I know they aren’t technically overpriced in the economic sense because people are willingly buying them but there are many houses in Silicon Valley selling for between $1 - $2 million plus dollars that would be regarded as starter homes at best in most of the country and dilapidated shacks in some cases. I live in the Boston area and thought it was bad here but it is nothing like parts of Silicon Valley.
Here is an article with examples and photos. Small, unattractive houses are selling for hundreds of thousands of dollars over their asking price. The article focuses on Sunnyvale and Cupertino, California but there are similar issues in places like Palo Alto and other cities and towns in the general area.
I have a few questions:
How do so many people afford the mortgages? I know the area has a lot of wealth and high paying jobs but a $2 million dollar house should require at least a $500,000 household income so that the owners aren’t hopelessly house poor. Most software engineers and tech managers don’t make that much even if their spouse is in the same line of work.
Do people actually intend to live in the houses like the ones in the photos as is or do they generally do extensive renovations and expansions? Do they buy them just for the (tiny amount of) land, tear them down and rebuild, or do they generally really want the house itself.
If you have that much free money, why can’t they live someplace much cheaper? California is big. Are those areas really that desirable? It doesn’t seem so to me if most other houses look like the examples. Is it just about proximity to major tech corporations.
Why don’t they just move somewhere else where the cost of living is reasonable? It doesn’t matter what the number on your paycheck says if you can’t actually buy much with it.
Schools, schools, schools. Cupertino (and the West Vally in general) has great schools.
People put down larger down payments if they have to. Cash in stocks or borrow mony from Mommy and Daddy. Many buyers are from overseas (mostly China) and they come with cash for the whole shebang.
Live in it as is, and fix up later.
For the record, I don’t live in Cupertino, but I live very close. And I consult with folks in the residential construction business, so I see this first hand. And if you think Cupertino is expensive, try Palo Alto or SF.
I moved away from Cupertino because of my mortgage payments and property taxes, and I was making a good, although not stellar salary in Silicon Valley. And yes, the schools are great there.
How do they do it? They start small and work their way up (in most cases), or they strike it rich at a start-up. I started with a townhouse in Redwood City and ended up with a $2M house in Oak Valley (Cupertino) with a pool on a corner lot. But I was leveraged up to my eyeballs and if I had gotten sick or had to stop working for any reason I would have been sunk. I kept my California salary and moved my butt to Montana. I have no regrets.
I have a friend who owns a run down 2 bedroom shack in Palo Alto which is not for sale. Last week there was a hard knocking on his front door. He opens the door and a woman with a heavy Chinese accent says, “I give you 1.5 million for your house now. Cash.”
The above unsolicited offer is not uncommon. FYI, he slammed the door in her face. (I think he’s looking for 2.25 mil).
Google is there, as is a number of other big tech companies. They can afford it. Also commutes are terrible with traffic so further away is not as desirable. Schools there are also quite good.
Forty years ago, a girlfriend bought a house (with dad’s help) and two roommates renting. Mountain View, 1700 sq ft - $66,000 - probably 5x her income. A pretty basic early fifties house.
She still lives there with her hubby, can’t afford to move (Prop13) and Zillow has the house at 2.1 million!
I’ve heard Chinese real estate investors are becoming common in the US, because they know the economic prospects, health and environment in the US are much better than in China. Investing in real estate is a way to get their kids into a better country.
But why go to Silicon valley? You can buy a dilapidated shack in the midwest for $20,000. You can buy a decent home in a decent neighborhood for 200-300k in the midwest. That will get you into the US, you don’t need to spend $1-2 million in Silicon Valley.
That spaceship campus (official name: Apple Park) is about to start moving people in. Apple is all over, as well, but 12,000 people will be working at Apple Park. Homes within driving distance are greatly in demand, for both that and the above-mentioned schools. That means sky-high prices for Cupertino and Sunnyvale, and increasingly, San Jose and points south.
