patrick.net

I love the Bay Area.

"The trash dump smell probably won't be too bad, as long as the wind blows the way I think it does. Besides, I might be able to talk the sellers down to $700k! For that kind of money, I really can't expect my neighborhood to not smell like a trash dump."

crazydesi, don't take this as a personal attack. I just find it amusing the lengths that we all go to to justify living here at prices that almost the entire rest of the nation would see as ludicrous. I should be making plans to leave this damn area, but I also have strong reasons for staying & putting up with the insanity!

>>I also have strong reasons for staying & putting up with the insanity!

Same thing with me too, I want to leave BA too, but where should I go .... all the Semiconductor companies are here (and it is easy to switch jobs)

I do not want to justify the price, smell etc ... its only my frustration after waiting so long and looking to buy ....

If your only reason for staying is the jobs, then you should give that some hard thought. Yeah, you can easily pull $100k here in high tech. That is good for fun gadgets, eating out and a fun car. However, when a really high percentage of people are pulling $100k+ (and $200k+ per household), that "big" paycheck suddenly becomes worth a hell of a lot less when you start looking at housing. Rent is expensive here, and real estate is still stupid-expensive. There are a number of places in the country where the cost of living is 50% of what it is here, and you wouldn't have to take a 50% pay cut (maybe 20-40%) since there are tech jobs there. Sure, the weather isn't as nice, but I guess you have to really ask yourself how much you take advantage of the weather in the first place. Are you an avid outdoorsman, or do you just prefer a comfortable walk to your car from the office?

The availability of high-paying engineering jobs is a plus, although I can see how it is severely hampered by the fact that so many people make as much or more money than me. I have 80% of my extended family here, was born & raised here, and I routinely get out into the SC mountains for hiking/running/biking/climbing. So, the fact that the Bay Area has only one season (anyone that says that there is weather here needs to travel more) is a huge plus for me since I try to spend 5-10 hours per week outdoors, mentally recovering from having an engineering desk job. Having Yosemite / Tuolumne only 4-6 hours away is also a large plus.

Maybe the BA just isn't the place for someone that wants to live their life in peace without constantly pushing the profit-envelope, or that just doesn't see their job as being their passion in life. There are more people that prefer to spend every waking moment at work making money than there are decent houses available for sale, so perhaps this is just the way things are always going to be here.

crazydesi says

Same thing with me too, I want to leave BA too, but where should I go .... all the Semiconductor companies are here (and it is easy to switch jobs)

The HQ is here, their ops are elsewhere. Intel, Folsom, Oregon, Arizona, upstate new york. AMD much is in Austin Tx. Etc etc etc.

drtor says

RentingForHalfTheCost says

House value is 470K! Ah, what is 200K anyway.

I am not sure I understand how the 470k is calculated.

And how is the loss 200k if the price decline is 0.67% per year for 7 years ~=5%?

You plug the assumptions, 2550 rent on the rent side. All the buying costs and assumptions on the owner side. Then say you will sell in 7 years (like the average holding time). Then put in 470,000 on the purchase price side. The overall cost on both sides for the full 7 years is then equal. So the house is worth 470K in my mind. Not a cent more!

bmwman91 says

The BA is on crazy pills. This place may well never make sense. Apparently fortune seeking douchebags will continue to flock here for "the weather" so that they aren't uncomfortable while outside (which consists of walking between their house & car, and their car & office).

$750k for a largely unremarkable house in Milpitas. LOL

And a windowless cubicle feels the same in Paterson, NJ as it does in San Jose.

RentingForHalfTheCost says

Then put in 470,000 on the purchase price side. The overall cost on both sides for the full 7 years is then equal. So the house is worth 470K in my mind. Not a cent more!

I think there is a certain amount of contradiction / double-counting going on here. Didn't you also assume -0.67% price change per year? So in effect your analysis is saying:

"If the price were 470k, then prices would fall an *additonal* ~7x0.67% ~= 23k during the 7 years I am there. But it is OK that I lose 23k on the house, because I would save so much money on mortgage vs rent over the 7 years"

Why would rents go up and house prices go down if buying and renting are economically equivalent in the first place?

The way to find the true equilibrium price for buying is to plug in the same rate for both price appreciation and rent increases, and see at what level that leads to breakeven.

RentingForHalfTheCost says

1. You can rent the asset directly from the owner or pseudo owner (if they have a mortgage)

2. You can become a pseudo owner and rent the money from someone (bank) and pay them for that privilege in the form of interest.

