Bay Area housing prices drop in tech-heavy counties | Hacker News Reader

Bay Area housing prices drop in tech-heavy counties

mercurynews.com

180 pointsra7225 comments

From the article -- Alan Barbic, president of the Silicon Valley Association of Realtors, said agents on the Peninsula are working harder to sell high-end properties. “Without a doubt,” he said, some professionals have been priced out of the market.

This is why I always cringe at articles that say "Nobody can afford to live there." The reality is that lots of people can "afford" to pay these prices, more than there are homes, hence the high prices. When people stop being able to afford the houses, or willing to pay high prices, guess what, the prices go down. When I bought my current home it was during one of the "downturns" when everyone said "Silicon Valley is dead, look at all the chip companies laying off people and going out of business!" And then the Internet became the new thing and the market rebounded. And then it crashed again and house prices went down, and then it rebounded again.

Houses cost what people are willing to pay for them. And when people stop paying what is being asked, the price goes down. Speculation can hide some of that dynamic during periods of rapid price increases but a lot of speculators go broke and give up. We saw a lot of that during the mortgage meltdown.

I think it is great that the prices have moderated. And I think the number of new housing units coming on line has helped that as well.

When you have a glut of capital it may not be the case that people are able to afford housing, it maybe the case that the wealthy have bought up a ton of investments; maybe not even local wealthy but foreigners. The best example of this is China or Vancouver where there is a glut of housing that no one can afford so it sits around empty... the people who paid for it don't have a problem with this.

> This is why I always cringe at articles that say "Nobody can afford to live there." The reality is that lots of people can "afford" to pay these prices, more than there are homes, hence the high prices.

A classic example of engaging with semantics over sentiment. "Nobody" is clearly just a hyperbolic proxy for "only a relatively small number of people".

I think more accurately "Nobody" is a hyperbolic proxy for "me". Given the housing supply m the number of people who can afford to live here is demonstrably n which is >> m.

Nobody: middle class Americans

If most people in an area have owned their homes since back when they were cheap, and say only 1 house out of 1,000 comes up for sale per year with a high asking price, it's possible for "nobody" (99% of people) to be unable to afford to buy a home at current asking prices and yet for prices to sell high and for lots of people to be living in an area.

This is why comparing home prices to average income of the entire population is a fallacy. Not every home comes up for sale at any given time.

What matters is the sale price of recently sold houses to the incomes of those actively searching to purchase a new home as well as how many such people there are in the market.

Older established residents in an area can be earning $80k/yr and be fine since they purchased the house cheaply and have paid it off. That doesn't mean you can afford to buy their house on an $80k income.

Not only that, but because of the California tax code, they probably can't afford to sell their house and buy one for a similar price.

Or you add on to a starter home making it no longer a starter home for the next owner. But current owner keeps the lock on property taxes.

A major renovation like this on a starter home would likely trigger a reassessment.

I've heard if you keep one foundational wall even for an otherwise complete teardown it is beneficial from a tax standpoint. I'd love to know more details about how that works.

Using data from here: https://www.bayareamarketreports.com/trend/bay-area-market-s...

It looks like ~3% of the housing units in the greater Bay Area sell on an annual basis so if the top 3% of income earners can afford today's prices the liquidity cliff can hide.

That's actually a really good way to look at it. If turnover is really small, you only need a very small number of wealthy buyers to keep driving the price higher. Everyone else kind of doesn't matter.

Using the rule of 72, every home turns over every 24 years.

The top 3% aren't buying homes every year.

I'm not going to argue with you but I'll point out a hole in your logic here:

What matters is the sale price of recently sold houses to the incomes of those actively searching to purchase a new home as well as how many such people there are in the market.

I agree with this statement, and as I see it, if the houses that were offered for sale were "unaffordable" then they would stay on the market for sale waiting for that special person who could afford them. Instead, what we're seeing is that houses sell, on average, in less than 30 days. So as callous as it might sound, people looking for homes are finding them and buying them. In Santa Clara county at a rate of about a 1,000 a month or 12,000 a year[1]. There are some interesting differential equations you can write that describe how quickly every home in the county will have changed hands at least once, but suffice it to say the narrative that a bunch of "grey hairs" who have bought and paid off their houses are just sitting in them is inaccurate.

As someone who lives in a home and neighborhood built in the 60's I can tell you, nothing motivates Grandma to move to Arizona faster than being able to cash out a million bucks into the savings account. We have exactly one original owner in the neighborhood and they are here because their kids (and grandkids) are also in the neighborhood, otherwise they would have moved as well.

[1] There were 482 homes sold in Santa Clara County last month. The average since 2000 is 987. -- https://urban.realtor/market-trends-report/

> As someone who lives in a home and neighborhood built in the 60's I can tell you, nothing motivates Grandma to move to Arizona faster than being able to cash out a million bucks into the savings account. We have exactly one original owner in the neighborhood and they are here because their kids (and grandkids) are also in the neighborhood, otherwise they would have moved as well.

Well, the effective property tax rate in SF is 0.68% out of a nominal 1.19%, due to Prop 13. That indicates an awful lot of people who have held onto their houses for a long time.

How did you arrive at 0.68%? I pay a lot more than that.

It's the effective tax rate you arrive at when averaging over the fair market value of all houses. It's much lower than the tax you or I pay due to Prop 13.

The figure is from https://smartasset.com/taxes/california-property-tax-calcula...

Yeah well that stat isn't relevant because that's not the rate I actually pay. Literally couldn't care less what others pay. All stats are local.

When people say housing is “unaffordable” they don’t mean literally no one can afford it. Obviously there is a lot of demand for housing and some people are willing to pay quite a lot for it.

> We have exactly one original owner in the neighborhood

This is not a good thing. Having whole extended families get priced out of a large region and only the wealthy or well-paid professionals able to move in, so that people performing all manner of support jobs need to commute from further and further away and live more and more precarious lives, is inefficient, socially/environmentally destructive, and makes the place less pleasant for everyone to live in.

The whole Bay Area would benefit from housing prices coming down quite a bit after building a whole lot more housing units and transit.

Though, ironically, the migration might be the only thing that keeps the schools running, because it results in more Prop 13 reassessments.

One problem is that quite a few people (myself included) have entirely written off the idea of "actively searching to purchase a new home" in the Bay Area because the prices are so insanely high even for the "affordable" properties.

Maybe the most accurate & sympathetic interpretation is "me and everyone I know". In other words, the people inside your bubble who also can't afford it, and reinforce your perception.

This is completely ridiculous. Housing is usually 33-60% of most people's discretionary budget.

The cost of housing can be drastically different depending on when you bought a house. And ESPECIALLY with prop 13 in California.

If n people live in an area, it doesn't mean n people can afford to live in the area at the CURRENT housing rate.

I think a lot of frustration comes from how insanely different 50% of your COL can be in the course of 3-5 years.

More money is wasted on credit cycles than any other human activity. Pretending everything is demonstratably fine is a joke.

>relatively small

But I think part of grandparents point was that there enough people willing to meet the price that sellers aren't left with an unsold home, meaning that relatively large numbers of people if you consider it relative to the number of homes for sell. You could use a different measure for the relativity, but the ones I considered (for all of two minutes) don't seem as informative as the one grandparent used.

Right: the problem here is that there aren't enough homes (Prop 13 + local zoning + high cost of construction), not that the ones that exist should be cheaper.

In the past, it was easy to point at prop 13. With the new tax regime, that's less of a thing.

It’s still easy to point at prop 13. It prevents all manner of people from moving or do other things so they can keep the current tax rate. I would love to move from our smallish home, but our current effective tax rate is 0.70% dropping since we purchased 5 years ago. Our property tax would practically double if we moved so best we can do is expand the home. But in doing this I have now priced my smaller home into a bigger home taking it out of reach of someone wanting a smaller home.

You can afford to pay more for a larger home but can't afford double the tax? That doesn't make sense. The mortgage jump should be a bit a lot more than the taxes considering market moves.

I think the new tax regime has more to do with tax unaffordability than the actual tax rate.

> Nobody goes there anymore. It’s too crowded.

wasn't that a Yogi Bera quote.

