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Comment by bradlys | Hacker News Reader

It's no surprise why so many people are still trying to get in even though the market is insane. They just look at those graphs, with 5-20% YOY growth almost every year, see a horrible recession once every few years that has at most a 30% effect on house value (which recovers all "lost" value very quickly)... makes a lot of financial sense. You buy a $2m home and it'll be $3m in no time. Plenty of folks said it would stop a long time ago but it clearly isn't stopping.

I'm genuinely curious as to where the price cap is going to land with the homes. We're already at prices that almost no one can pay (you have to be a 1%'er) - but at what point is it too much even for most of them?

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It has to stop, obviously. That $2 million house isn’t going to be $20 million in 10 years without serious inflation.

No one today remembers the early 90s, when plenty of people did or almost lost their shirts in the Bay Area housing markets.

It's very unlikely that it will be 20 million. However, it's likely that it will be worth around 4 million. That would be a 7 percent year over year growth.

Yes, but nowhere near 20%. 7% a year itself isn’t very sustainable.

It has been 8.2% over the last 23 years (inclusive of both major housing crashes). "The market can stay irrational a lot longer than you can stay solvent," as the saying goes.

Yes, but it will always end, we just don’t know when.

A friend bought his house in Sunnyvale at the peak and I think the trough was about 30% lower. The decline had no effect whatever on his life, before long it was multiple times his original price.

Unless you get fired and you can’t afford your mortgage.

If you get fired or laid off, then you get another job.

Said a lot of people in 1999. And say a lot of people who are commanding high-level wages for relatively specialized skills and experience.

This was not always possible in 1991 or 2002 or even 2009.

This is true. The biggest risk with buying is that there could be a recession in the near future and you will be unemployed.

My land lady in San Carlos told me she had a heck of a time keeping her house in the late 80s early 90s housing crash. Ya, you can win if you are liquid enough to weather the storm, not everyone is though, especially if you are heavily leveraged and go underwater on your loan.

Yeah but, that $2M wasn't $200k 10 years ago so why assume same trajectory? I bet more than anything the growth is linear.

Price cap goes hand-in-hand with what people will be able to afford. Dual tech income ~5-600k means the ceiling is still ahead, and if incomes continue to rise on the top end then the ceiling is open-ended.

What's driving up tech salaries, is it primarily because companies are aware of the cost of living in the Bay Area and are paying their employees accordingly? And if so doesn't that just cause a feedback loop? Or is it just because tech is making a lot of money and so compensation naturally increases?

A bit of both I would think. It's hard to hire skilled developers etc. in the Bay area if they would have a better standard of living elsewhere. Arguably they would anyway--as has been the case forever--but there are various compensations to SV and Northern California. AND, while they'd prefer to pay less, many companies can in fact afford it if the alternative is to be unable to hire or to be forced to hire lesser talent.

The potential value of an engineer is unlike anything else. At the time of Whatsapp's acquisition by Facebook they had 10m users per employee and a roughly $500m valuation per employee.

That's pretty insane if you think about it, even if it's an outlier. Workers in other industries couldn't cut hair fast enough, fill grocery bags, cook meals, wait tables or chauffeur people fast enough etc to generate that much value in SV. There's just no competing with the type of worker that can de facto service millions of customers every minute of the day like a Whatsapp engineer does.

Given that, and network effects and the gigantic pile of liquidity the US/world is sitting on right now (at bizarro low-inflation interest & rates the past decade), and it all just pools around one spot.

They'll put support staff in satellite offices, but they can easily afford to put the core devs in central locations. Facebook had about 15k employees up until 2016 or so, Walmart has 1.5 million (100x) on somewhat similar net income (same order of magnitude). These ridiculous salaries aren't the biggest deal to tech companies as insane as that sounds.

500-600k salaries? What jobs are you looking at?!

For a single person - it's not unheard of for total comp. You'll really only find that at the big tech players (Google, Facebook, etc.) but for dual income - which is what I think they were specifying... $250-300k per person is "easily" obtainable assuming you also enter that big N company again.

I think he/she meant a total of 500k/600k, in cases where both people in the couple earn a 250k/300k annual salary.

If prices continue to rise, they will put even more pressure on couples to leave SFBA once they retire and don't need to be within commuting distance of the major tech companies. It could become extremely rare to see any retirees at all in the area, which could have downstream affects on where their kids and other relatives move or stay.

You mean like retirees like baby boomers or way in the future retirees? As long as Prop 13 stays around, you have quite a few retirees who've been in their current home for 40+ years and only pay like $700 in property taxes a year. They won't go anywhere and in fact are incentivized to stay.

Today, when a house in SFBA is $2 million and a comparable house in Arizona is $400k, yes. But if prices continue to diverge, then the math could change. What happens if trends continue and SFBA is $4 million and Arizona is $600k? The foregone return on "dead" home equity (once prices do hit a ceiling and appreciation slows) can rapidly outpace any differential in property taxes.

IIRC there's also some portability of proposition 13 tax basis within California, which would allow retirees to relocate intrastate, which would presumably create inflationary pressure in those secondary housing markets.

Prop 13 means you're heavily incentivized to stay in your home as a retiree and not move (even if it is "too much" home for you). If you're going to move, its almost certainly out of California entirely – but that is often not a practical option given friends & family nearby.

What do you do when you need to pull the equity out of your home to retire? Reverse mortgage?

Well your kids can't afford to buy their own home so they probably live with you and help with expenses...

Yes, reverse mortgage. My SO's grandmother did this.

Sucks for the kids - as they won't get to inherit a really expensive home with extremely low tax burden (prop 13 continues the low tax burden to those who inherit the property). Banks are so happy to do these right now.

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