> “My client was maxed out,” Wang said. “He wanted to be self-sufficient: `I’m independent. I don’t want my parents to help me.’ But now he’s realized he’s got to have that conversation with his mother to borrow a couple of hundred thousand dollars, just in case that situation happens again.”<p>Must be nice to have parents who can just loan you ~$200k to make an offer on a 2 million dollar house in Sunnyvale of all places.<p>I can't get over how ridiculous the market in the bay area is right now.
There's no rational financial calculus going on.<p>It's part of the Pacific Ring Asian hot-money bubble. Same as in Vancouver and Sydney. /r/vancouver has some good investigatory articles<p>$2 trillion left China illegally, and this is where some went<p>This doesn't end well, by the way. Neighborhoods turn into ghost towns because "renters damage property". Great businesses close. Vancouver had something like 30 empty multimillion dollar houses burn down last year.
Bay Area has a housing affordability issue for people who are in non-tech sectors.<p>For those in the tech sector, there is no affordability issue, only entitlement issue<p>If they are married, both in tech, their salary will be in the 300k-400k range, that's about 25k - 33k/month before tax, or about 15 - 20k/month after tax. with today's interest rate, $1MM house will need a monthly payment $4k - $5k/month including property tax. The couple will still have about 10k/month left after paying the mortgage.<p>Assuming they are renting and are fiscally responsible, they should be able to save about 70 - 100k on 300 - 400k income/year. which means they will just need 2 years before they can save up for the down payment.<p>So where is the issue? The issue is they jumped their league - Sunnyvale, Palo Alto, Mountain View, SF are the 'major leagues' - foreign cash buyers, tech execs or, more commonly , average Joe who sold their first house with $500k+ gain in tax free equity - (not hard to do in the bay area btw). First time home buyer will have a tough time competing in this league.<p>Try the minor league instead, try east bay, dublin($900k), livermore still in the $700k - both good schools but 60min+ away, or how about places like Newark or Union City, still in the $700k, both within 30 mins drive (but so so schools).<p>If they are struggling to buy a $2MM home because they have to buy in these neighborhoods. it's an entitlement problem, not an affordability issue.
I live in the Bay Area. My wife and I, early thirties and a few years out of grad school, make about $300k combined and in our area (Sunnyvale) there are maybe 2 or 3 houses for sale at any given time under our rough budget of $1.2 million, which would be below the median list value for a house in the city. I say this as dispassionately as possible, but I would really like to know more about who is able to afford these houses. The article gives one example (doctor married to an engineer, no age given), but I wonder if that case is typical.
Fun fact: in Tokyo prices are 3x lower than in the bay area, in large part because new housing is legally much easier to build.<p>If you want to make the bay area more affordable, check out the great work these folks are doing to legalize building new housing: <a href="http://www.sfyimby.org" rel="nofollow">http://www.sfyimby.org</a>.
Two things are powering this insanity.<p>1 - low interest rates and speciality jumbo programs to lock in high earners are providing balloon capital. When this pops people won't lose houses because they have fixed rates, but they will be equity poor or underwater as prices will correct at least 20% with interest rates rising.<p>2 - cash investors chasing yield and security. The "cash" offers clogging every market are disproportionally inbound from foreign nationals and now even starting to be private placement. Blackstone and other huge PE firms now consider "single family" to be a category akin to multi-family and are placing billions to buy and rent homes for yield. All this blows up when interest rates normalize - eg investors would rather own treasuries / CDs / etc at 5% vs homes at 5%.<p>Sam Zell - an infamous CRE investor nw $5b - has recently said he believes there is a material value of 10-15% a year of holding CASH - eg that the market is just about ready for a major correction and I agree wholeheartedly(1)<p>(1) <a href="http://www.horizonkinetics.com/sm_cash_as_liability_zell.asp" rel="nofollow">http://www.horizonkinetics.com/sm_cash_as_liability_zell.asp</a><p>PS - Some further evidence around interest rates driving home prices from this bloomberg article last year outlining the 0% down and "equity as collateral" from bay area landers -=> <a href="https://www.bloomberg.com/news/articles/2016-07-27/zero-down-on-a-2-million-house-is-no-problem-in-silicon-valley" rel="nofollow">https://www.bloomberg.com/news/articles/2016-07-27/zero-down...</a>
I wonder what the thought process of people buying $1MM+ houses in SV really is. I mean how much more are the prices going to go, so that's clearly not an investment. Even if the only job you could get was in SV, required you to stay close by _and_ paid enough, you are still paying a big chunk of it towards housing! Oh and you're going to live in a smaller house too!<p>It makes little financial sense. You'd be much better off earning less in the southeast or midwest and living big. Also wonder what the sweet spot is wrt city/jobs/salary/savings/housing.