The Yogi Book. New York: Workman Publishing. 1997

https://www.amazon.com/Yogi-Book-Berra/dp/0761154434

"Nobody goes there any more. It's too crowded." -Yogi Berra

>Speculation can hide some of that dynamic during periods of rapid price increases but a lot of speculators go broke and give up. We saw a lot of that during the mortgage meltdown.

In Vancouver, ownership costs exceed the median household pre-tax income. This is literally impossible to sustain over the long term if we agree those prices are generated by housing demand from 'people'. It makes a heck of a lot more sense when we consider that this is an investment bucket that is attracting surplus foreign capital in a world where there is fierce competition for returns. Speculation isn't 'hiding some of the dynamic'. It is the dominant force in pricing.

The typical 'healthy' value in most markets is 30% to 40%. Many specific 'hot' locations are hitting north of 66%. In Canada overall, the median is around 55%.

Will the bubble pop? Eventually. But the damage is already being inflicted. There's an entire generation where home ownership rates have fallen off a cliff.

Take the analysis a step further though, population density matters, not median income. Take the ownership cost, and the total supply of housing, now align that with the households (groups who would live in one housing unit) and align it to the right side of the income distribution.

You will find that all housing is consumable by households for which their income exceeds the ownership costs. That is how the market works, the people who can afford houses buy them. If there are more people who can afford houses than there are houses, the prices adjusts upwards to capture that value, if there are more houses than people who can afford them, the price adjusts down to capture that value. There are no houses (typically) that are otherwise market acceptable that are not owned.

What is more, it has been shown that if you add houses, that widens the overlap with incomes, starting from the "high" end and moving down. That is why Sunnyvale has authorized the building of thousands of new houses and apartments. Even trying to artificially hold units out for "low income" people results in fraud where low income people "rent" those houses and then sublet them out at market rate to recapture the value. We just convicted a woman of doing that and she isn't the only one.

>Take the analysis a step further though, population density matters, not median income.

With respect, I'll maintain that it's an issue if the supporting cash-flow underlying the market can no longer, numerically, support the market pricing.

>You will find that all housing is consumable by households for which their income exceeds the ownership costs.

That's not what's going on in Vancouver's case and the numbers make it very, very clear. No one here is confused about supply and demand. If housing prices tracked 'people's ability to pay for housing', as you're positing, then the ratio of income to total ownership costs would remain reasonably linked.

The issue is that demand isn't from 'households'. It's from REITs, speculators and foreign capital.

You can feel free to look at the spread between total ownership costs and rental rates. In the most expensive cities the spread is largest. In other words, the rental rates have changed far less than the total cost of ownership, because there is very little ability for personal incomes to absorb the housing price increases.

What's more, the correction isn't going to be quick, nor is it going to be soon. The only rational move as a real estate investor in most of these markets is to continue pumping capital and re-leveraging on the basis of accrued equity.

When the bubble pops and speculators are suddenly underwater, they'll prune their portfolio and keep the accrued equity gains, which will put them very far ahead of those who didn't get in.

This is why people advocate for regulatory intervention. Because the only way this train stops is when it slams into the concrete wall at the end of the track.

"The only rational move as a real estate investor in most of these markets is to continue pumping capital and re-leveraging on the basis of accrued equity." - Can you ELI5? I recently sold a home that I bought for $600k a while back in a decent school district for $1.15M and bought a $1.8M home near Sunnyvale. Was that a stupid thing to do?

Maybe some of that jargon went over my head, but I'm not convinced that his option for investors to "prune their portfolio and keep the accrued equity gains" ... "When the bubble pops and speculators are suddenly underwater" is practical.

Are said investors not themselves speculators who would be underwater post bubble pop?

If you have a high confidence that "the correction isn't going to be quick, nor is it going to be soon", then sure, it makes sense to lever up and take on more debt - IFF you're similarly confident that you can get out before prices drop!

Re: your situation - I wouldn't call it stupid, but you do now have a ~50% larger share of your assets in your home, and so you're now that much more subject to future shifts in home prices in your area.

>Are said investors not themselves speculators who would be underwater post bubble pop?

Not really? A lot of the institutional money sloshing around is being invested as a de-risked hedge against more volatile returns. They don't really care if the market goes down temporarily, because their other options would have gone down even more. Additionally, there's a significant chunk of money that's being laundered through these home sales, so they don't really care if they lose 20%. They care that they can now show a source for the capital when they want to funnel it into other investments that have AML requirements. Home owners who are underwater have a disincentive to sell, but functionally unless their income is tied to their home valuation, they can just ride out the downturn, like most people do with their other equity holdings. It only sucks if you're forced to sell.

That said, for the actual small to mid sized speculator, the 'being underwater' fears only hurt if you commence your leveraging the year before the bubble pops. You can just sell some of your portfolio to cover the loss and still end up ahead.

The comparison is between owning 20% of 10 properties vs. 85% of 1. Even if your portfolio takes a haircut, the total volume of equity you build dramatically outstrips the more conservative approach.

There are many who bought second or third homes using the equity from the first home. That's how I understand that comment. At least, you sold it and bought another one.

I think what he's saying is the smart move for investors is to keep the process going (buy property, see appreciation, capture gains upon sale, re-invest gains to buy at even higher price point) until it goes bust. By "continuing to pump in capital and re-leverage based on equity", the prices will continue to go higher until they bust.

When prices go bust, you take your hit on your portfolio, but even then you probably made a ton of money in the process even if you lose some equity at the end.

It's a little different for a homeowner since you need a home to live in (if you don't want to sell does it matter if your home drops in value?). However, it will still suck if the housing market bubble pops and that $1.8M house you bought is now worth $1M, but you still have a $1.2M mortgage to pay.

>I think what he's saying is the smart move for investors is to keep the process going (buy property, see appreciation, capture gains upon sale, re-invest gains to buy at even higher price point) until it goes bust. By "continuing to pump in capital and re-leverage based on equity", the prices will continue to go higher until they bust.

Close, but it's even easier on that. You don't need to sell to extract value from the currently financed properties. Selling incurs transaction fees. You don't want that!

Instead, you just use repaid principal/appreciation to lower the cumulative LTV against the entire portfolio of properties. This means if the market in your area is going up 10% yoy and your down payment is 20% to avoid insurance fees, you basically get .5 house downpayments per year off appreciation, before rent.

Do that for a few years, and suddenly you own a lot of property.

The issue is that demand isn't from 'households'. It's from REITs, speculators and foreign capital.

I would love it if you could forward a source for this statement. Speculators I understand, and they are out there and every down turn burns a bunch out. But REITs and Foreign Capital is less clear. There was a big "the Chinese are buying all the houses" narrative that went around on Nextdoor and elsewhere so we analyzed the County Assessors data base of tax assessments to try to identify how many homes were owned by companies vs individuals. Only a small percentage of homes were owned by corporate entities. But that was just one county so if people have done this in their county and come up with different results it would be great to see them.

>I would love it if you could forward a source for this statement.

You can look up any of the mortgage and housing industry financial reporting pieces. I normally use the ones produced by RBC when looking at the issue, because they're well put together. There's a few put together for assets in the US and EU that I respect, but they're a lot more work to sort through - maybe who has good material for those areas could chime in?

To your second main point: 1) you don't need to be a majority owner of the market to move the market. 2) Foreign laundered capital is not channeled through corporate entities.

I think the published literature is conflicted but leans towards what I'm saying, but there's a lot of behind the scenes things that make the picture s bit more clear, but I can't disclose more for professional reasons.

There’s no way to know how many of those were Chinese nationals because the only group with that data is FINCEN. So how exactly did you do this, and which county was it?

The county tax assessor records are public in California. They include the person or entity who is on the hook for paying the property tax and their address. Most homes in Santa Clara county are owned by the people who live in them and their name and the address of the parcel match the title (also a public record). Companies and property managers have the tax bill sent to the company office. Typically (but not always) LLC ownership included the "LLC" in the name so "Snow garden LLC" was a good sign that it was owned by an LLC but if it went to the same address as the parcel we counted it as being the owner. Similarly for trusts (a lot of people put their property into living trusts) and they have the same sorts of rules.

It was possible to just crawl the web for this information however California has tightened things up a bit and made it harder to do so, you can always go into the county clerk's office however and get access there. Realtors use a service which collects this data and I got access to it through a friend who owns a realtor's license.

