This, more than anything else, is going to be what kills Silicon Valley. All those twenty-something hackers today are going to look up one day and realize that they can't have a family in the Bay Area, and leave.
Not to mention the people who never went there in the first place because they have fewer romantic notions about what it means to be a tech startup and never saw the appeal in being paid barely enough to live in an expensive, crowded area.
SF is only a tiny (49 sq mile) part of the Bay Area. It's like saying nobody can live in the New York City MSA because the price of a 2-bedroom apartment in Manhattan is over $1M, despite the fact that most New Yorkers live in Queens or Brooklyn.
I dunno, a quick browse through Craigslist reveals many early-twenty-somethings seeking roommates who are okay with sharing bathrooms for <$2k budgets, and dangle your own private bathrooms if your budget exceeds that.
With salary boom, for many foreigners the disposable income after paying rent still exceeds disposable income in their home country, so until salaries are where they are, for a bunch of people the current price levels are still a sustainable and highly desirable proposition.
Like me, I already left. I lived in Hayward and commuted to the south bay while my wife commuted north a little bit. It was rotten and awful. I hate everything about living in the Bay Area and I love it here in Sacramento. I also lived on the peninsula. It was nicer but twice the cost per sq foot to rent and a lot more traffic to deal with during regular hours.
Sell. Seriously. If you own one of these, sell. Then laugh.
This real estate hyperinflation is going to destroy the very engine of class mobility and youthful enthusiasm for a better life that powers the Valley. When that's gone, the Valley will decline. When the Valley declines, the local real estate bubble will pop.
Want a historical example? Detroit. It once had the highest average income in the U.S., and now look at the property values there. The reasons for its collapse are different and it's unlikely that SF (which is desirable for other reasons like climate and landscape) would ever fall as far or as fast as Detroit, but it's illustrative nonetheless. It shows that one should be cautious about long-term value in overinflated one-horse-town economies.
And if SF is not a one-horse-town, it soon will be. Industries other than tech will succumb to the lure of lower costs of doing business and leave.
> When that's gone, the Valley will decline. When the Valley declines, the local real estate bubble will pop.
I wouldn't be so sure of that. The appeal of a particular location as a place to live will usually long outlast the activities or culture that put that location on the map in the first instance.
San Francisco is a strong brand, and demand for housing in the city is going to remain strong for a long time to come.
You could sell and laugh, but then where would you live? You either get a ridiculous commute, or you have to pay exorbitant rent. Something decent runs for over $4k/month everywhere in the valley these days. Everyone said the same thing about the Valley during the last 2 bubbles, but it keeps going up. People need somewhere to live - selling now on some hypothetical crash makes living your life very difficult.
We had a townhouse in the South Bay (which has been going up very quickly too) that we sold a few month ago. We got $100k more than we would have about 9 months earlier.
It's madness.
(We moved a few hours away a couple years ago and had been renting it...)
Median housing prices in my area (palo alto) have already been well above $1M for a long, long time. Doomsday prophets: nothing new here, really - just continuation of a well established trend.
The title here is a little deceptive; it's the median price for a "single family home". A lot of the inventory in SF is either apartments in small buildings or duplex / multi-residence structures, which are generally less expensive (and it would be better to have more of those and fewer single family dwellings, since they use space more efficiently.)
The examples at 322/280/etc. per square foot seem cheap. I live in WINNIPEG and houses on my street go for $450+ per square foot, and that's in Canada where mortgages aren't tax deductible, and Winnipeg in particular where the climate is... challenging. The one's that are $500+ per sft --- well, that's the cost of location. Deal with it.
As an American, I don't seem to understand Canadian currency at all. I've watched 'Love It or List It' on HGTV knowing that it's a Canadian show but the prices of the houses are all typically anywhere from $700k-$900k for 1600 to 1800 square feet. Trying to convert it back to a price in US dollars I guess isn't quite right. What's the median income in Canadian dollars that makes home prices so high?
Side nitpick: do Canadians primarily use square feet as a measurement? Is that a real estate standard even though Canada is mostly metric?
Since I don't really have a sense for the size of the houses in SF, I'd be interested to know how SF's numbers for "$/sq.foot of floor space" and "$/acreage" compare with places like Palo Alto.
"Today's low mortgage interest rates and tight supply of homes for sale are "creating a kind of witch's brew of extreme price spikes," says Stan Humphries, Zillow chief economist. (1)
Logic tells me that when the all-important "monthly payment" rises, as a result of higher mortgages rates, that is going to be instantly detrimental to the housing market to a nearly equal degree.
But when I've asked this question of people I know in real estate (from realtors to investors) the answer is "yah but there are a lot more factors at work"
What are those factors? The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset?
> Logic tells me that when the all-important "monthly payment" rises, as a result of higher mortgages rates, that is going to be instantly detrimental to the housing market to a nearly equal degree.
The big thing right now isn't interest rates/monthly payment (though that's a factor that reinforces the high prices). Its who is buying and selling and which homes (and how few) are on the market.
> What are those factors?
The big one is the broader economy and credit markets.
> The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset?