You talk like one way is throwing you money a way, whereas the other is saving every cent. Completely not true. Both have large money losses per month.

drtor says

The way to find the true equilibrium price for buying is to plug in the same rate for both price appreciation and rent increases, and see at what level that leads to breakeven.

Inflation rate...as often is the case before the bubble, contracts often allow rate increases based on inflation rates.

bmwman91 says

There are more people that prefer to spend every waking moment at work making money than there are decent houses available for sale, so perhaps this is just the way things are always going to be here.

Yep. Which means you actually live in your cubicle, not your house. The house is just for sleeping. It's amusing that people pay so much for a place they'll spend most mostly in a subconscious state. And, oh yeah, you have to pay $4 (soon $5 in CA) per gallon of gas to get to and from your sleeping trophy.

Ditch the house and car. Sleep in your cubicle. Then you can retire at age 40 and have $ left over to see the world.

bmwman91 says

The availability of high-paying engineering jobs is a plus, although I can see how it is severely hampered by the fact that so many people make as much or more money than me. I have 80% of my extended family here, was born & raised here, and I routinely get out into the SC mountains for hiking/running/biking/climbing. So, the fact that the Bay Area has only one season (anyone that says that there is weather here needs to travel more) is a huge plus for me since I try to spend 5-10 hours per week outdoors, mentally recovering from having an engineering desk job. Having Yosemite / Tuolumne only 4-6 hours away is also a large plus.

All these things were true in the past, including dual income families, but home prices never inflated as they have since 2000. Eventually they will continue to fall for real sobering reasons...yes people are sobering up.

Today, no one except the RE interest groups and individual keep believing the nonsense and keep pushing it in the media.

bmwman91 says

Maybe the BA just isn't the place for someone that wants to live their life in peace without constantly pushing the profit-envelope, or that just doesn't see their job as being their passion in life.

You'll need to stay away from the DC-to-Boston corridor too.

However, there's a strip of civilization just west of that axis which I think is nice: from Concord, NH down to Charlottesville, VA. There's some culture, it's not too liberal or too conservative, there are good jobs, housing is reasonable (at least compared to the SF Bay Area), and there's decent climate with seasons. The Ocean isn't too far away (and it actually gets warm enough to swim in during the summer), and the mountains are just to the west. If you hate cold, move to the southern part of that area. If you hate humidity and/or like to ski, move to the northern part of that area.

bmwman91 says

The availability of high-paying engineering jobs is a plus, although I can see how it is severely hampered by the fact that so many people make as much or more money than me. I have 80% of my extended family here, was born & raised here, and I routinely get out into the SC mountains for hiking/running/biking/climbing. So, the fact that the Bay Area has only one season (anyone that says that there is weather here needs to travel more) is a huge plus for me since I try to spend 5-10 hours per week outdoors, mentally recovering from having an engineering desk job. Having Yosemite / Tuolumne only 4-6 hours away is also a large plus.

All these things were true in the past, including dual income families, but home prices never inflated as they have since 2000. Eventually they will continue to fall for real sobering reasons...yes people are sobering up.

Today, no one except the RE interest groups and individual keep believing the nonsense and keep pushing it in the media.

thomas.wong1986 says

Inflation rate...as often is the case before the bubble, contracts often allow rate increases based on inflation rates.

Sorry I don't understand what you mean.

Re chart. Bay Area wages have gone up much more than inflation in general since 1980. That explains to a large extent (but not completely) why houses and rents have gone up much more as well.

drtor says

Re chart. Bay Area wages have gone up much more than inflation in general since 1980. That explains to a large extent (but not completely) why houses and rents have gone up much more as well.

Well for starters, we eliminated the bottom half which includes wages for manufacturing.. that moved avg salary up by 1990.

Second, we lost half of our pubic companies since year 2000, to around 200 today. It was 400 in 2000 and over 300 by 1994.

Third we moved many jobs outside the region leaving the top posts and on average only 1000 or so headcount which are the higher salary employees.

Fourth, after 2000 we have imported alot of ME TOO crowd from the East Coast with their IVY leage degrees who demand (ugh!) mega million salaries... as if that was ever the norm.

So yes, we have higher AVERAGE salaries today, since you cut out so many people out since 1980. Second we have faced increased competition globaly, which put pressure on salary spending.

drtor says

thomas.wong1986 says

I should mention, rents inflated from 1997-2000, due to high inflow of workers and rental property, but crashed after year 2000 by 30-40%. and have yet to reach that peak in 2000. In the aftermath of 2000, some 300,000 left silicon valley or their job was eliminated.

drtor says

The way to find the true equilibrium price for buying is to plug in the same rate for both price appreciation and rent increases, and see at what level that leads to breakeven.