Van is a global housing market, not a local one, which throws out any kind of real microeconomics.

If there weren't a huge number of foreign buyers, I think your point would make more sense.

But it's complicated by zillions coming in from elsewhere.

I have lived in Vancouver since the early 80s. Vancouver has always been extremely expensive. The prices have only gone up since the 80s. Our house went from $250,000 which was 50% more expensive than our Toronto house to $1.4M when we sold in 2010.

So unless you are talking geologic timelines, Vancouver sustained unreasonably high housing costs for 3 decades or more (it continues to be high) with no significant pullback and no discernible industry like Silicon Valley.

In the 1980s they blamed Hong Kong immigrants. More recently they blamed the Mainland Chinese. Now is it foreign investment? There has always been a bogeyman in the minds of Vancouverites but they have always been wrong. Regardless what the reasons, the costs have always been hard for regular Vancouverites to afford and yet the prices kept going up for decades.

> Houses cost what people are willing to pay for them. And when people stop paying what is being asked, the price goes down.

I follow that. Is there a delay in the system anywhere, though? For example, does it take a few years for the price correction to happen? Delays can really mess with a system -- leading to oscillations, etc.

Imagine you were selling a house. The absolute upper limit on the delay would be how long it takes for you to come down on the price if there are no buyers (a month at most). If there were other sellers who may have already waited for a while, the delay will be even shorter. Houses are less liquid than stocks so the delay is relevant to some people, but it's much faster than the timescale over which housing shortages play out.

Or you own the house, but have external factors like your mortgage; or psychological factors like "I don't want to lose money on it." In which case you will pull the house from the market, rather than correcting the price. Or alternatively, not list it in the first place unless you are distressed. Any of these outcomes reduce supply and would cause prices to be stickier.

There is a huge delay in publishing the prices for which houses were sold. In an ideal world, we would really know how many offers were actually in play and what was it sold for the day after it is sold. Access to that information varies and there are lots of insider-trading-like actions done with this information.

The inefficiencies are the regulations preventing housing from being built and property taxes from rising. In a free market system, when the price of something goes up so does the supply. Since that can't happen, the market can't adjust.

Even without regulations, it takes a while to physically build a large number of houses and create enough infrastructure around them (roads, parks, schools, shopping, etc.) to make them appealing to consumers. It's not like you can print out entire subdivisions at a moment's notice.

> Houses cost what people are willing to pay for them

The cost and availability of new construction also influences that.

Right. The house itself isn't interesting. It's the land + limits on making high rises.

Those that already own have a strong incentive to kick the ladder down, so to speak, and try to make it so that no new houses can be made.

To have bought in Silicon Valley in the early 90s after the S&L crisis and Japanese bubble pop.

Anyways, it will continue to go up and down, it’s never different this time. If you are in it for the long term it doesn’t really matter that much l, but if you are speculating and heavily leveraged....

I completely agree with your assessment, but I find it troubling that the government has incentivized the idea that “homes are an investment that should always go up.” While less so in California, municipalities typically have a short-term incentive to support high prices through property taxes, although society would net benefit by putting capital to more productive assets.

It has been my experience that the bank is pushing the "this is your biggest investment" mantra. That may be unique to the area, governments (perhaps because they know their tax rate is capped at 1% + local taxes) do not seem to be involved.

Article says sale prices dipped in San Mateo and Santa Clara counties, stayed flat in San Francisco, and rose in the East Bay and Marin county. We are likely just seeing the effects of the center of gravity for the tech industry shifting out of Silicon Valley towards SF.

That shift already happened 8 years ago, it's now shifting back to SV.

Doesn’t explain why san mateo dipped. It’s pretty chill commute from here to the city. That maybe just increased supply...

If most 2019 Bay Area IPOs succeed, some say this will introduce over 10,000 new millionaires to Bay Area [0]. And most of them are unlikely to leave and quite a few will likely want to have a house. I can only guess how this will impact house prices.

[0] https://www.google.com/amp/s/www.dailymail.co.uk/news/articl...

California makes it very expensive to stick around since you pay a lot of income tax if you sell. Of course some will stay but a low 7 figure windfall pre-tax will not get you much house, especially if you need a bigger house to start a family, and many will be tempted to not pay a state income tax by moving out of state.

Depending on what form your equity takes, California may still tax you if you leave. For ISOs, it's relatively simple, if you're a resident at the time of the Federal taxable event, it's a California event. For RSUs and NSOs, it's California taxable for the portion of vesting that is California sourced: the time where you were a California resident, or working in California. (Caveat: the rules are vague, you're required to use a reasonable method of apportionment and work days is documented as a reasonable method)

Yes, mostly relevant for earlier employees of these companies that were awarded options that they’ve exercised but have not sold their shares (the taxable event)

So that's 10,000 people and the city SF Bay Area has 7.15 million, and 880k live in SF proper. It doesn't sound like it'd make a very big dent in prices.

What’s the float though, the number of homes for sale?

https://sf.curbed.com/2019/1/2/18165468/san-francisco-home-s...

About 2 years worth of new millionaires.

I think of the housing market here largely as “the latest crop of FAANG/unicorn millionaires duking it out to get the best schools for their kids”

sfgate reported that only on the order of like 5600 single family residences were sold in SF proper in 2018

Still, introducing 10k new millionaires will make a difference. How many multi-million dollar homes are potentially for sale?

Also consider that if someone is selling one such home, unless they're leaving the area or offloading an investment property, they're likely trading up (which means there's not a net change in the number of available multi-million dollar homes.

As a millionaire, I still can't understand how people buy houses here. You are dumping all of your money into a vastly overpriced asset (vs the rest of the country), with the hopes that in 30 years the valley will be minting multi-millionaires to buy you out so you can retire.

It's an undiversified portfolio. Sure you could afford a house if you put all your income towards it, but would that be wise?

Which is exactly why I don't think all of these IPO millionaires are going to buy. They're going to park their money somewhere -- whether they continue to hold company stock, or sell it in exchange for index funds -- there's a multitude of other options for what to do with their new-found wealth, and it's an unrealistic to think 100% of them will buy a Bay Area house.

From the article:

> Compass states 5,644 properties were sold in the city last year, 2,208 of those were single family properties and software employees represented more than half of the buyers.

10,000 home buyers would take 2 years to consume all SF properies and 4 years to consume single family homes.

That's assuming every millionaire wants to buy a house, and doesn't already own one. I think it's a bit charitable to say 100% of newly minted IPO millionaires are willing to extend themselves that far, especially with the widespread belief that we are are on the verge of a recession.

What's the methodology behind 10,000 new millionaires?

In the community of rank and file engineers at unicorns, as I understand it, most people are expecting high five figure to low six figure windfalls. Will there be millionaires among very early employees and/or the C suite, sure, but that's maybe a couple hundred people at the largest companies.

Maybe the new Federal tax S.A.L.T. deduction limit?

Also the new 750k cap for the mortgage interest deduction.

Indeed. The prices rise and fall based on the buyer's monthly budget. Taxes go up, prices go down. Mortgage rates fall, prices rise.

You'd think so, although doesn't this usually take a couple of years to happen?

It might take people a while to realize their taxes changed but mortgage rates are instant. The loan you can afford on a given payment goes up and down with the rate without delay. Since most people go house shopping with a preapproved mortgage this has an immediate effect on the market price of houses.

This does not mean that RE prices react suddenly; it takes years, usually, and you see markets not clearing and inventory sitting around rather than price corrections. Otherwise there would have been plenty of RE steals to snatch up in 2008; yet, outside of one or two ridiculous areas, there weren't.

Funny to be downvoted for noting sticky prices. I don't make the rules!

Higher interest rates too.

> The record streak of rising Bay Area home prices started in April 2012, when the median sale price in the nine county region was $425,000, according to CoreLogic. Over the next seven years, median sale prices have more than doubled, hitting a peak of $935,000 last May.

Wild housing inflation is similar all along the west coast, with many areas doubling, tripling, or more in price over the past 6-7 years.

All the more reason for tech companies and startups to look at other parts of the country. The midwest, south, northeast, are all so much more affordable.

When tech companies have work that does not need to be done in the SF/NYC/SEA, they go straight to India, Eastern Europe, and (increasingly) Latin America. There is no role for mid-priced US cities.

