San Francisco median home hits $1 million
bizjournals.com
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Lower cost of living, less restrictive zoning laws, and a more business friendly legal system.
We're developers. We know shit-all about common vic licenses or actual brick and mortar business, those of us who own businesses incorporate in delaware anyways. Supply and demand of housing stock is much more important than 10% marginal friction in dealing with regulators (who we don't deal with anyways).
Austin will succeed or fail at continuing to grow based on how much they can grow their housing stock without turning into a gridlocked nightmare.
I'd say that even if you hypothesize a gain in not-paying-taxes of, say, 5% of income -- that doesn't change the game compared to local economy, as evidenced by the house prices that TFA is talking about.
It's not all about politics. Everyone says they believe in the free market, maybe they should look there first for an explanation of the housing prices.
SF: ~1.25% appraised value
Austin: ~1.9%-3.1% appraised value
(consider the typical "appraised value" in both locations and think in terms of actual dollars)
Sales tax:
SF: 8.75%
Austin: 8.25%
State income tax:
SF: usually 8%-10% for tech folks
Austin: 0%
edit: You had a reply that reiterated that TX still can't print money, but deleted it. My response is that you're ignoring the other option, which is to spend less. TX doesn't have a super-train-to-nowhere project or other spending issues that CA has.
CA ranks 4th in per-capita spending, with a (pre-federal) budget of nearly $146 billion. TX ranks 50th per-capita, with an $80 billion budget.
Political conservatives go on and on about the free market and then say with a straight face that a single government policy, income tax rates, is the most important thing to business, more so than market conditions, even if that narrative conflicts with the empirical evidence.
We've been hearing about the decline of liberal CA and the northeast for so long now, and it hasn't happened yet. House prices will probably come down and soak some of the new dumb rich, and things will proceed as before.
Texas is doing great, and all power to them, but by the time they eclipse CA/NY, they'll be liberal too.
California's a big place. You can get an awesome house on some property for $150k in many many places in CA. The million-dollar homes are concentrated mostly in SF (+Napa/etc) & LA (+Santa Barbara/etc). IMO a lot of it is the tradeup nature of housing - buy a $300k house, sell it 10 years later for $700k, buy another at $800k, sell 5 years later for $900k, buy at $1MM, on and on. And since SF/LA are centers of business, that's where the people earning that kind of dough live. The $500-700k inventory in the Bay is fiercely competitive, and what do you know, that's the price range two young married techies are looking in. Not a coincidence. I agree with the poster upthread who predicts that once the new generation realizes they're basically permanently priced out the whole area will collapse.
> We've been hearing about the decline of liberal CA and the northeast for so long now, and it hasn't happened yet.
It's been in progress for a long time and shows no sign of slowing. We've got big swaths of folks who are protected in the armored bubble of technology, but for the average folks things are worse than ever. I could go on and on about business owners I know making plans to evacuate, or the scores of friends rich and poor who have fled, or the stories of the behind-the-scenes trouble from friends and family in the CA government, or just plain looking around up and down the state, but the bottom line is that only time is going to tell. Eventually, one of us will be proven right and I sincerely hope it's you.
Rather than wonder why reality isn't as one would predict, it would be better to understand why it is the way it is.
In most cities with poor transit, living out in the suburbs is totally different from living in the city. You might only ever go into city on rare occasions. In New York, you can get much more affordable housing in say Westchester or New Jersey, and still work in Manhattan, with access to all the jobs Manhattan has, with a very reasonable commute.
http://www.census.gov/hhes/commuting/files/ACS/Commuter%20Ad...
As far as the increase due to commuters, 20% is very low for any area with corporate offices and not just residential neighborhoods. Manhattan grows 95%. In the Bay Area, Mountain View has 75,000 residents, and Google alone brings 25,000 people in each day. Palo Alto (the next town up the 101) also grows ~80%.
Even nearby San Jose has a higher proportion of reverse commuters than San Francisco, much higher:
http://www.sfgate.com/news/slideshow/Palo-Alto-families-earn...
Proportionately, you're about 10% worse off in SF.
http://www.redfin.com/CA/Pittsburg/1171-Summer-Way-94565/hom...
Commute to SF on BART.
Pay no attention to the crime, terrible schools, entire neighborhoods that have been foreclosed or never finished, etc.
My rent did nearly triple AND i went a little down-market from the high-end condo I had in FL.