Completely agree. However, if I actually put in what I think. That rents and house prices will decline around 4% annually, then the house is only worth about 220K if you sell after the average of 7 years. I didn't want to give the people that already bought a heart attack. Better to break the numbers to them slowly.

Here are my assumptions for the above numbers.

Now if you actually buy that place for 700K and sell in 7 years then you are behind the renter by a cool 325K!!! Ouch. I don't care if you are rich, Asian, got kids that need that great school, want to walk to work, or even like the smell of a dump on warm days, that is some hard cold cash. Yikes.

crazydesi says

>>I also have strong reasons for staying & putting up with the insanity!

Same thing with me too, I want to leave BA too, but where should I go .... all the Semiconductor companies are here (and it is easy to switch jobs)

I do not want to justify the price, smell etc ... its only my frustration after waiting so long and looking to buy ....

Count yourself lucky you are waiting. I got a bunch of friends that bought over the last 10 years and are trapped. They would love to be in your shoes right now. When I am around them I am not allowed to talk about the housing market. Nothing, or they get really defensive as one can understand. They are working for the banks now.

wthrfrk80 says

bmwman91 says

The BA is on crazy pills. This place may well never make sense. Apparently fortune seeking douchebags will continue to flock here for "the weather" so that they aren't uncomfortable while outside (which consists of walking between their house & car, and their car & office).

$750k for a largely unremarkable house in Milpitas. LOL

And a windowless cubicle feels the same in Paterson, NJ as it does in San Jose.

Right, except that our jobs aren't in Paterson, NJ.

They're HERE...and they're gonna stay here.

thomas.wong1986 says

Fourth, after 2000 we have imported alot of ME TOO crowd from the East Coast with their IVY leage degrees who demand (ugh!) mega million salaries...

That's me you insensitive clod! ;)

So yes, we have higher AVERAGE salaries today, since you cut out so many people out since 1980

The data point I found was that in SF in1979 median household income was 15,866. So at $70k today that would be a 4.4x increase - so I think a local salary line going up to 440 may be more relevant reference than a national price inflation line to 300.

Wow, this is a first, 'Patrick' says I can buy it:

http://www.redfin.com/CA/Sherman-Oaks/4705-Kester-Ave-91403/unit-301/home/4821399 (Image below, compressed)

Image

Milpitas? Seriously, what a disgusting smelly place to live! P-U! Nothing like the smell of garbage in the summer when the wind blows the aroma of the dump through town.

bmwman91 says

"The trash dump smell probably won't be too bad, as long as the wind blows the way I think it does. Besides, I might be able to talk the sellers down to $700k! For that kind of money, I really can't expect my neighborhood to not smell like a trash dump."

I'd rather live in bumble-f*ck North Dakota in a $100K house, where I can drink the water and enjoy the smell of fresh air and green pastures, instead of buying this house for $700K sitting on top of a garbage in Milpitas.

It's not the landfills that smell, it's the sewage treatment plant.

I don't live there, but my job is downstream of that plant.

You get used to the smell.

drtor says

The data point I found was that in SF in1979 median household income was 15,866. So at $70k today that would be a 4.4x increase - so I think a local salary line going up to 440 may be more relevant reference than a national price inflation line to 300.

SF is vastly different than the South Bay... two different worlds..people and economy.

The Boom in the south bay since say 1975 to 2000 was due to the tech industries(semi, storage, software, etc) growth. Yes, we had a boom where we went from a few companies to vast numbers of many companies and large number of employees and plenty of growing income. This is very much like what you hear is going on in China today. Very very similar.

Yet you dont see a huge spike in RE prices from 1975 to 1997 like we have seen from 1998 to 2008.

Anyway much of our tech growth peaked in 2000, as part the industry maturity. So the prior decades are no idicaton that we will repeat the same furious growth. Therefore its going to be much more flat, at best, for years to come with continued pricing and cost pressures.

Overall salaries by SV Tech companies are not some arbitrary number created by employees wish list, its budgeted number heavily researched within industry guidelines. Check your HR people on their guidelines. Most use Bradford Salary Guide. As such these guides mainly use base years, inflation, and the current economic climate for new hire and annual increases in salary. go talk to your company HR and Financial Planning and Analysis group for details.

