September 23, 2014

Zillowionnaires Common As Bay Area Property Prices Boom

While much of the world isn't all that sympathetic to the concerns of a relatively well-off Bay Area population that is home to some of the most successful tech companies on the planet, there's a clear and increasing separation of the exceptionally comfortable (read: rich) group, and those being squeezed by a higher cost of living that is rapidly outpacing any kind of increase in income.

As I wrote just over a year ago (See: DINKs vs SITKOMs and Other Family Finance Disasters), Bay Area housing costs are putting incredible pressure on families who haven't been lucky enough to partake in an IPO or acquisition (or two). Neighborhoods that seem average can be shockingly full of homes valued well over a million dollars, putting mortgages well out of reach, and rents continue to skyrocket. For those who already own a home, this can be a great source of comfort, but for those on the outside looking in, the circumstances aren't getting any better.

This summer, a home with an identical floorplan to our own went on sale, and spent less than two weeks on the market before a bid was accepted. Curious, given the continued balloon in costs in our neighborhood, I awaited the final results. Eventually, Redfin and Zillow updated to show the home had gone for $626 a square foot, 52% higher than the $412 a square foot my wife and I paid when we bought our home just four years ago. The buyers, unsurprisingly, have two working parents - one employed at eBay, and the other at Google. They could afford it. But being a single income parent, it's pretty unlikely that I could afford to move into our own neighborhood today. I'd be priced out. Even a two bedroom, one bathroom home with 1,160 square feet can clear $1.1 million on the asking price, thanks to location, and a sizeable lot.

Zillow Shows Sunnyvale With Million Dollar Homes a Plenty

Having worked in Silicon Valley since 1998, I've seen the rise and fall in the economy following the first dotcom boom, the 2001 recession following the 9/11 terrorist attacks, another recovery and the bank and housing collapse in 2008 and 2009, which saw many people, even in the Bay Area, underwater. But the rise and fall of property prices hasn't kept the trend steady. For example, the two bedroom, two bathroom apartment I shared with a roommate from 2000 to 2002 initially cost $1,350 a month. It rose to $1,950 during our stay there, and just a decade-plus later, is now $3,519 a month. That's a 161% rise from our $1,350 mark, and 80% over our top price, which was a direct reaction to demand from dotcom money chasers.

Zillow Zillow Everywhere, and No Sub $1Ms to See

For those lucky enough to have been in the right place at the right time, the rise in property assets outstripping cash assets can be a funny thing. Why aren't there opportunities out there to sell equity in your home, and take the cash to pay off your mortgage? The buyer would retain percentage ownership, and have the option to sell the share to another buyer, or wait for the entire unit to be sold to cash out. Assuming a continued rise in prices, the partner would make money on the final transaction, and the current owner would save money through eliminating interest payments to the bank. And there's always selling at a perceived high point and high tailing it to a lower cost state or community, in exchange for reduced access to the go-go Silicon Valley network and economy.

It's pretty nuts. I can basically open the Zillow app practically anywhere in Mountain View, Palo Alto, Sunnyvale, Cupertino, Menlo Park and Belmont and not have to confront properties with the dreaded K. But the high price of living comes in exchange for higher chance at bigger success. You have to be in the game to win the game, even if the stakes are incredibly high.