Which makes sense. They are trying to maximize human capital : cost ratio. Ordinary American cities are good at neither. You go for the highest human capital or the lowest cost. And in some dirt cheap places you can still find a bunch of underemployed people with STEM education.

Somebody needs to tell that to Austin, Texas, they don't seem to have gotten the message. Denver/Boulder too, though housing there is getting pretty high as well.

Even if it seems high, you get a lot more for the money.

$1700 will get you a luxury 1bd (600+sqft), new/recent construction, a pool, bbqs, "sky lounge", 5-20 minute walk to work, and so on.

From what I can tell, it takes more than that just to get into a shitty box in SF.

True but you’re going to take a 30-40% paycut all to reduce your rent by $1000-$1500/mo. Rent goes down but a car and an xBox cost the same everywhere.

We are exploring moving a bunch of engineering to Mexico. The difficulty and expense in recruiting engineering talent in the bay is insane. So far we've found really great engineers through a company called Wizeline in Mexico and are strongly considering expanding our footprint there.

If Ordinary American City is Stockton or Fresno, sure, but if they are Austin, Dallas, Boston, Houston, Chicago, Atlanta, DC. I beg to disagree, now start-up scene perhaps has limited destinations. Tech sector is thriving in every major metro in US.

That reminds me of the housing boom from 2003-2008. House values doubled or tripled in many areas. Then the financial crisis put a hurt on the housing industry. I can't help but feel that necessities like housing, food, transportation, etc shouldn't be speculation tools. Frankly, I think the housing, food, transportation, etc should decline in value, but that's another discussion altogether.

The "northeast" isn't much more affordable. I guess it depends on where in the northeast as the northeast is a big region, but housing values near NYC, Boston and even philadelphia has increased dramatically in the past 10 years.

> All the more reason for tech companies and startups to look at other parts of the country. The midwest, south, northeast, are all so much more affordable.

They won't stay that way if tech companies offer a lot of jobs there.

I don’t understand why anyone would buy a house here, even if they have the money. There are so many problems with the Bay Area that won’t be fixed for another generation—-open crime, quality of life, wanton theft and vandalism, open meth and heroin use, property crime worse than anywhere else in the country—-and the quality of housing is crap! Traffic, poor public transportation (still better than other cities, but not amazing), and an incompetent government that seems to thumb its nose at the working class here.

Why not just buy five houses in the south of France or somewhere actually nice and liveable? I’m here for work and as soon as my nest egg is big enough, I’m getting out. Why buy a $2.5m condo and have to watch a homeless camp out your window? I just don’t really get it.

I think you are equating the entire Bay Area to the Tenderloin.

I'm in the mid-peninsula. I've never lived somewhere safer and feel markedly safer after having lived in Chicago most of my life in nice neighborhoods.

I don’t live in the Tenderloin and have these issues. But you’re right, it is a mostly San Francisco issue. It’s also bad in San Jose, Oakland, and Berkeley. Not as bad on the peninsula or in east bay suburbs like Walnut Creek.

similar trend in new york, I think housing prices reached their peak in 2018 and so far they are either flat or slightly falling. in some parts of the country they are not even back at pre 2008 levels, in other parts they have passed pre 2008 levels just recently. sounds about right. now lets wait for that market correction that 75% analysts predict will happen in next 2 years to happen

> similar trend in new york

Similar trend all over the english-speaking world.

UK: https://www.ons.gov.uk/economy/inflationandpriceindices/bull...

Ireland: https://www.daft.ie/report/2018-Q4-houseprice-daft-report.pd...

Canada: https://housepriceindex.ca/#maps=c11

Australia: https://tradingeconomics.com/australia/housing-index

My best guess is it's a rising interest rates thing. My second-best guess is that something has kicked off in China and it's slowly rippling through the world.

didnt Australia have soft crash this year?

I think they're down about 5% year on year, but after routine gains of 5% - 10% a year, I wouldn't really call that a soft crash. We'll see what happens in the coming months.

It's not the percentage amount that matters, it's the rate of change -- which is enormous.

New York's trends are being driven by people playing the market, rather than homeowners, and those folks trying to cash out: https://wolfstreet.com/2019/02/11/liquidity-in-new-york-city...

I wonder if similar dynamics are at play around here.

Looks like the price of starter homes. The high end is still holding up well, and will likely get juiced by the spate of IPOs this summer.

Don't the IPOs have a six month holding for employees? if so they wont be able to cash out well into holiday season.

edit:spelling

It’s typically 90 to 180 days[0]

[0] https://www.investopedia.com/ask/answer/12/ipo-lockup-period...

edit: removed ‘usually much shorter’ which was wrong. Parent stated the right timeframe and I mathed bad.

It's usually 180 days, equal to 6 months and consistent with what the parent claimed.

I'm not in the bay area....However I did recently buy a house. Banks are taking locked out stock, or even pre-ipo shares, as people's "gross value" in order to get people qualified.

What banks? The banks I worked with to get qualified didn't value any of this above zero, they also didn't value tenant income.

They did value whatever the max was you could borrow against your 401k.

That's unusual: whenever we got a new mortgage or refinanced (US Bank, Wells Fargo, Chase, ...), our rental income and the rental cost was included in the calculation.

To clarify - tenant income from renting out one of the rooms of the place I'm trying to buy (not existing tenant income).

Basically the peninsula is unaffordable to own alone, but if I could get a two bedroom and rent out a room I could do it (alternative is having to buy in SF a one bedroom for 780-875k). Banks don't let you do this though and without this I'm priced out of two bedroom units.

I suspect you could create some new mortgage instrument that allows groups of friends to buy a house together since now we typically just do this via renting and splitting the cost for individual rooms (though I hesitate to suggest this since it would ultimately drive up prices even higher). It's also hard to find people willing to risk this, but I think a standard contract structure could go a long way to reducing the social risk.

though I hesitate to suggest this since it would ultimately drive up prices even higher

I went to one open house in SF and the top floor was a nicely updated if small house. The basement/garage? The owner had put up walls to create 6 rooms and 2 bathrooms. The rooms were maybe 10'x10'? Apparently they rented them out to help with the mortgage. You could probably get $500-700/month for each or $3000-3600 for all six?

And that's one reason why parking is an absolute mess in SF even if you get away from the city center. A lot of houses have one or more in-laws (many illegal). And no place to park the car in the garage!

You can absolutely get a joint mortgage with a friend: I did. The real challenge is finding someone you want to go in on a long-term coliving arrangement with, agree with on how to handle home maintenance and the like, and trust not to try to screw you over.

Bank of America will indeed value tenant income, however, you'll need to provide proof of multiple years of steady tenant income before they'll value it above zero.

Wells Fargo will do this for publicly-traded stocks.

Is the market for condos as insane as for houses?

I think I'd be happy with a 1BR in someplace like SOMA where you can walk to everything you need. Conversely I'm not sure I'd want a long commute (across bay bridge, down South Bay, or in Marin) even if I could have a sweet house.

It's a little better, I was looking in SOMA and 1BR is around 875k, but you might be able to find older stuff around 700k.

From what I've heard from everyone everywhere on HN, banks are willing to give you a loan knowing you have a lot of stock in a big tech IPO. (Even if you can't liquidate for 6 months) I don't know how much you need but presumably more than the home is worth.

I'd love to hear some real world examples of people doing this. I'm curious if you need 20% down because that alone will put most of these folks who have been living off their salary alone out. (You can't easily save 20% down in less than 10 years for a $2-4m home on a single startup salary)

> From what I've heard from everyone everywhere on HN, banks are willing to give you a loan knowing you have a lot of stock in a big tech IPO

That could have gotten me in trouble when I was younger. I had startup stock that traded at $50+ on the day of the IPO. When the lockup ended, the stock was trading at $12. At the time, I more likely to think the stock was going to $1200, not $12. I'd likely have ended up owing a bunch of money I couldn't pay off AND a big tax liability.

If I were in that situation today, I'd see if I could find someone who would give me money at today's price and get N shares of stock in 6 months (the duration of the lockup period).

It would've been bad for you, but the bank would've been OK. Mortgages are collateralized loans, so they'd just get the house, plus whatever money you had left, and it wouldn't be a big loss for them.

I don't think you'd be able to get a non-collateralized loan based on putative IPO stock value.

