Moving to Silicon Valley…rent or buy?

[BostonAndOC_RE_perspective]

Longtime lurker and commenter, first time topic initiator.

I have been offered a promotion that takes me from New England back to CA, this time to Silicon Valley. Talk about strained affordability…the inventory is much lower and prices much higher than anywhere in LA, OC or SD. Rents are 50% of the associated mortgage (or even less, maybe 40% in some cases), yet currently bidding wars have re-surfaced in th better areas (Los Gatos, Palo Alto, Saratoga etc.). Salaries are MUCH higher up here, and the job market is on fire. I can afford the median OC home on a 3:1 salary/home price ratio, but can’t touch anything up here that wouldn’t be a 2 hr commute.

So what does the board think? Will the Silicon Valley housing market show significant declines, or do the extreme restrictions on building and big $$$ up here provide a floor?

[sdrealtor]

My guess would be that while the degree of downside is unknown there is unlikely to be any upside appreciation. I’d say rent for a year to make sure the job situation is what you hope it is and let the wife/kids figure out where they really want to live up there.

Oh yeah…CONGRATULATIONS! It’s nice to see people proving success can be had regardless of what may or may not be happening on a macro economic level.

[BostonAndOC_RE_perspective]

Thanks sdrealtor. The line of folks willing to move to San Jose is real short, so perhaps some would say I am “the greater fool” for accepting this job.

Your advice is exactly what I am doing. Who knows? Maybe it will decline by 40% up here too. I wouldn’t bet on it, and I don’t think I can stomach the 1-2 hr commute to where that may have a chance of happening (East Bay).

[hipmatt]

Check out http://www.patrick.net for more info on Bay Area housing correction.

I would still recommend NOT buying a home in CA for a few more years. It makes no sense to me. Just be patient, and you will be rewarded with much cheaper housing, not everyone is gonna be making over $100k up there, and the job market might not be strong much longer. Just now on the news, they are talking about how the socal economy is struggling, i don’t see how the risky tech savy area up north is not just as vulnerable if not more so.

[gn]

I lived in Sillicon Valley (SV) from 1999 – 2005. So, I can give you some insights.

The peak of the market in SV was in May/June 2005. I know this because:

1. In May/June 2005, there were bidding wars for almost every house for sale.
2. When I got a job offer, with a relocation package, to move to San Diego in August 2005, I put my house on the market. By August, the bidding frenzy has subsided (my broker is a close friend from high school, so we talked a lot about the market).

Since then, the real estate correction has encroached SV from the surrounding regions. First, it was Sacramento/Fresno (believe it or not, many folks commute from Fresno to SV everyday). Then, it was Gilroy/Vallejo/East Bay.

Currently, it’s Evergreen/Santa Teresa (according to my relatives who still live in SV). Basically, the correction starts from the least desirable areas to the most desirable areas.

The areas that you mentioned (Los Gatos, Palo Alto …) are the most desirable. This is why prices haven’t gone down there.

One thing that you’ll hear folks in SV say: “Home prices will never go down in SV because SV is the technological cradle of the world, everyone want to live here”.

The problem with SV (same as southern CA) is that home prices are out-of-line with incomes by 50%. So, unless, the job market is so hot that incomes go up dramatically, prices will go down dramatically.

I lived in both SV & southern CA. So, I can say the following with confidence:

One of the reasons that home prices went up so much is because of the belief in continuous appreciation, an illusion. This illusion is stronger in SV than in southern CA. This is why the correction in SV lags the correction in southern CA.

[LookoutBelow]

I think you maybe got your websites confused here….this isnt the NAR's site, you must be kidding….buy ?

I would gather your new promotion isnt one that involves economics and good financial judgment

[Borat]

Some people might still want to buy now. If you have and make a ton of money and just want a place to live and raise your kids I could see it. You can’t optimize every situation. Most of us don’t have that kind of dough but some do.

[Blissful Ignoramus]

I think you answered your question yourself:

I can afford the median OC home on a 3:1 salary/home price ratio, but can’t touch anything up here that wouldn’t be a 2 hr commute.

[AK]

I suspect Silly Valley prices will be a bit sticky on the way down. But I agree with those who say there’s little upside potential. And while the job market is “on fire” right now, that could change in a heartbeat.

Consider the various commuter trains. I think Caltrain runs south from San Francisco and north from Gilroy, while ACE runs east-west between Tracy and San Jose.

[sdrealtor]

BOCRE,
Its sounds like you’ve got a good grasp on the situation and a good plan. After a year you can re-evaluate things and it might make sense for you to make the jump for other than financial reasons. If you do, just do your best to find the community that you and your family will thrive in. The window of time to really enjoy your kids is so short. It goes without saying that I am a big believer in the American Dream as long as you can afford it.

