There's no secret that the San Francisco Bay Area is one of the most expensive places in the world to live. Homes that would be less than $200k or $300k in most areas of the United States commonly price well above $1 million here, and elements that most families hold as expected in a home, such as a backyard, a basement, or a lack of congestion, are considered luxuries. And for anybody trying to start out their career in the Silicon Valley, having not yet struck it rich (as many try and few do), the ever-increasing cost of living can have you wondering if you will ever catch up.Jeff of Narduzzi Nation captures the plight in a note yesterday where he said, "Unfortunately, just about every house we would want to buy in our area is out of our price range, and as much as we want to stretch ourselves to buy our dream home, we don't want to be 'house poor'."
Two income families, even without the expense of children, can't always be assumed to have enough cash to move up the real estate ladder here in the Bay Area. Barring a tremendous income for each, a good chunk of the money coming home is going back into the mortgage, or the rent, some going to principal, but a great deal just going to the interest - your monthly thank you note to the bank for letting you live in their place...
It's obviously a catch-22. If you buy a $400k home and watch it appreciate, to $500k or $600k, the added equity you achieve doesn't even match the corresponding increase in that $600k or $800k home you were eyeing. If one assumes that mid-level market home prices are increasing at the same rate as more expensive homes, you don't get closer to the next rung up in the ladder by hoping for increased equity. Instead, you'll get further away. The difference can only be made up in three ways:
- Increased savings overall, in parallel with limited spending
- A dramatic increase in income, which in turn, allows for #1
- Simply moving out of the area to a place more affordable
But if you believe in the Silicon Valley, and you want to make a life here, rather than leave the area in the hopes to achieving the American Dream of a two-story house, two car garage, and more than an acre of green grass, you just might be stuck on this hamster wheel of sorts, running in place, while not getting any more near to your goal. At church, I've seen many couples, once they start having children, realize they can't afford to grow a family in the Bay Area, and can't take on a larger home with more bedrooms for the kids. I know many families who have left, headed for less-costly pastures in Texas and the Mountain states (Colorado, Utah, etc.)
My wife and I own a 2-bedroom condo, which is good enough for the two of us, and our 17+ year old beagle, and we've watched as the value of the home, and those in the complex have increased, but I don't feel as if we are any closer to leaving the condo and getting a stand-alone home this year than we were last year, or the one before that, or the one before that. The only way our lifestyle will change is if either of us see points #2 (a dramatic increase in income) or #3 (we move out). We don't intend to go anywhere, but if it came down it, we would have to exchange one dream for another, and become new residents somewhere else. Somewhere without the brain power of the Valley. Somewhere away from the action. Somewhere with a slower, less expensive way of life.
Is there a way out of this issue? How can we expect the value of our own home to increase beyond the rate our target home is increasing? Seems like we can't win.