> I don't think you'd be able to get a non-collateralized loan based on putative IPO stock value.

I've heard that people with a ton of stock can find people willing to work with them. If you have $100 million USD in HawtStartup, I'm sure someone who believes that stock is going WAY up would be happy to buy at today's price w/ some discount in 6 months. Kind of like how farmers sell futures. I'm not an expert on the subject, and I've never had the kind of equity locked up, so who knows.

> If I were in that situation today, I'd see if I could find someone who would give me money at today's price and get N shares of stock in 6 months (the duration of the lockup period).

Employees are typically prohibited from shorting the stock.

We tried getting an asset backed mortgage recently. There are definitely some options which don't require 20% down, although they tend to have higher APRs.

Even with 20% or more down though, we found it difficult to get a good APR. There was one lender who offered an APR which was comparable to income based mortgages (~4% for 30 year fixed), but their program had very stringent requirements.

IIUC, they took 80% of our taxable assets and 60% of our retirement assets, and assumed that amount would be uniformly depleted over the mortgage term. That model seems extremely pessimistic, but I guess it accounts for the fact that some borrowers won't invest responsibly.

This lender calculated a debt-to-income ratio by dividing the mortgage payments (plus HOA etc.) by the asset depletion income, and required that the ratio be at least 66. I think different programs have different debt-to-income requirements.

So let's say a borrower wanted a $1m mortgage from this program. If it's 30 years fixed at 4%, the total mortgage cost would be ~$1.7m. To reach the 66% debt-to-income with their formula, the borrower would need ~$3.2m of taxable assets, or ~4.3m of retirement assets! That's assuming no other income, no HOA fees, etc.

There are other programs with less stringent requirements, but they seem to have APRs of at least 5%.

You can get lock-up loans from ibanks to secure down payments.

No they aren't. Just look at affluent areas like Palo Alto which have fallen year-over-year: https://www.zillow.com/palo-alto-ca/home-values/ (or Atherton for that matter: https://www.zillow.com/atherton-ca/home-values/)

I'm skeptical IPOs will affect the market outside SF or Northern San Mateo county, given almost all are SF-based companies [with your windfall, you are going to buy yourself a crap commute in a more boring area?]. Note that SF rents and pruchase prices have gone up a bit YTD, but other areas are flat to falling.

(Finally, people/the media are way over-speculating how many people are going to start buying homes after an IPO. From my experience, going funemployed for a year or so was a more common thing to do with the windfall)

> with your windfall, you are going to buy yourself a crap commute in a more boring area?

Exactly, I'm so glad Silicon Valley made it up to San Francisco for real this decade. This was always long overdue.

The one thing that bothered me most about the bay area was all the people who were more willing to live in cold, foggy, crowded, expensive SF AND deal with a commute to the area with nicer weather (south). Maybe they had family issues back home and have a need to live somewhere that is more "open minded" than anywhere else.

SF weather is neighborhood by neighborhood, with cold and foggy being ubiquitous only in the summer time, which is counterintuitive for tourists. It's anywhere from 58 to 72 degrees almost all times in parts of the city. Nice weather if you know where to look or have a particular preference.

So maybe thats just a secret for you?

But I do like areas that are warm at night time too, which SF is not.

yes, and keep in mind, you need to select "Median Sale Price" from the drop down value. The zillow home price index is misleading (according to their own data) and deviates from whats really happening (median sale price).

and notice how the Palo alto avg days on market has jumped to 77 just in the last few months!

Scary sign. The house across from us sold in 2009 after six weeks on the market and most of my neighbors were terrified the market had completely tanked (the ones who'd been here since the 80s had seen it all and didn't seem fazed).

The last two houses I sold in Palo Alto (past couple of decades -- I'm no speculator!) sold in less than a week, tour -> cash in hand.

I'm getting ready to list my house in Palo Alto next month; the real estate agents' recommendations all cluster about 3X the Zillow price (I have a very large house by Palo Alto standards). And we chose not to talk to the agents who only market to overseas buyers -- they typically overprice and then tolerate a longer period on the market.

From the article:

> Bay Area real estate agents say the market has remained strong in certain areas — especially for starter homes listed at or below the region’s median sale price.

>listed at or below the region’s median sale price.

Price stuff to move and it moves. There's no surprise there.

The last thing I would want to do is buy a home in SF if I made a few million suddenly. It's still not cheap, you'll get killed on property taxes, the house will need work, it will also likely need an earthquake retrofit. If you're already on rent control you could invest it, travel for a long time, and do whatever you wanted. Unless you have a burning desire to buy immediately or hope to make money off SF real estate (Investment, Airbnb, etc) I don't think it really makes sense.

It sounds ridiculous but a few million dollars doesn't actually go that far in SF if you're wanting to be a home owner _and_ retired. If you want to continue working I guess it would be fine but why would anyone want to keep working if they worked like crazy pre IPO?

I suppose if you have a multi unit you could rent the space and live off of that income but now you've just decreased the value of your home significantly and you've taken on responsibility of being a landlord.

This.

You'd think this is the perfect ticket out of here, they'd been waiting for. So many great cities in the US with much lower housing costs and no feces lining the streets.

For me, what's keeping me in the bay area is my social circle. The thought of starting over (late 30s) socially in a new city where I only know 0 or 1 or 2 people... it sounds exhausting and lonely.

Then again, with the money I'd be saving living in a more reasonable city, I could probably fly back here every weekend and still break even.

Or go to London (assuming Brexit has some resolution) or Paris. Way better culture and interesting to live in.

This is really true. I keep an eye on the SF market and $1M will buy you a tiny home (1100 sq ft) that has had little to no upgrades in the last 30 years in a neighborhood that is still "up and coming".

If you want what most middle class would regard as a nice home (1500 sq ft+, upgraded in the last 20 years, in a nice neighborhood), you're looking at $1.5M-$1.75M. Or with 20% down, a monthly payment (mortgage, taxes, insurance) of over $9,000+ per month or nearly 100% of the take home pay for a $200,000 a year job.

Maybe it's just wishful thinking, but houses can't keep going up like that. Take a look at the historical Case-Shiller data for SF[1] and tell me it's not "bubble-like". SF will always be expensive (always has), but this seems ridiculous.

[1]https://fred.stlouisfed.org/series/SFXRSA

Your mostly paying for land, not the building on the land. You can get away with crappy quality in the bay a lot longer than other places because of the climate, which is partly why everything is in such bad shape.

The property taxes aren't especially high and prop 13 means they can't go up more than 2%/year (but can go down if the market drops).

I wouldn't live in SF if I had kids (before and after OK, from my experience) but Silicon Valley is OK if you have kids.

edit: 2% rise, my incorrect number was corrected by dragonwriter.

> The property taxes aren't especially high

Capped at 1% of assessed value, California property taxes under Prop 13 are notably low. You-might in theory in SF, or some parts, have high Mello-Roos fees (which are parcel taxes not tied to value), though I don't think that's he case.

> prop 13 means they can't go up more than 1%/year

Assessed value for tax purposes is limited to 2% annual increase under Prop 13, not 1%.

Alameda County increasing while SF and the peninsula are flat to down should be ringing very loud alarm bells in people's heads. Alameda County is not a sophisticated buyers market. This same county was hit hardest and had the most foreclosures in 2008. Peak prices for this cycle folks. This is your loud and clear indicator.

The folks paying these peak prices do not seem to match the historic demographics of their new neighborhoods. While I agree we’re near the peak, I’m not sure that Alameda is the proverbial canary in the coal mine here.

Gold Coast homes selling at 20% off list (if they sell). Socketsite has a great example. Alameda has peaked and you're screwed if you bought there in the last 5 years.

Macro note: the US still has arguably artificially depressed interest rates as a hangover from the last crash. Even though the economy has picked up, the Fed won't lift to normalized rates. Part of the idea was to re-inflate the value of people's homes after the 2008 crises to get everyone out from underwater but it will have bubbly effects elsewhere.

We forget that these exceedingly low interest rates are a crazy thing, not usually considered consistent with any kind of regular economy.

With the US at historically low unemployment rates, and the Fed still not willing to raise ...

It's like eating sugar and Red Bull at every meal; you'll get ulcers in your California.