Congrats again

SDR

[masayako]

I, personally, am tired of people asking “rent or buy” questions even though it has been covered thousands of times.

So, I am going to say “Buy” this time.

[TemekuT]

BostonAndOC_RE_:

My heart was definitely left in San Francisco by way of Silicon Valley when my husband and I left there after living in the center of downtown San Jose from 1996 through 2005. I also grew up in the O.C., but I have no allegiance there and would never live there again. Though I am currently languishing in Temecula, it is a more palatable alternative than the O.C.!

All I can say to you is the same thing I say to my daughter (who lives in Fremont) and her affianced (who lives in San Jose)- BE PATIENT! My Silly Valley colleagues in real estate tell me how prices have stagnated and inventory has increased subtantially in most of Santa Clara County, but it is also true that bidding wars are taking place in Los Gatos and Saratoga in the South Bay, as well as in Palo Alto on the Peninsula. Please remember that when you reference all of those, that is like saying that you want to live in Newport Beach or Monarch Bay i.e., the very best and most expensive neighborhoods, and not Costa Mesa or Tustin . I am convinced that the effect of the subprime and ALT-A meltdown is delayed by at least a year due to the higher Bay Area salaries, but that there will be repercussions there, though not, I believe, at the level that will be seen in the O.C. I know factually from working for a developer for 9 years there that most buyers the last 3 years used stated income loans (Alt-A, lots with neg-am options that they utilized), on a wish and a prayer that their actual income would rise substantially. I fear their wishes may be ashes as house values erode, even if slightly.

As far as the job market being on fire, please visit patrick.net, and then visit the Bay Area sites that are found on Sacramento Landing (link from Housing Doom) for housing and price information. And, I am curious – the median price in the O.C. is very close to that of both San Francisco County and Santa Clara County. Where would you like to live that would be a 2 hour commute from Silicon Valley? – all I can think of is Los Banos or Hollister. That would get you an IE sized monster house with a hellacious commute. And, I don’t see the extreme restrictions on building. My experience is that most new developments are infill, but that the cities are happy to have new homes at a higher tax base.

As for me, I dream of the day when prices drop significantly in the Bay Area and I can return and feel comfortable buying again. If I were to return there now, I wouldn’t consider buying yet.

[BostonAndOC_RE_perspective]

TT,
Thanks for the feedback. I would take Campbell, SJ Almaden Valley, Cupertino of course as well. Sorry – I wouldn’t consider Fremont, Newark, Milpitas, most of SJC. Lots of crappy areas up here. The real trouble up here is that there in no place like South OC i.e. no Irvine/Mission Viejo-ish place within a 1-1.5 hr commute. That is the commute from Pleasanton or Danville, which are both really nice places that approach the OC median but have really horrendous traffic – think HB-Irvine 405S in rush hour, or better yet Westside LA 405 N/S anytime.

A crappy place in Palo Alto is $1M. I can get there in a few years on 3:1. Today I could buy a condo with no garage in Campbell. I’ll wait it out in my rental, sitting on my cash and trying to save more.

[Anonymous]

I faced the same dilemma two years ago when I moved back to the Bay Area. We sold our home in So Florida but didn’t buy in San Francisco. We now rent a nice home in SF for about 40% of what it would cost to own. Monies which would probably be used as down payment money if we owned are now in Treasuries which pay us ~50% of what our rent currently is. To me it’s a “no brainer”. A lot of our friends think we are crazy not to buy since real estate only goes up, they aren’t making any more land, et al.

When I lived here before our move to So Florida – I lived in Danville and commuted to Santa Clara for work. That commute is no fun.

Lastly, welcome to the Bay Area – hope you enjoy it as much as we do.

[TemekuT]

BostonAndOC_RE_:

Thanks for the area clarification. I think you’ll have an easier time getting into Almaden, which is beautiful, than Cupertino, which is still experiencing bidding wars. The high schools for Cupertino and Almaden greatly increase the desireability of both. And you’re right about San Jose, Fremont, Newark and Milpitas. We just loved San Jose because we lived the empty-nester lifestyle in “downtown Disneyland” until the bar problem was so egregious that we couldn’t take it anymore.

My daughter and her fiance want to live in Palo Alto, but can’t afford it YET. They recently found a townhome there, a nice 2 bdrm/2 bath with a patch of yard front and back, as well as a 2 car garage, for $740K. The problem was the location backing up to a major road and under power lines. I just keep encouraging them not to settle for anything old thing and to keep saving and to be patient. Things will change.

[Author]

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