But my other expenses didn't increase more than 50%.
At the same time, my salary without including options is 85% higher. Including options (I work at a somewhat recently IPOd company) is 122% higher.
My wifes salary -- she's not really in tech -- also increased 25%.
In total, we are far better off financially now than in Florida. And to be clear: In florida my income was a multiple of the median HHI. I was not underpaid there.
Most importantly, though: I can't swing my vintage IBM XT without hitting a half dozen job offers. Seriously every experienced engineer here gets pitched via LinkedIn on the regular.
I'm not trying to sell you on it. But the way you wrote your comment, "romantic notions" and all, was a little condescending. As if it's some foolish thing. Like you have all these analytically minded engineering types going like lemmings.
We may move at some point to another tech-heavy city like Austin or Boulder or, ya know, whatever. But as techy as those places are, truly NO other place can compare to the density of startups and tech companies here.
With salary boom, for many foreigners the disposable income after paying rent still exceeds disposable income in their home country, so until salaries are where they are, for a bunch of people the current price levels are still a sustainable and highly desirable proposition.
This real estate hyperinflation is going to destroy the very engine of class mobility and youthful enthusiasm for a better life that powers the Valley. When that's gone, the Valley will decline. When the Valley declines, the local real estate bubble will pop.
Want a historical example? Detroit. It once had the highest average income in the U.S., and now look at the property values there. The reasons for its collapse are different and it's unlikely that SF (which is desirable for other reasons like climate and landscape) would ever fall as far or as fast as Detroit, but it's illustrative nonetheless. It shows that one should be cautious about long-term value in overinflated one-horse-town economies.
And if SF is not a one-horse-town, it soon will be. Industries other than tech will succumb to the lure of lower costs of doing business and leave.
Beware. The liquidity of these markets is vastly lower than that of equities. Also remember Keynes: "The market can remain irrational longer than you can stay solvent" or in this case longer than the contract durations offered.
We had a townhouse in the South Bay (which has been going up very quickly too) that we sold a few month ago. We got $100k more than we would have about 9 months earlier.
It's madness.
(We moved a few hours away a couple years ago and had been renting it...)
yeah, if you can time markets, there's all sorts of ways to make money.
Me? I refused to buy when I got my first "real job" in '98, because clearly we were in a tech bubble and a real estate bubble.
I should have bought then. Even if I then sold at the depth of the crash in '08, I'd have still been ahead.
I mean, I'm not saying that the current bubble is similar; all I'm saying is that seeing that it's a bubble is easy; timing that bubble is /hard/
But I live in a 2/2 duplex in a desirable SF neighborhood and pay $3100.
If you like it, good on you. Real estate more than almost anything else really does take all kinds.
My challenge is that I want some room for kids - more than 2 bedrooms, a yard where they can play and still be somewhat supervised, no sharing walls (for me AND for the neighbor, what neighbor wants to hear a screaming baby through their $3100/month duplex walls?).
I moved south of SJ. Still not cheap, but I've got the big SFH 30 mins outside of SJ for less than $3k.
Not everyone desires suburbia but if you do, prepare your wallet.
There's no shortage of jobs here in Denver, and that kind of money can last a long time here, even without working and living modestly.
Do you absolutely need to be in the [EDIT] Bay Area?
If the answer is no, then there are a lot of other cities with reasonable tech scenes and much cheaper housing. Boston and Seattle are around $350k median home value. Denver, Atlanta, and Minneapolis-St. Paul are around $200k. Those places all count as "somewhere to live", and don't make life particularly difficult (unless your life revolves around something specific to SF/SV.)
If you're particularly attached to and fulfilled by everything you have where you are, maybe you should stay, even if it costs a million dollars for a 2 bedroom house. Personally, I've got family, friends, fulfilling work, fun stuff to do, and a much bigger house that cost under $200k where I am. Life is not "very difficult" here; it's quite pleasant.
EDIT: to phrase it slightly differently, you're criticizing others for assuming people can relocate or assuming people might prefer Denver for the extra money. Yet you yourself assume the Valley is the only place that makes sense to live. That assumption simply isn't valid for most people.
It's possible we're both criticizing folks who don't actually exist.
If you currently own a home in San Francisco, its pretty clear you don't need to live in the Valley, in the same way that if you currently own a home in New York City, its pretty clear you don't need to live in Trenton, NJ.
