see some steep rises in these other peninsula towns. You can see old dilapidated strip malls along the main thoroughfare of the peninsula, El Camino Real, being torn down and new multi-story rentals with commercial on the ground floor replacing them.

runner540 wrote:
Wed Oct 04, 2017 5:49 pm
The Paragon site has an interesting chart showing that this year for the first time since 2008/2009, employment declined in the Bay Area...any locals that can provide more background?
I'm pretty clear on my LinkedIn profile that I'm retired yet I'm still getting recruiters banging on my door pretty constantly. From a whole range of companies ranging from the biggies to stealth startups with big money behind them. I hear similar from my non-retired friends too. Seems like a lot of people are hiring or at least trying to.

Another contra-indicator is the traffic. We're back to the h#ll of non-summer traffic again. I just got back from a lesson and had to wade through the traffic. It's still horrible. There's no sign of lighter employment out there.
South of Oregon Express was not that bad 20 years ago. I remember my friend bought in Palo Alto for $560k for a delapidated 3br house and the area around the South Oregon Express was about $350k-$500k.

My husband has a LinkedIn account and he has indicated he’s retired now but he still gets email from recruiters.

SeaToTheBay
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Re: Bay Area Real Estate

Post by SeaToTheBay » Fri Oct 06, 2017 12:41 pm

psteinx wrote:
Fri Oct 06, 2017 10:18 am
Also, while the climate *is* pretty nice in SoCal, I'm don't think it's so compelling in the Bay Area. You don't get a long, warm beach season like you do in SoCal or various more easterly parts of the US, nor close proximity to skiing. To me (and again, I'm no expert, and haven't been to San Jose in a long time), San Jose combines a lot of the less appealing traits of suburbia with relatively few of the attractions that can be found in many other suburban/mid-density areas across the US.
On the climate, it depends which part. SF is rather cool and foggy more often than I'd like. However, along the peninsula and especially the southern part toward San Jose, it's about the sunniest and nicest weather you could find. We are near San Jose and the next 15 days are 0% chance of rain, no clouds, and highs 70-85 degrees, in October. But yes, skiing isn't easy as driving to Tahoe is a pain with traffic.

Do totally agree about San Jose (where my office is downtown). It is very spread out and lacks a real entertaining core. We almost never come to SJ on the weekends even though it's a city of 1 million people only 10min from home.

fnmix
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Re: Bay Area Real Estate

Post by fnmix » Fri Oct 06, 2017 12:54 pm

psteinx wrote:
Fri Oct 06, 2017 10:08 am

<SNIP>

The Bay Area is home to a high % of cutting edge tech jobs & companies, but a lower % of super-smart 18 or 22 year olds. For discussion's sake, let's say the first number is 30%, and the second number is 3%. So for the Bay Area to maintain its dominance, long term, then a lot of those ~97% of super-smart young folks who don't start in the Bay Area need to end up their - either with their fledgling companies or working for other more established companies.
I don't think the bay area as a whole is too different from other metro areas.

San Francisco/Oakland/Hayward Metro Area: median age 38, age 20-29 18% (https://censusreporter.org/profiles/160 ... ncisco-ca/)
San Jose/Sunnyvale/Santa Clara Metro area: median age 36.3, age 20-29 15% (https://censusreporter.org/profiles/160 ... n-jose-ca/)

compared to

Manhattan: median age 36.8, age 20-29 19.3% (http://www.baruch.cuny.edu/nycdata/popu ... bution.htm)

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Re: Bay Area Real Estate

Post by psteinx » Fri Oct 06, 2017 1:48 pm

fnmix - I'm not saying that only 3% of the Bay Area folks are young (that would depend on how tightly we band our "young" definition, but still...)

Rather, I'm saying that the Bay Area only contains a small % of the total number of young, super-smart folks, relative to the USA as a whole, simply because the Bay Area contains a small % of the total population (all ages) of the USA.

But the Bay Area contains a disproportionate share of, say, 22-32 year old super smart folks, because a lot of them move there, to participate in the tech economy there. If fewer such folks move there in years to come, because they're increasingly priced out, and/or because, perhaps by coincidence, a few that do stay out build the next wave of burgeoning tech companies elsewhere (i.e. my Sam Walton/Bentonville example), then that will affect price growth of Bay Area real estate. (There are other ways in which one could envision diminished Bay Area tech/share, and/or diminished flow of super smart 22-32 year olds to that area, but those are two that seem fairly obvious).