I've wondered why SV companies don't lobby hard for pro-density policies.<p>Wouldn't they benefit from lower salaries (due to lower rent/costs of living) and higher productivity/lower turnover due to shorter commutes?
Because consumers are primarily used to buying consumables, it results in them not having an intuitive sense when it comes to investments. Buying a house is essentially mostly an asset allocation problem, not a purchasing problem.<p>Think of it this way, would you rather buy 1 house in Palo Alto or 5 houses in Des Moine? What would 5 houses in Des Moine get you? Well, you could rent the other 4 houses out and get some sort of rental income but you get a higher salary working in Palo Alto, both are income streams.<p>After X number of years, your 5 houses in Des Moine will be worth some amount and your 1 house in Palo Alto will be worth a different amount. Your houses in Des Moine are probably $600,000 worth of brick and concrete which are guaranteed to depreciate over time and $400,000 worth of land which may appreciate. Your Palo Alto home is like, $200,000 of brick and concrete and $800,000 worth of land so much more likely the growth in land will make up for the depreciation in house. Plus, in Palo Alto, you can be a part of the NIMBY coalition that defends against any law that threatens the value of your house while encouraging office space to be built that increases it's value.<p>You can apply the same calculus to say, buying a $200K Des Moine house and $800K of index funds or renting in Palo Alto and buying $1000K of index funds or any other asset allocation mix you like.<p>At the end of the day, even though they look like big scary numbers, the relative impacts are much tinier because you're just shifting assets between different classes. Most asset classes grow at about the same risk adjusted rate because the market is efficient (excepting brick and concrete which is guaranteed to depreciate as a consumable).<p>Of course, this is assuming every person has essentially access to infinite amounts of credit providing they can put up the collateral to back it up. Once you get into the nitty gritty of who can and cannot gain access to credit, then issues of privilege also get involved.
I understand not everyone works in tech but it's not unusual for Bay Area couples to make $300k-$400k per year 6-8 years out of college working in tech.<p>Consider an example of new grad with CS major working in major software company. Currently new grads start at $120k total package (base + RSU/stock + bonus). After maxing out 401k, taxes, rent(with roomates), car payments etc., one can save $35k-$40k per year. So for a couple having worked for 5 years each could save $35k * 5 * 2 = $350k in total. Use $250k to make downpayment to buy $1.25M home making most of mortgage interest deduction. That's how myself and most of my Indian tech friends in Bay Area bought homes. Being lucky in an IPO also helps. Above calculation assumes no student or credit card debt.
What are all the people going to the bay area planning on doing long term? Was it never a long term place for most people? Just not thinking about it? Renting and living with roomates forever?
So is this due to zoning regulations or what?<p>Seems kind of ironic for the former hippy capital of the world (speaking of the bay in general here) to be pricing non-millionaires out of the area.
I don't know. I personally am more scared of carrying such a huge mortgage on myself.<p>A home worth $1M means $200,000 liquid cash + $800,000 in mortgage principal + $570,000 in interest + $300,000 in taxes...over 30 years.<p>Will house values keep growing to offset $570,000+$300,000? At what point does this greater fool theory end?
At least you're not in Singapore. Here, 1 million USD won't even get you a small condo. A house will cost you around 2 million USD,and that would be a cheap one. In a prime location the price goes up to several times that amount.
This isn't just Silicon Valley, the same is happening in many parts of the world, like London, Vancouver and Sydney. At least in SV there are still a lot of people that can afford those inflated prices, the rest of us have to wait until the bubble pops.
A couple hundred thousand is right - nobody is buying a home unless they're dual income couples making at least $100K/year each. That's just it.<p>And that's why this area is soul sucking and tragic.