I wouldn't be so sure of that. The appeal of a particular location as a place to live will usually long outlast the activities or culture that put that location on the map in the first instance.
San Francisco is a strong brand, and demand for housing in the city is going to remain strong for a long time to come.
Median home prices (which are actually median prices of homes sold, which is important to keep track of) in California are deceptive right now because there is very little inventory for sale. What is being sold is mostly being sold at high prices, because very little is being sold at all, what is being sold tends to be sold by people who are fairly well off (and thus, to be high end) because the collapse hollowed out much of the rest of the market, and banks are a lot more reluctant to loan than they were before the crash, so the people that are able to buy tend to have lots of money.
Its not a rapid rise in market value of existing real estate, or even a rapid rise in the price for like real estate.
SF prices 1996-Mar 2013 http://my.paragon-re.com/Docs/General/SixtyFortyImages/Case-...
I think housing in SF is very dependent on 1) the tech boom and 2) the baby boomers who own property in the south/east bay (but wont sell because they missed out on the 2008 sales price). Both of which are temporal in nature.
SF may always be a enclave of the wealthy, but if the rest of the bay area goes to shit, prices will drop. It may not get massacred like SJ eventually will (after the baby boomers houses start hitting the market en masse), but even those wealthy enough to live there will feel it.
What will change this is when the wave of deaths hit the boomer generation in the next 10-20 years. Once that hits, houses will be reassessed at current property values, and the house will often go on sale to settle estate taxes and to liquify the value in the house so that it can be split between the siblings.
However, the side effect will be that Peninsula housing rents will rise to adjust to the new higher property tax costs. That's right - we haven't soon the worst of rents with respect to single family homes yet... shudder
Recession -> Area is becoming Detroit Boom -> Area will be Detroit
There are newspaper articles comparing Silicon Valley to Detroit going back to at least 1985...
Side nitpick: do Canadians primarily use square feet as a measurement? Is that a real estate standard even though Canada is mostly metric?
http://www.redfin.com/CO/Lakewood/1826-S-Manor-Ln-80232/home...
For comparison, here's a $1 mil home in SF:
http://www.redfin.com/CA/San-Francisco/96-Broad-St-94112/hom...
http://pricesquares.com/#/county/1/san-francisco/
You can see that the north and northeast portions of the city carry the highest rates (close to $1k/sq foot in Pac Heights and the Marina).
Zoom in to drill down to smaller neighborhoods/sub-districts.
For comps between SF and Palo Alto, I'd recommend Redfin. Last I checked, the Palo Alto prices were above SF prices (on a square foot basis).
Edit: I'll just add some more detail!
Here's the Redfin report for Palo Alto ($1,168/sq ft): http://www.redfin.com/city/14325/CA/Palo-Alto
Here's the Redfin report for SF ($660/sq ft) http://www.redfin.com/city/17151/CA/San-Francisco
http://www.zillow.com/local-info/CA-home-value/r_9/#metric=m...
Logic tells me that when the all-important "monthly payment" rises, as a result of higher mortgages rates, that is going to be instantly detrimental to the housing market to a nearly equal degree.
But when I've asked this question of people I know in real estate (from realtors to investors) the answer is "yah but there are a lot more factors at work"
What are those factors? The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset?
(1) http://www.usatoday.com/story/money/business/2013/05/28/home...
http://sanfrancisco.cbslocal.com/2013/04/03/rise-in-all-cash...
Also, many cash buyers are flippers, but the flippers need to sell to normals who take mortgages. So impact there, too.
In theory, the cash buyers of today have factored in their expectations of rising interest rates and the effect on home values going forward.
Regardless, if someone did believe that, and factored in expectations of rising rates, they simply wouldn't be a buyer in this market.
The big thing right now isn't interest rates/monthly payment (though that's a factor that reinforces the high prices). Its who is buying and selling and which homes (and how few) are on the market.
> What are those factors?
The big one is the broader economy and credit markets.
> The FED is going to raise rates and when they do is this going to leave a lot of recent homebuyers holding the bag, again, on an inflated asset?
Not really, because the big price spikes recently are because there are a very small number of homes selling and they tend (disproportionately as compared to other times) to be higher end homes and higher-end buyers and being paid for with cash or at least very large % down. So the median prices look high, but there's not a lot of people involved, and even for the number of buyers not a lot of exposure to interest rate hikes.