[WillEngler]

Let me try and complicate this :)

First, I submit that $430,000 is still expensive. Instead of buying the median home in Pittsburg and commuting 60+ minutes on BART to downtown SF, I could add an h and buy a huge home in my favorite neighborhood in Pittsburgh PA for about the same price and have a chill bicycle commute: https://www.zillow.com/homes/for_sale/Pittsburgh-PA/pmf,pf_p... (Obvious and legitimate objections: fewer job options, snow.) This is just me trying to say, $430k for that arrangement does not strike me as "cheap" given alternatives in other metros.

I agree that with a tech salary it's possible to save up for a down payment and buy in the Bay Area. But the risk seems unacceptable to me. Paying ~$1M for a house is a big bet that the Bay Area housing market stays hot. I don't want my wealth to be so tied up in a hyperlocal bet like that. I see things going one of two ways (and this is probably over-simplistic).

Option 1: A $1M starter home is the new normal. Prices stay flat or keep rising over the long haul. In that case my investment is sound. But I don't want to live in that kind of place. Where will my kids' teachers live? How will I cope with the moral ickiness of living in a place where housing costs create extreme spatial segregation of the professional class from the service class?

Option 2: The vision painted above is unsustainable. Something has to give (maybe a big financial crash; maybe just state-mandated upzoning that quickly increases housing supply) and the value of my investment drops by a lot.

Either way, I'm planning to save up on the West Coast and use my nest egg back in the Rust Belt.

[joefranklinsrs]

You make compelling arguments. For me, a house isn't an investment but it's a place where I house my family. (sure, houses in silicon valley have gone up 1.5-2X in a few years. However, stocks have gone up 2-10X). If you're young, there's no point of getting a house. If you are close to have a family, one of the most important thing is KEEPING your job. If you are remote in Pittsburg, and you have to get a new job, it might take a few months of interviewing and flying in for interviews to find a remote job that pays your old salary. Do you want to risk that even to your family? most likely you wouldn't. You have 18 years of mortgage and college tuitions to pay for.

[WillEngler]

Agreed on most of what you're saying here.

> For me, a house isn't an investment but it's a place where I house my family.

I really want to view the world this way :) I wish housing were a boring commodity that depreciates in value over time like a car. With prices being what they are, I am _forced_ to think of housing as an investment because of how much of my net worth will be tied up in it.

[fro0116]

Exactly this.

A house _is_ an investment, regardless of how someone wants to think about it.

Buying a house involves a significant opportunity cost over renting since it requires locking up capital (a down payment, or the entire value of the house if buying in cash) in an illiquid asset that could have been invested in liquid assets like stocks (that have historically performed better than real estate over longer time horizons for most housing markets, and often more than makes up for the fixed costs of renting once maintenance costs, taxes, and mortgage interest rates are taken into account, but that's only tangential to the point I'm trying to make).

Also, most people buy their houses on mortgages, so they're investing with 5-10x leverage over the down payment and paying interest for that leverage. This level of leverage would be considered outright insane for any other long term investment, but most people won't even think twice before locking a large majority of their net worth behind a down payment. This puts their financial well-being at the mercy of the whims of the local real estate market due to the 5-10x amplified gains/losses, and practically removes their ability to meaningfully diversify and de-risk their portfolio.

Now of course I'm not saying buying a house can never make sense financially or otherwise, just that refusing to think of it as an investment can be dangerous because it can blind you to the nuanced risk/reward calculations involved in one of the most impactful financial decisions you can make in your lifetime.

For myself, the right time to buy a house would likely have to be when I've saved up enough money that the upfront investment for the purchase of the house is about 30% of my net worth if I'm buying with cash, or less than 10% of my net worth if I'm buying with a mortgage, to counteract the extra exposure to real-estate from the 5-10x leverage. That may mean that the time to buy a house in the Bay Area may never come for me, but I'm perfectly fine with that because the alternative would compromise my ability to keep my investments reasonably liquid and diversified, which could prove to be disastrous in these uncertain financial times ahead of us.

[ethbro]

Small point: the risk calculus changes a bit if you buy after housing market deleveraging (e.g. 2009).

You can never know when things are over-valued, but you can get a good sense when things are undervalued.

And since the housing market has both momentum (nearby sales affect comps, more inventory than sales, some substitutability) and adjusts slowly, there's time to buy after it bottoms.

Stock market timing doesn't work for many reasons, but a lot of those don't hold for the real estate market.

[closeparen]

Liquidity also plummets during a deleveraging. Homeowners wait for the recovery to sell; lenders wait for the recovery to underwrite. Home values crossing into your price range doesn't mean you can actually buy one, unless it's for cash at a foreclosure auction.

[eldavido]

Your view on this broadly aligns with mine (33-year old, live in Oakland).