I’d like to see a regressive analysis of how many Bay Area instant millionaires have already been created, over the last 15 years or so. Wouldn’t these folks help support the floor of home prices?

So this isn't the same as SV, but I grew up in Waterloo, Ontario. Which is kind of like Canada's SV. The prices have gone just mental over the past few years.

We're looking at buying a house, and thanks to working remotely, I can live anywhere. The result is that by buying a house just 45 minutes down the highway from Waterloo, I get literally 50% more house for the same price.

Location location location is just mental.

"just" 45 minutes? God forbid you need to find another job in the city - thats a 1.5 hour a day commute.

There is a reason why location location location has been a truism in real estate since forever.

45 minute commute in Silicon Valley is considered normal. You'd be expected to show up everyday.

Well duh, this makes sense. But 45 minutes out of the city you lose many of the perks -- easier and healthier (more walking, less car) access to shopping, food, services, etc.

Do you have kids? I still don't understand the suburban escape when people have children. Going from a city with tons of services near you (for the kids!) to driving everywhere.

Yeah, I'm looking to buy a detached house in Waterloo. Doesn't show any signs of economic growth & RE prices slowing.

But it doesn't seem surprising that those 45 mins away is opportunity/convenience cost worth an amortized $250k+ to many.

45 minutes from Waterloo is waaay out in the country. You should be able to 2x your home.

The Waterloo spike is odd: you'd think the death of BlackBerry would hurt ...

But the Canadian economy is built on 'housing mortgages', what's happening really I think is spillover from Toronto.

A lot of folks are leaving Toronto and Waterloo is now having 'just enough appeal' for some: regular home prices, 1 hr from the city, less traffic etc..

And the 'appearance' of high tech.

I wonder if the trade tensions with China affected foreign sales?

I think most professionals in the valley are smart enough not to buy at the peak of the market. They don't want to pay top dollar for a 60 year old pile of crap.

Personally, I think of my time in the valley as limited. I can't retire here, so why would I want to buy? Also, I'm here to work, not care for a house.

Yea pile of crap, and the knowledge that all that money isn’t really going towards infrastructure, government, or local economy, but to the lucky schmuck that was simply here before you.

I would actually prefer high taxes in lieu of high real estate costs, since at least the money goes back to the public.

High taxes are the way rents are high. Because the landlords arent paying them: workers and consumers are. Thats why coffee is 5 dollars, a beer is 8, you have to lyft to work because the 2billion dollar transit station is closed, etc.

Its not about high taxes vs low taxes, its about the right tax structure. SF collects 2800U$S per month per household in taxes!

Do you have a source for your "SF collects $2800 per month per household in taxes" number?

This Quora answer[1] suggests it's more like $3300/person/yr. The 2010 Census says SF has 345,811 households, or about 2.35 people per household. So $3300 * 2.35 / 12 =~ $650/mo/household in SF.

[1] https://www.quora.com/How-much-does-San-Francisco-make-in-ta...

SF budget is 11 bill. That quora answer is from 2011.

https://www.sfchronicle.com/bayarea/article/SF-s-budget-soar....

Even if you cut it inhalf for the general funds, it gives out 1400U$S per month.

OK, I finally did what I think is the real, updated math:

According to [1] from 2018, "Roughly half of the budget consists of self-supporting activities at the City’s Enterprise departments"

So that leaves $5.5B in General Fund taxes.

According to [2], in 2017 SF had 884,363 residents with 13.4% under 18, so 765,858 adult residents.

$5.5B divided over 765,858 taxpaying adults is $7,181/adult/yr, or just under $600/mo.

You can roll that up into households if you want, but it feels more illustrative to have the number be per taxpaying adult IMO. Having said that, I'll buy your $1,400/household/month number as being basically about right.

I don't disagree with your point about high taxes, but I did want to actually see what the accurate numbers were. Thanks for the interesting discussion.

I'm in LA so I ran the numbers down here for comparison... We turn out to tax at $262/adult/mo, so SF's effective city tax rate is about 2.3x vs Los Angeles.

[1] https://sfmayor.org/sites/default/files/CSF_Budget_Book_June...

[2] https://www.census.gov/quickfacts/sanfranciscocountycaliforn...

> You can roll that up into households if you want, but it feels more illustrative to have the number be per taxpaying adult IMO. Having said that, I'll buy your $1,400/household/month number as being basically about right.

My initial comparison was about rent, so household is what I wanted to compare to. When you get a studio apartment for 2000U$S, the state gets 1400U$S. And because they do not raise 1400U$S through property taxes, they are skimming you somewhere else, by taxes that affect your income in unclear ways (business taxes, sales taxes, etc).

A landlord outside of san francisco, renting out that studio aprt, pays a fraction of the taxes that household consumes.

Its a major distortion.

I'm not sure I know too many 2.3 person households that are in a studio apartment, though. Also above we counted adults vs everyone so the numbers are a bit high for the full household - SF turns out to be more like $1200/household/mo.

Looking again at averages [1], we have average SF rent in 2018 at $3787, so taxes account for roughly 1/3 (32%) of the rent cost.

And let's also compare LA at 2.83 persons/household [2] and $2371 in avg rent [3], so tax per household is $583, or about 25% of rent.

I was just curious to compare that - although you are right that property tax is only $1.7B of SF's $5.5B General Fund revenue [4]. It turns out that most of the rest are Business Taxes and "Other Local Taxes", which look like maybe Transfer Tax is a big piece?

...but if your argument is that SF taxes things other than property tax to raise most of their tax revenue, you are correct, but total business taxes are only $880M, or averaging about $26K/yr.

If you look at an average Starbucks, they're pulling in $880K/yr gross or $200K net [5], so business taxes end up at ~3% of gross, plus SF sales tax of 8.5% means you're paying 11.5% or $0.69 on your $6 cuppa joe.

Expensive, yes - but probably not the major reason rents are high. The rent costs on a 1500sf Starbucks might be as high as $80/sqft/yr = $120,000 - 4.6x the impact that SF business taxes have.

So as far as the numbers go, it looks like supply and demand pushing rental prices up are the primary cost drivers in SF, not any sort of "hidden" SF taxes.

[1] https://www.rentjungle.com/average-rent-in-san-francisco-ren...

[2] https://www.census.gov/quickfacts/losangelescitycalifornia

[3] https://www.rentcafe.com/average-rent-market-trends/us/ca/lo...

[4] https://sfmayor.org/sites/default/files/CSF_Budget_Book_June...

The tax that gets passed along in rent is property tax, which in California is generally pretty low[1] compared to other states because of prop 13[2].

[1] https://wallethub.com/edu/states-with-the-highest-and-lowest...

[2] https://en.wikipedia.org/wiki/1978_California_Proposition_13

Property taxes are not absolutely economically incident on rent, raising property taxes will affect renters in ambiguous ways. But sales taxes definitely punish workers (and lower the income the worse), while low property taxes favor landlords.

But the high taxes merely a symptom of high property values, which are the root cause of the problem. Taxes are necessary or there would be no incentive to repurpose properties for maximum utilization. In fact SF property tax rates are lower than most other states.

The problem is some sort of artificial constraint on property supply, making land both under-utilized and increasing its value to enrich the incumbent landowners! The bulk of the benefits goes to the landowners still—before, and during growth.

Taxes ensure that current landowners cannot keep all the profit, but if they owned the land before the prices skyrocketed, they're still the main beneficiaries of all the cash flowing in.

> Taxes ensure that current landowners cannot keep all the profit, but if they owned the land before the prices skyrocketed, they're still the main beneficiaries of all the cash flowing in.

If all the taxes SF levies were on the land, landowners would not make that much profits because it would strongly eat away at their earnings.

High taxes are not a symptom of property values, high city spending is a cause not a symptom.

But it’s California! You can have both!

Hard to say what the peak is? I arrived here in 2015 and things seem overheated, but prices have just continued to climb. The tax changes seem like they should have dampened things but they haven't too much.

You forgot that Chinese economy crashed heavily last year and this year. In addition, Chinese government really stepped up the blocking of money transfer out of the country

"I think most professionals in the valley are smart enough not to buy at the peak of the market."

People don't know when the peaks are, that's the point.

I lived in SF during the dot-com and everyone through prices were insane and were due to collapse any time.

