This nice home would probably go for $2 million in some Bay Area cities.
That Silicon Valley housing is very expensive is no surprise to anyone who is paying attention.
Fueled by a bullish tech market for the better part of a decade, with inventory dramatically constrained, each new home entering the market can be flooded with aspiring buyers who are eager to pony up millions of dollars for uninspiring homes, with the desirable promise of reduced commute times to big tech companies or startups, or access to high quality schools.
As a homeowner who bought our place in 2010, I could be doing victory laps about perceived value increases each time I view Zillow or Redfin to see how our long-term investment is doing, but the harsh reality is that the daunting financial demand needed just to find a place to live is having a dramatic impact - not just on the Bay Area as a region, but in markets far from our tech epicenter.
Prices in secondary markets outside the Bay Area are skyrocketing as distressed Californians seek alternatives. Working class families are being priced out of the most desirable cities, forced to endure hours of commute times from far-flung outlying towns, or losing their homes outright. Some small businesses are closing because they can't afford the lease, or can't find enough help to keep their business running. Help wanted ads for service workers are visible practically everywhere, and few answers are clear, aside from pushing for more housing, which in itself finds opposition from the slow to no growth community.
The topic of Silicon Valley real estate is ever present. The high entry point presents a barrier to tech workers looking to start their careers. It presents a challenge to new families in high priced rentals who may once have expected to save for a home, but see that opportunity get further out of reach each month, as savings never catch up with price inflation. Others living outside the Bay Area may turn down career opportunities because the promised salary and benefits can't deliver an expected standard of comfort. It's happening, and it's very likely to get worse.
About two and a half years ago, I read the tea leaves and talked about how I saw Sunnyvale as being in an enviable position, flanked by Google and Apple, both of whom are aggressively growing and are significantly profitable, helping to drive up demand for homes and attracting well-paid tenants. That post, "Tech Company Shifts Position Sunnyvale as Major Hub for Next Decade", helpfully marked some median home prices at the time of the article and allows us to compare what's happened since.
While Bay Area prices have increased, Sunnyvale and Mountain View lead.
As I had expected, not only have home values continued to spike on the San Francisco peninsula, but pressure from Apple's new campus, built on the Sunnyvale border with Cupertino, and increased growth from Google and LinkedIn, etc, have pushed Sunnyvale prices higher at a rate that dwarfed even its pricier neighbors, and driven average home values to nearly $2 million. You also saw a similar rise in Mountain View homes, where Google is based, but Sunnyvale has practically caught up.
What this means in real-world impact is that homes purchased just a few years apart, on the same street, can have wildly different purchase prices, monthly mortgage payments, and property taxes. Our neighbors, two doors down from us, recently paid more than twice the price for their home than we did in 2010, even though theirs is smaller. And they'll get nailed with twice the property tax to boot - their gift from the state of California.
Redfin highlights migration patterns out of California. (Source)
For those who can't stomach a $2 million price or higher (and that includes us, by the way), buyers are looking elsewhere - to Seattle, Boulder, Austin, Portland, or even Washington DC, for alternatives. Seattle's home prices were up 16% in the last year alone, largely driven by migration out of California, which impacted the entire country. And while prices went up, more people were sent to the street - which has led to a spike in homeless deaths in the highest priced cities. (Source)
As I mentioned yesterday, the majority of children in school districts near Facebook headquarters are homeless. This is a new and growing crisis. Low to middle wage earners who can't afford to buy homes here are living in their cars and RVs. I see many of them when I walk the dog at night and recognize familiar faces who are just trying to make it to the next day. Even as Sunnyvale and other cities nearby are raising our minimum wages to $15 an hour, that is not a sustainable wage that can cover high rents that continue to grow. And there is always resistance from NIMBY (Not In My Backyard) neighbors who enjoy the high home values, but want to avoid rising traffic, taller buildings and crowds that come with job demand. Add on to these issues competition from foreign money like China, where many area buyers come from, and you have a recipe for disaster.
Silicon Valley's successes have had incredible impact on the world and the region. Some people have gotten obscenely rich from company successes and acquisitions, and have the option to buy these multi-million dollar homes for cash, or dual income couples with big bank accounts can float enough to solicit high bank loans to get there. But traffic on area streets is consistently thick as people drive further to daily routines. Highways are jammed as badly as Los Angeles - and commutes are worse.
California is where you look to see the future, from our inventions, to our forward thinking governments and social acceptances. The Bay Area is where you look to see what is coming to metropolitan areas throughout the country, and perhaps, the world.
Our high prices today are yours tomorrow, and we're erecting a massive "No Vacancy" sign to those who aren't here yet. Good luck to us all.