You don’t need $500K salary to buy a $2M house. The commonly accepted 30% rule of thumb is meant to apply to areas where the housing market isn’t so crazy distorted. But yes, a lot of people living there are crazy house poor and have dumped everything they can into a small plot of land.
You can’t tear them down and rebuild because the neighbourhood associations are crazy restrictive. Going through the permitting process is a nightmare so most of them are frozen in amber. Doing any kind of minor modification to the house that has “environmental impact” triggers CEQA which requires you to notify anyone who could be potentially impacted and a single person complaining is enough to trigger a suit. There are people who routinely file CEQA against any modifications in their neighbourhood.
Because Silicon Valley is where the jobs are! If you’re looking at just pure salary at the present moment, there’s a lot of other places in the country where you could plausibly argue the salary adjustment makes up for the cost of living. But if you start looking from a 10 year career trajectory perspective, you’re going to be learning more, be handed more responsibility and work on more interesting projects with more interesting people in SV. If you care mainly about quality of life, somewhere like Denver is probably going to be better for you but if you want to build a career and don’t mind all the other shit, it’s hard to do it anywhere else in the same way you can in SV.
Money dumped into a house isn’t gone, it’s just locked away. If your house is appreciating at the rate of interest + property taxes, you’re basically breaking even. Historically, SV prices have been rising faster than that which means the more you go into debt buying too much house, the more your net assets increase. There are plenty of people in the valley whose paper wealth is increasing more from real estate appreciation than income and they can just refi once in a while to unlock it, meaning their house is basically free.
Of course, then you’re in the incredibly tenuous situation where real estate prices MUST go up, otherwise you’re financially ruined. That’s what’s lead to this incredibly toxic situation in the first place as long time home owners push increasingly protectionist NIMBY policies for the sake of their financial survival.
The problem with comparing the Bay Area with other parts of the cou try is that there is no comparison. The weather, jobs, amenities are all pretty top notch. There are downsides of course, high prices, state and local laws (depending on your personal takes on those), high taxes, etc. But on balance I can’t think of anywhere that offers whatbthe Bay area offers. I’m biased because I live here.
Though I do not particularly like the south bay. It’s flat and sprawling and reminds me of LA with the disorganized sprawl and corner strip malls. And it’s crazy expensive. A little further north and you can get those $2M hovels for $1.5M!
Yes, they are pretty shitty, small houses by general U.S. standards. The first one is small but seems to be maintained well. The second one is just pitiful and absurd for the price. It would be worth less than 10% of the price in most of the U.S.
I am not sure where you live but here is what houses look like in places like Dallas, TX which isn’t struggling at all itself either. Here is what you get for a half to a quarter of the price in places like that.
Never been to Silicon Valley, but what’s the turnover like as far as personnel is concerned? 15 years ago Silicon Valley was the center of world tech industry and the only game in town, nowadays it’s still the former, not so much the latter. I know South Asia and the Far East are full of companies started by Silicon Valley returnees and/or contractors. If people don’t expect to be living in the same place in 5-8 years they won’t care too much about it.
Otherwise, there is an irresistible economic incentive to create cheaper and better housing.
Plus the OP needs to broaden his horizons. The houses he shows are perfectly ok looking and have a lawn, a backyard. In London where people spend millions to get a cake slice of a townhouse with parking and a cabbage patch, it would be listed for several million and your firstborn. In Dubai we would see actual blood spilled. Hong Kong, you would be committed to the looney bin for even thinking such a place was possible.
Away from the area? Sure. When I was living in Carson City from '92 to '98 the locals were grumbling about how housing prices were moving up because of Californians arriving with fistfuls of cash.
In Silicon Valley? The replacement would cost the same, or if was an upgrade, more. If you’ve got a good commute or good schools (if applicable) why bother moving?
I agree, but the point was not that there were good schools or commute. It was that they couldn’t afford to move. Even though they could collect 2.1 million from the sale of their house.