The factor they kind of glossed over is the bumpy stock market last year. People who are looking to buy something in the bay area are going to sell all that company stock they've gained over the years to buy a place. So if the tech sector drops for a year then people are less likely to sell their stock to buy a home.

No one mentioned the magnitude?

"Resale home prices dropped year-over-year in February in Santa Clara County by 16 percent"

"Santa Clara home prices fell from $1.29 million last February to $1.09 million this year,"

Doesn't -16% y/y qualify as "crashing" in the real estate?

On an average tech salary, it's relatively easy to save enough to buy a 1 bedroom condo after a few years. The homes that are the highest in demand, at least in SF, are single family homes, which average at least $2m.

Buying a house and settling in the Silicon Valley/SF/etc... does not make any financial sense whatsoever. They are all pretty much overpriced, crappy and old. Even the quality of the new "luxury condos" is crap. Seriously, take a closer look at the quality of the windows, walls, doors, floor, everything...it is all paper thin cheap stuff way overpriced. Not to consider taxes, earthquake and fire insurance.

Cost of life, school, pre-school, daycare etc, they are all crazy expensive. Public transportation is nearly non-existent. Traffic is insane. People who live in SF wake up at 5.30am/6.00am to catch the bus and commute to the Valley oO. They spend at least 2hours if not more a day in traffic.

The only thing that imo makes sense is to move there, save as much money as possible. Maximize your 401k and pension plan contributions. Don't work in scrappy startups for a low paycheck and stock options (most startups are doomed to fail or will never go IPO) but prefer instead bigger companies or close to IPO ones that have a good 401k matching plan, bonuses, incentives, and higher base salary.

Get a new job every 2/3 years, so that you can increase your salary quickly + signing bonuses.

Do this for ~10years and then move to a normal place where you could buy a super nice house in cash and then work remotely.

>> move to a normal place where you could buy a super nice house in cash and then work remotely.

Can't you do that without doing time in Silicon Valley?

Yes, but there is probably a lot of value in the network you build would would make those remote jobs easier to get.

There's definitely something to be said for the rate at which you can learn to be a strong developer in SV / similar tech hubs, because there's a lot of good mentors in the area to absorb knowledge from.

The short answer is no. I find people that attempt to do this without having worked in the valley always end up with some milquetoast quality to them that people in the valley can always pick up on. You could maybe fool people who are not from the valley, but you will never fool the valley.

The much longer answer is yes, but I do not have the time to explain it.

It's almost impossible to start a new job remotely.

I've started a new job twice in the last 6 years working remotely from North Carolina (after already having been established here in NC), and not in one of the tech-heavy areas (RTP / Charlotte).

In the first remote job I worked nearly 3 years at a Santa Clara, CA startup. I've been almost 3 years at a large 10K-plus employee Mountain View, CA company now ... first non-startup in 20+ years. It helped that both jobs came through my network.

Why? I see lots of jobs listing ads for remote positions.

No it's not. I mean... what are you even talking about? There are hundreds of remote-only or remote-first companies that hire new remote hires.

SV is not the only tech hub in the country. Others are also expensive, but not that expensive. And if you're willing to tolerate commutes as long as SV, then it can be much cheaper.

Men, sounds like people spending 4 h on a bus. Well with a laptop, you can start you startup in a bus at least.

So it’s WeWork, but on a bus?

If it's the company bus, does that mean you are on company property?

Or just start your career in a city like Chicago, work normal hours, take public transit to work, buy a condo after saving for a few years, then when you're ready to settle down: buy a SFH in the bungalow belt or one of the nearby suburbs.

Pretty much sums up my life in bay area. Saved some money, bought a house.

Chicago may be on track for bankruptcy if they can't get their pension costs under control.

Same goes for almost every single blue state.

Especially for California.

It's a national pension crises.

That’s a a when, not an if. The Illinois Supreme Court ruled unanimously that state pensions are sancrosanct. Illinois and Chicago will go bankrupt and absent changes to the state constitution state pensions will not be touched during the process.

> Chicago’s land tax and how the city survives being such a fiscal mess

> But wait, isn’t Chicago a fiscal mess? How about the state of Illinois? It remains the case that living in Chicago is still remarkably affordable, and many of the neighborhoods have wonderful food, buildings, and offer a relatively safe (not always) and walkable environment. You may even hope to find a parking spot.

> I would put it this way: there are many ways to impose a Georgist land tax, fiscal insolvency being one of them. Very wealthy people and institutions know that if they relocate to Chicago, they will be required to ante up for the final bill. And so they stay away. For a city of its size and import, Chicago just doesn’t have that many billionaires, nor do I think a rational billionaire should consider moving there.

> In other words, there is a pending wealth tax. Either directly or indirectly, this will place fiscal burdens on Chicago land, the immobile factor. And this keeps down rents in Chicago now.

> Overall, I do not recommend this fiscal course of action, and Chicago may well become a worse city due to eventual insolvency at the local and state levels. Still, if you are wondering how it is that Chicago is so affordable — and wonderful — right now, this is part of the answer.

> I also should note that not every neighborhood in Chicago benefits from this equilibrium, as in some parts gentrification is difficult to come by.

https://marginalrevolution.com/marginalrevolution/2018/02/ch...

The canonical “I can’t/don’t want to afford to live here therefore it’s crazy/dumb for anybody else to” position

It's fashionable to hate the Bay Area here, but these kinds of comments are stereotypes, nothing more. It's perfectly fine to not like the area—I could happily live in L.A., Austin, Portland, or Chicago (well, if not for the winter) too. But portraying the Bay Area as some kind of hellhole is just silly. I've been here for ten years and have no plans of leaving anytime soon.

> They are all pretty much overpriced, crappy and old.

My SF condo is new.

> Seriously, take a closer look at the quality of the windows, walls, doors, floor, everything...it is all paper thin cheap stuff way overpriced.

Windows, walls, doors, and floor are all actually high quality in my condo. I haven't had any problems whatsoever with them.

> Not to consider taxes, earthquake and fire insurance.

I recently did some back of the envelope math on what my taxes would be in Texas (where I grew up), and the lower property tax rate here in SF (due to Prop 13) roughly compensates for the high CA income tax. It's pretty much a wash. The main difference is that property would be cheaper in Texas, so the tax rate would be lower, but for the same property value the taxes end up about the same.

> Cost of life, school, pre-school, daycare etc, they are all crazy expensive.

Aside from housing, cost of living isn't that different, at least if you don't have kids. Things you buy from Amazon cost the same. Maybe it'd be a different situation if I had children.

> Public transportation is nearly non-existent.

Compared to NYC or Europe? Sure. Compared to Texas? The transit here is a dream. I take the Muni (or walk) to work every day, and I don't own a car and don't plan on purchasing one.

> Traffic is insane.

SF traffic is nothing compared to Los Angeles or even Austin. Not having a commute helps.

> People who live in SF wake up at 5.30am/6.00am to catch the bus and commute to the Valley oO.

Not me.

> They spend at least 2hours if not more a day in traffic.

Not me, not by a long shot.

> The only thing that imo makes sense is to move there, save as much money as possible. Maximize your 401k and pension plan contributions.

I do that, but not because I want to move away (if I did, it'd be somewhere else in California most likely). Rather it's because I want to maximize my chances of staying, regardless of the economic situation in the future. I quite enjoy my quality of life.

> Get a new job every 2/3 years, so that you can increase your salary quickly + signing bonuses.

I've been working at the same place for a decade and enjoy it.

> Do this for ~10years and then move to a normal place where you could buy a super nice house in cash and then work remotely.

Aside from the fact that buying a house in cash is not necessarily a great idea even if you can afford it, no thanks. I actually like it here and don't want to move elsewhere. And it's easier to get jobs locally, and I'm obviously not planning on retiring anytime soon.

>Aside from housing, cost of living isn't that different, at least if you don't have kids. Things you buy from Amazon cost the same. Maybe it'd be a different situation if I had children.

Transportation costs are much higher in the bay area than normal parts of the country. Gas is usually $1/gallon more expensive (bay area electricity is about 2x as costly as the national average), car insurance is high, and the congestion is substantial.

Also, housing is always the majority of what "cost of living" even means.