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Re: Bay Area Real Estate

Post by psteinx » Fri Oct 06, 2017 1:52 pm

And to be clear, I'm saying that these things are possibilities for the next 5/10/20 years. I think they're non-trivial possibilities, especially at the 10-20+ year interval, and especially if Bay Area housing prices were to, say, double in the next 5-10 years. But obviously, they're not certainties. There are a lot of possible paths for both the future of the tech industry and the future of Bay Area real estate prices.

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Cycle
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Re: Bay Area Real Estate

Post by Cycle » Fri Oct 06, 2017 4:10 pm

HomerJ wrote:
Fri Oct 06, 2017 12:32 am
gloss151 wrote:
Thu Oct 05, 2017 10:40 pm
Yes, millionaire next door metric. It's extremely flawed for people who invest a lot of money in their personal skill capital, like doctors, but it's a useful for the vast majority of people as a validator of prodigous accumulators of wealth or spendthrift Calvinists
It's flawed because it uses "income" instead of "expenses".

I get a big promotion and a 20% raise, and suddenly, I'm doing worse, if you base the formula on "income". I get fired, and suddenly I'm doing better.

Expenses are what matter, not income.
True, it's very flawed. What one puts in the bank is what matters for FI. It is probably most flawed in hcol areas, bc one can be putting more in the bank despite having a low savings rate due to housing costs. A better formula might involve end of year savings given ones experience and skillset.

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Re: Bay Area Real Estate

Post by physiorol » Sat Oct 07, 2017 4:20 pm

Carefreeap wrote:
Mon Oct 02, 2017 6:02 pm
physiorol wrote:
Sat Sep 30, 2017 3:14 pm
visualguy wrote:
Sat Sep 30, 2017 12:11 pm
Correct. People try to keep the property in the family with its low tax assessment which passes from generation to generation. Selling makes no sense if it can be avoided.
Briefly, what are the tax/financial consequences/benefits of transferring residential property from parent to child? Do the parents have to die first?
As an example, when my parents divorced they sold their house to my brother. They had bought the house in 1963 and the assessed value was something like $70k when they sold in 1996. Market value was about $325k. Taxes were about $700/yr!
So does the recipient of the house (eg your brother) keep the tax assessment?

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Re: Bay Area Real Estate

Post by Carefreeap » Sat Oct 07, 2017 4:59 pm

physiorol wrote:
Sat Oct 07, 2017 4:20 pm
Carefreeap wrote:
Mon Oct 02, 2017 6:02 pm
physiorol wrote:
Sat Sep 30, 2017 3:14 pm
visualguy wrote:
Sat Sep 30, 2017 12:11 pm
Correct. People try to keep the property in the family with its low tax assessment which passes from generation to generation. Selling makes no sense if it can be avoided.
Briefly, what are the tax/financial consequences/benefits of transferring residential property from parent to child? Do the parents have to die first?
As an example, when my parents divorced they sold their house to my brother. They had bought the house in 1963 and the assessed value was something like $70k when they sold in 1996. Market value was about $325k. Taxes were about $700/yr!
So does the recipient of the house (eg your brother) keep the tax assessment?
He would have had he not lost the property in foreclosure in 2009. :oops:

physiorol
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Re: Bay Area Real Estate

Post by physiorol » Wed Oct 11, 2017 12:24 am

Carefreeap wrote:
Sat Oct 07, 2017 4:59 pm
physiorol wrote:
Sat Oct 07, 2017 4:20 pm
Carefreeap wrote:
Mon Oct 02, 2017 6:02 pm
physiorol wrote:
Sat Sep 30, 2017 3:14 pm
visualguy wrote:
Sat Sep 30, 2017 12:11 pm
Correct. People try to keep the property in the family with its low tax assessment which passes from generation to generation. Selling makes no sense if it can be avoided.
Briefly, what are the tax/financial consequences/benefits of transferring residential property from parent to child? Do the parents have to die first?
As an example, when my parents divorced they sold their house to my brother. They had bought the house in 1963 and the assessed value was something like $70k when they sold in 1996. Market value was about $325k. Taxes were about $700/yr!
So does the recipient of the house (eg your brother) keep the tax assessment?
He would have had he not lost the property in foreclosure in 2009. :oops:
So passing on the family home in a state like CA (prop 13) could provide a massive financial advantage to offspring.

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