Not really, because the big price spikes recently are because there are a very small number of homes selling and they tend (disproportionately as compared to other times) to be higher end homes and higher-end buyers and being paid for with cash or at least very large % down. So the median prices look high, but there's not a lot of people involved, and even for the number of buyers not a lot of exposure to interest rate hikes.
Mortgage rates do not affect cash buyers. Despite low interest rates-- and high dollar amounts-- there are surprisingly many cash buyers in the Bay Area.
[+] [-] quanticle|12 years ago|reply
[+] [-] bithive123|12 years ago|reply
[+] [-] w1ntermute|12 years ago|reply
Lower cost of living, less restrictive zoning laws, and a more business friendly legal system.
[+] [-] tomkarlo|12 years ago|reply
[+] [-] prostoalex|12 years ago|reply
With salary boom, for many foreigners the disposable income after paying rent still exceeds disposable income in their home country, so until salaries are where they are, for a bunch of people the current price levels are still a sustainable and highly desirable proposition.
[+] [-] beeffective|12 years ago|reply
[+] [-] davidw|12 years ago|reply
[+] [-] api|12 years ago|reply
This real estate hyperinflation is going to destroy the very engine of class mobility and youthful enthusiasm for a better life that powers the Valley. When that's gone, the Valley will decline. When the Valley declines, the local real estate bubble will pop.
Want a historical example? Detroit. It once had the highest average income in the U.S., and now look at the property values there. The reasons for its collapse are different and it's unlikely that SF (which is desirable for other reasons like climate and landscape) would ever fall as far or as fast as Detroit, but it's illustrative nonetheless. It shows that one should be cautious about long-term value in overinflated one-horse-town economies.
And if SF is not a one-horse-town, it soon will be. Industries other than tech will succumb to the lure of lower costs of doing business and leave.
[+] [-] UVB-76|12 years ago|reply
I wouldn't be so sure of that. The appeal of a particular location as a place to live will usually long outlast the activities or culture that put that location on the map in the first instance.
San Francisco is a strong brand, and demand for housing in the city is going to remain strong for a long time to come.
[+] [-] timcederman|12 years ago|reply
[+] [-] cpursley|12 years ago|reply
[+] [-] jzawodn|12 years ago|reply
We had a townhouse in the South Bay (which has been going up very quickly too) that we sold a few month ago. We got $100k more than we would have about 9 months earlier.
It's madness.
(We moved a few hours away a couple years ago and had been renting it...)
[+] [-] muzz|12 years ago|reply
Recession -> Area is becoming Detroit Boom -> Area will be Detroit
There are newspaper articles comparing Silicon Valley to Detroit going back to at least 1985...
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] andyl|12 years ago|reply
[+] [-] tomkarlo|12 years ago|reply
[+] [-] dreadsword|12 years ago|reply
[+] [-] Zimahl|12 years ago|reply
Side nitpick: do Canadians primarily use square feet as a measurement? Is that a real estate standard even though Canada is mostly metric?
[+] [-] Mankhool|12 years ago|reply
[+] [-] lotharbot|12 years ago|reply
http://www.redfin.com/CO/Lakewood/1826-S-Manor-Ln-80232/home...
For comparison, here's a $1 mil home in SF:
http://www.redfin.com/CA/San-Francisco/96-Broad-St-94112/hom...
[+] [-] hkmurakami|12 years ago|reply
[+] [-] papa|12 years ago|reply
http://pricesquares.com/#/county/1/san-francisco/
You can see that the north and northeast portions of the city carry the highest rates (close to $1k/sq foot in Pac Heights and the Marina).
Zoom in to drill down to smaller neighborhoods/sub-districts.
For comps between SF and Palo Alto, I'd recommend Redfin. Last I checked, the Palo Alto prices were above SF prices (on a square foot basis).
Edit: I'll just add some more detail!
Here's the Redfin report for Palo Alto ($1,168/sq ft): http://www.redfin.com/city/14325/CA/Palo-Alto
Here's the Redfin report for SF ($660/sq ft) http://www.redfin.com/city/17151/CA/San-Francisco
[+] [-] jld|12 years ago|reply
http://www.zillow.com/local-info/CA-home-value/r_9/#metric=m...
[+] [-] aresant|12 years ago|reply
Logic tells me that when the all-important "monthly payment" rises, as a result of higher mortgages rates, that is going to be instantly detrimental to the housing market to a nearly equal degree.
But when I've asked this question of people I know in real estate (from realtors to investors) the answer is "yah but there are a lot more factors at work"
What are those factors? The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset?
(1) http://www.usatoday.com/story/money/business/2013/05/28/home...
[+] [-] dragonwriter|12 years ago|reply
The big thing right now isn't interest rates/monthly payment (though that's a factor that reinforces the high prices). Its who is buying and selling and which homes (and how few) are on the market.
> What are those factors?
The big one is the broader economy and credit markets.
> The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset?
Not really, because the big price spikes recently are because there are a very small number of homes selling and they tend (disproportionately as compared to other times) to be higher end homes and higher-end buyers and being paid for with cash or at least very large % down. So the median prices look high, but there's not a lot of people involved, and even for the number of buyers not a lot of exposure to interest rate hikes.
[+] [-] muzz|12 years ago|reply
http://sanfrancisco.cbslocal.com/2013/04/03/rise-in-all-cash...