B.A.C.A.H. says

It's not the landfills that smell, it's the sewage treatment plant.
I don't live there, but my job is downstream of that plant.
You get used to the smell.

There was a meat processing plant on Trimble ave, a few blocks down from Cadence Design around the late 80s..
man! during the hot summers did it smell...

Frankly any part near the baylands will get you sick..and many work near there 8+hours a day.

Three things you should consider before buying in milpitas

1. Smell
2. Bad schools means bad house value retention
3. Right or wrong, the first word I have heard come out of people's mouth on hearing the word Milpitas/Great mall is ghetto. Perception is reality and shapes what people think about who their kids are going to be hanging out with in the neighborhood.

All those milpitas homes are new and shiny though..

rootvg says

Right, except that our jobs aren't in Paterson, NJ.
They're HERE...and they're gonna stay here.

Rootvg,

None of my comments are directed at people like you who are "stuck" in the Bay Area for whatever reason. I get that your situation is unique.

Well, looks like I am falling-back to waiting for salvation...in the form of a 8.0+ earthquake on the San Andreas fault line! If I am REALLY lucky, it will happen on April 4, which will freak out a certain group even more, and that also happens to have a lot of peninsula RE. The more people the next rumbler can shake-out, the better!

thomas.wong1986 says

Anyway much of our tech growth peaked in 2000, as part the industry maturity. So the prior decades are no idicaton that we will repeat the same furious growth. Therefore its going to be much more flat, at best, for years to come with continued pricing and cost pressures.

I completely agree with this. Flat or slightly declining prices is what I see as most likely as well.

What I had an issue with was the forecasts of the $750k house going down to $400-$500k, or that we should expect in your chart that SF and San Jose falling all the way back to the green national inflation line (another 50% drop). Which in fairness you didn't actually write but the chart may seem to suggest.

drtor says

thomas.wong1986 says

Anyway much of our tech growth peaked in 2000, as part the industry maturity. So the prior decades are no idicaton that we will repeat the same furious growth. Therefore its going to be much more flat, at best, for years to come with continued pricing and cost pressures.

I completely agree with this. Flat or slightly declining prices is what I see as most likely as well.

What I had an issue with was the forecasts of the $750k house going down to $400-$500k, or that we should expect in your chart that SF and San Jose falling all the way back to the green national inflation line (another 50% drop). Which in fairness you didn't actually write but the chart may seem to suggest.

400-500K is still too high. After the earthquake it'll be in the 200-300K range IMHO. Cash will be king. ;)

drtor says

I completely agree with this. Flat or slightly declining prices is what I see as most likely as well.
What I had an issue with was the forecasts of the $750k house going down to $400-$500k, or that we should expect in your chart that SF and San Jose falling all the way back to the green national inflation line (another 50% drop). Which in fairness you didn't actually write but the chart may seem to suggest.

Yes that sounds reasonable, considering pre bubble homes between 150-250K... Yes! and than doubled by year 2000..

In some cases we saw 400% increases by peak years..

Yet at best we saw inflation and income chalk up 30-35% ...
it was said time and time again, prices being diconnected from both.

So yes... we would/will see further cuts.. and 50% for some is not of the realm of posibities.

SJ says

Milpitas? Seriously, what a disgusting smelly place to live! P-U! Nothing like the smell of garbage in the summer when the wind blows the aroma of the dump through town.

Didnt they know what they were buying ???

Fremont dump... NYC Hudson River sewage..
what the difference ???

California. Where you pay 3/4 of a million bucks to live by a garbage dump.

Eman,

I looked at these homes also
562 Shelley Ct., and
540 Glasglow Ct.

I was hesitant to put offer as they are crossed 900k and the listing agents told me they have multiple offers and might not even consider my offer (which i was think to put around 850k or so).

If you submit an offer, how would you know that your offer will be accepted regardless of what price you're submitted?
Not sure, I do not trust RE agents

How would you know if the current homeowner does not have a relative buying it back for them, and essentially wiping out the difference in mortgage debt. Also, there is no tax consequences on this transaction. Nice isn't it? :)
I highly expect this is happening in Milpitas area, as lot of agents do not return my phone call to show me the property.

Eman,

I looked at these homes also
562 Shelley Ct., and
540 Glasglow Ct.

I was hesitant to put offer as they are crossed 900k and the listing agents told me they have multiple offers and might not even consider my offer (which i was think to put around 850k or so).

Q1.
Ans.Not sure, I do not trust RE agents

Q2.
Ans. highly expect this is happening in Milpitas area, as lot of agents do not return my phone call to show me the property.