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Comment by koolba | Hacker News Reader

> The four-bed, two-bath house — less than 2,000 square feet — listed for $1,688,000 and sold for $2,470,000.

Using a ballpark figure of $500/mo per $100K of house, this comes out to $12,500/mo. That's $150K/year, mostly after tax (there's a bit of a deduction for interest but let's ignore that for now). Using the standard 30% rule, that means you should have a gross income of about $500K.

What I'm questioning is, how many people are there with that income level to eventually sell these insanely expensive houses to? Sure you have a bunch of all cash offers but that eventually dries up as well right?

Plus 4BR at 2000sqft isn't particularly spacious. And only two bathrooms at that size? IMHO that's insane.

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They're probably converting stock options into a house. That's why you see a lot of all-cash buyers. If you have a few million lying around a house in silicon valley is probably a better investment than stocks and bonds. Especially if it also makes your commute easier and gets you the suburban lifestyle that many american families crave.

a lot of buyers are coming in with 500k+ of equity, sometimes over a million dollars, sometimes ALL CASH because they liquidated a boatload of stock and are now upgrading their living situation.

your mortgage numbers are way higher than reality. another concern is property taxes, but even at 2.5M, that's less than 30k/year in property taxes -- a working power couple or one single high earner can easily pay that. and in 20 years, 30k/year will have less than half the real value.

i think someone leveraging themselves into a 5-figure/month mortgage is the exception, not the rule.

tl;dr people are rich these days. my real concern is social unrest because of these insane imbalances in wealth distribution.

I'm not sure if its accurate, but https://www.redfin.com/CA/Sunnyvale/1129-Prunelle-Ct-94087/h... lists the property tax for last year at 1504$?

That's a pretty good tax bill for a house assessed at $150,000, which to me suggests that the neighborhood hasn't been reassessed since it was built. I bet that won't last much longer.

CA has a state wide law that prohibits reassessment unless there is a change of ownership or substantial renovation. Property taxes growth is capped (I think at 2% or inflation, whichever is less). There are many houses that were bought in the 60s or 70s that pay peanuts in taxes. This is partly (or primarily depending on who you ask...) why the CA school system so screwed up.

Primarily, for me. My folks pay ~$150/mo in sum total of taxes, electricity, etc. (no more mortgage now, so large caveat). Their neighbors, in the exact same house plan, who paid ~$950k, most likely pay ~$4500/mo. My folks have nothing to say to them, they live in totally different worlds despite being neighbors. The neighbors on the other side are pretty much meth-heads, but the trust scheming makes their monthly payments a bit more than my folks. Imagine that, you pay ~4.5k/mo, two hours out into the 'burbs, and then 2 doors down is a literal crack-house. Prop 13 just distorts things so much, it destroys neighborhoods by freezing them.

That's thanks to Prop 13, which caps the rate of assessed property valuation between sales. The house will be reappraised at the value it sold for, and the owners will pay the full ~1.25% property tax in the future.

Interestingly, the Santa Clara county tax collectors will take several months to reappraise the property, and then they'll send a supplemental tax bill to cover the difference between the $125/month the prior owners were paying and the $2.6k/month the new owners will be paying. It's frustrating they don't just assess taxes correctly from the beginning, but they do things old school over there.

For a lot of these transactions, the mortgage isn't for the full price of the home. Partially because buyers have other assets (like stock, or cash that needs to be parked somewhere).

But also because the mortgage interest deduction tops out just shy of $1m, I believe. So the government-sponsored giveaway (being able to use pre-tax income to pay for your mortgage interest) tails off quickly, and the rational calculus around loan-to-value shifts dramatically.

I would say it is more typical than anything else.

Maybe not so much for new construction, but most houses don't have a master bath.

> how many people are there with that income level

Probably an high-income couple with help from their families.

Two people working at a big tech company in the area will easily gross > 500K total comp.

$250K/year isn't chump change either. Let alone both having such jobs. Salaries in SV are high but they're not that high for most. At the single income level it's rare to have employees (NOTE: not contractors or business owners) surpass $3-350K.

Plus, if you plan on raising a family[1] then you'd have the added costs of a full time nanny as I doubt anyone with a $250K+ job is going to be around much to raise their kids.

[1]: Which I'm assuming they are if they're buying a 4BR house...

You get promoted once at a place like Google or Apple after 4 years and you're making like 250k/yr (as a software person). 300-350k is easily attainable.

I think there's a lot of people on HN who are unaware of how high comp is at the big 4/5 tech employers.

You obviously don't work at Apple! ;)

Maybe it is because I am not from that area, but I just don't see how anyone can justify that as a reasonable investment. The house prices have to come down eventually right? A house like that in the DC suburbs (depending on exact commute time) is probably only worth 10-15% that. Something about those prices has to normalize eventually, and when it happens the value tanks. You lose a million dollars, and possibly have to take a big credit hit for short selling the house....or hold it even longer and lose even more money. What am I missing? Why do people do it?

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