I pay $30/month in an average month for electricity and $0/month for gasoline (TBH I don’t own a car, so a more realistic measure is I’ve probably spent about $50 this month on a Lyft ride, new brakes for my bike and a few transit rides). The point being, energy doesn’t have to be expensive if you aren’t blasting the heat, driving everywhere and doing who knows what else.

It's very non-uniform though. My 10-year-old car has 30k miles on it; at 40mpg and $3.50/gal gas, that's about $260/year on gas. That's because I lived 2 miles from work and biked in during the summer while I was at Google, and I've been working from home while I'm at my startup.

A lot of FANG employees pay nothing for transportation because they take the shuttle and don't have a car.

If they live in a place with walking access to a shuttle (and enough walking distance amenities that they don't need a car), they're paying a lot in rent.

I wager you're paying more for car insurance than you spend on gas - car insurance is more expensive in the Bay Area than the rest of the country.

The price of gas certainly affects the contingent workers (guards, cooks, cleaners) whose work schedules don't line up with the shuttles.

> these kinds of comments are stereotypes, nothing more There is nothing fashion about my comment. We clearly come from different lifestyles. I see comments like yours when I talk to young tech professionals, who are not married, no kids no strings attached. Yes, you can make a living in SF.

Usually, they have no idea what it means to leave the office (no time for nerf gun and beer) rush to the school to pick up your kids etc ... Or, they shut down the swimming pool classes because the teacher can't afford to live in the city. Or, they shut down the daycare for the same reason. I see completely the opposite kind of comments when I talk to tech professionals with family and kids.

> My SF condo is new. You have probably missed that I have also classified "new condos" quality as crap. See "Even the quality of the new "luxury condos" is crap" And yes, I did live in some of these fancy new condos. They are overpriced because SF, but don't call them "luxury". I know what luxury looks like and they are not even close.

> cost of living isn't that different, at least if you don't have kids... Right.

> Compared to NYC or Europe? Compared to the fact that given the amount of money gravitating around the bay, the current state of public transportation it is just ridiculous. I have used the muni/bart/caltrain for years and I know what I am talking about. I know what a good public transportation system looks like and the bay area is well far away from that.

> SF traffic is nothing compared to Los Angeles I did not specifically say SF traffic, but Bay Area traffic. More and more families and professionals are moving out SF, this means they are now commuting from east bay, south bay, etc ... and the traffic is ridiculous. I have also friends commuting south bay from SF .. it is hell.

> I've been working at the same place for a decade and enjoy it. Good for you.

> Aside from the fact that buying a house in cash is not necessarily a great idea Yeah, let me rephrase that. What I really wanted to say was that you can probably afford a much bigger downpayment (~50%) and have a very very low monthly payment compared to Bay Area where nowdays you are looking at ~$300.000 downpayment and ~$5000/$6000 monthly payment for the next 30years for that crappy ~1.2M old house 2bed 2bath in some not fancy neighborhood.

No thank you. I know better places where I already know I am moving when I am done here.

Again with the stereotypes. I've never worked at any "nerf guns and beer" place in my life.

I made ~300K selling my first home. And have already accrued ~500K in home equity for my current home. This is bad financial advice. I have seen people posting in this forum over many years how buying in SV is a bad financial move. When , I believe, it is actually a very prudent financial move.

Past returns don't guarantee future returns. The day before the peak of the bubble always looks like an attractive time to buy. I don't think SV housing is a pure "bubble" per se since it's single family housing in a region with strict supply caps, very high wages, and close proximity to millionaires, but its continuing rise is contingent on those conditions continuing.

> Past returns don't guarantee future returns.

Yes. But that's essentially a platitude that doesn't help making a rational decision. You can apply the same slogan to the stock market.

Here's how I look at it: for the real estate market, how many periods were there were you'd end up having to sell lower than what you paid for it when you bought?

A few thoughts:

- You can currently rent a house in SF for less than 50% of what the ownership costs would be. That offsets equity gains significantly. To the tune of $60,000 per year on a $1M home. If you make $250,000 in equity gains in 5 years, you've basically broken even with renting (the $50,000 accounting for paying down principle).

- What you said is what everyone was saying in the early 2000's before the housing crash. "You'd be stupid not to jump in when prices are going up so fast!" That said, I don't think SF is the same situation.

- Until you lock in that 500K in home equity on your current home by selling it, I wouldn't assume it's given.

I'm not following your math. PITI for a $1M house with 20% down is around $5,000/month. You're saying you can rent a $1M house for $0/month?

Condos similar to my apartment cost about 2x as much monthly, after 20% down.

I wasn't disputing the possibility of that, I was disputing the possibility of coming out $60K/year ahead by renting a $1M house instead of buying it.

Your home value is decided by the stroke of pen. Something to remember.

Though given the state of local zoning laws I think you'll be perfectly fine for a long time.

Seriously, take a closer look at the quality

FWIW, growing up in SV the low quality was invisible to me because I didn't know anything else. I didn't know it was crap. It wasn't until I lived elsewhere that I saw the nose on the face.

I wonder if some of this is the moderate climate. I live in Utah and my house has 2x6 walls with lots of insulation. I suspect that's all about keeping me warm in the winter and cool in the summer. In CA the temp changes less so you need less of that insulation. That doesn't excuse the expense, of course.

Yes, I make a similar argument about the roads as well. Winter is hard on roads & buildings. Subzero temperatures, ice dams, & two feet of snow on your roof make quick work of uninsulated shacks, while ice & snowplows demand a regular cycle of road repair. In nice climates on the other hand you can scrape by with slowly crumbling roads and declining housing stock for decades.

Consequences of the climate as well. Because we get no frost, termites are endemic here. Pretty much every house needs to be tented every 5 years or so, and after 30-40 there may not be much foundation left. Doesn't make a whole lot of sense to build to last when it's not going to last anyway.

Same thinking for earthquakes & wildfires. Over the short term, CA is paradise. Over the long term, it's temporary. That kind of thinking suffuses a lot of the CA worldview.

New construction is generally considered to be crap nationwide. It's not unique to the bay area. Of course, you're also insisting the OLD housing stock is crappy, so..

"People who live in SF wake up at 5.30am/6am to commute to the Valley" .. well, there are people who make poor life choices the world over. Living in an urban area to commute 50 miles to a suburban area rarely makes much sense (other than the fact that it's a reverse commute). It has nothing to do with traffic being bad, frankly. The reverse commute is actually pretty fast. If you're commuting from the suburbs to the city, that's where your bad commute comes in.

I commute from the peninsula into SJ and do 85-90mph pretty much the whole way (EV+also carpooling), at 7:30. If I commute solo in the non-carpool lanes, it takes me a horrific 25 minutes to go 20 miles. Maybe 30 or 35, at the outside, on the way home. I didn't choose this commute; I used to bike commute until my company got acquired, but I'm still quite happy with my commute. Again, if you choose a crappy commute, you'll have a crappy commute. If you want to live in the city, you should probably choose to work in the city, which has only become much more viable in the past 10 years as many tech companies have moved north.

Pretty sure there's nowhere on that route that allows that speed limit. Please don't endanger the safety of yourself and others to shave a few minutes off your commute.

I remember being in Silicon Valley in 1994 and people had the same sentiments.

"$300,000 for a house?!? that's crazy!"

Funny. That's not what the link says: "/bay-area-home-sales-dip-as-prices-continue-to-rise"

Headlines change for various reasons, but slugs are forever.

They should've adopted an addressing scheme like StackExchange's where its numeric_id + '/' + descriptive_text. That way they could've changed the headlines and the links all they wanted. The server would've ignored the changing text and used the id.

Slugs should be GUIDs! :D

Slugs are one component of SEO.

Lots of unfortunate realities in life.

> slugs are forever

But with an HTTP 301, they don't have to be. ;-)

We all know Supply is severely constrained. So, ultimately, it's all about demand which determined by how many employers are hiring.

Have google and facebook cooled off their highering now that they may be facing potential regulations/being broken apart? Have other companies reduced their highering in the area?

It's not just supply of new homes, but also existing homes. Inventory for sale at any given time in the bay area is really low. Things like Prop 13 give people a LOT of incentive to stay put and not leave (until they are ready to never come back).

Combine that with a small group with extremely high incomes and you've got a recipe for outrageous home prices.

Or pass it on to their estate and never pay taxes on it.

I want to believe you, but you can't spell "hiring".

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