We bought a cheap (for the area, about 670k) condo just off of BART. It's a pure consumption expense in that I expect to get 1-2% appreciation/year while carrying a manageable debt load. It might go up a bit but that's not the point. We're right off a train line, not paying too much in interest, and building equity. Plus it's a great place to live, lots of young people moving in and we're doing a lot to improve it (lots of deferred maintenance we're working through). Worst-case scenario, we'll rent it our or sell if we move somewhere else; there will always be demand as it's a small, convenient unit in a renter-friendly building, just off of transit.

I share your negative view of the Option 1 dystopia. I have absolutely zero interest in living somewhere on the peninsula like Belmont, Atherton, or even most of San Mateo at this point, where you're basically walled off from anyone of lower socioeconomic class who's your age. Not sure "moral ickiness" is the world I'd choose (maybe just bland? do you really want all your neighbors to have the same job as you?) but it does indeed suck.

I think people who are banking on tons of appreciation buying today in the SFBA really need a reality check. There's just not much higher these prices can go. The common perception is that everyone in tech makes like $300k, which is so far from reality to be laughable.

[closeparen]

Socioeconomic integration sounded great from afar, but I don't know how how much more sidewalk urine/feces I can take. I'm learning that I'd much rather deal with traffic and drab suburbia than in-your-face extreme poverty every time I try to take advantage of walkability and transit.

[panarky]

So it's a binary choice between walling yourself off in an affluent gated community and slogging through human waste in a dystopian urban slum.

Really no middle ground here, huh?

[closeparen]

If you find one in the Bay Area, please let me know.

[anothergoogler]

> there will always be demand as it's a small, convenient unit in a renter-friendly building, just off of transit.

I hope you're right, but those are famous last words! Look at a city like Chicago, with huge sections that are just like you described, but where even well-maintained properties command a fraction of their peak value, and others are almost unsellable at any price. Oakland hasn't exactly experienced uninterrupted prosperity, so it's not an unreasonable risk to consider.

[eldavido]

That's true.

I think Oakland has something going for it, though. SF increasingly feels like a museum: the whole place is so preservation-focused and static. Whereas Oakland has always seen itself as a place where anyone can live and doesn't have its nose quite as high in the air about "preserving the character of the city".

I live in west oakland right next to the BART and the transformation of the city is pretty cool to watch. Tons of vacant lots are being built out into usable real estate and places with broken windows are getting rehabbed into usable commercial space. It's neat to watch this on-the-ground transformation take place. And I'm happy we're building because, as I keep saying, if you want affordable housing, "just build luxury units today and wait 20 years". The BA's problem is that there's been all but zero development and now such a huge surge of people moving here, it's pushing the lower income tiers further and further out as Googlers making $250k are competing with teachers to live in whatever they can find.

I don't buy into the "let's blame everything on tech" narrative though. Between prop 13, rent control, zoning, and a lot of other regulatory action, the SFBA has made this problem more extreme than it is in other areas. There are plenty of regions--DC comes to mind--that went through huge waves of gentrification without nearly the price swings we're seeing here in SF.

P.S. I'm from Chicago.

[closeparen]

>I live in west oakland right next to the BART and the transformation of the city is pretty cool to watch. Tons of vacant lots are being built out into usable real estate and places with broken windows are getting rehabbed into usable commercial space. It's neat to watch this on-the-ground transformation take place

I'm as YIMBY as they come, but I have to bristle at these words coming from tech people - to the marginalized communities on the ground, it's a human tragedy. We can at least recognize that, even if it's the best available option, this kind of transformation is not without downside.

[eldavido]

Read this: https://www.economist.com/united-states/2018/06/21/in-praise...

And this: http://www.jchs.harvard.edu/research-areas/affordability

There's a lot of conflation going on here. For one, cost-burdened households are up everywhere in the country, not just here -- housing being unaffordable is a national phenomenon, not just due to "techies". Second, the Bay Area does this to itself: developer impact fees, "preserve everything at all costs" mentality, insistence on using union labor for everything, aggressive rent control, height limits, etc.

I'm not just making this up. Both of the above are rigorously-researched publications backed up by extensive study and review, not just random bullshit someone made up. My wife is an architect who deals with this stuff daily. Housing affordability is nowhere near being a priority in this region. If it was, prop 13 would be repealed, it wouldn't take 2-3 years to get an ADU permitted, the review process would be easier, environmental restrictions would be looser, and we wouldn't use union labor for everything.

Bottom line: time to get honest about where the priorities are. Affordability is nowhere close to the top.

[closeparen]

From a policy perspective I agree. The regulations that Bay Area homeowners institute to ensure that this remains an exclusive and premium place are effective and ought to be reversed.

We can still talk about the issue in a way that empathizes with the tragedy of poor communities losing their homes, and avoids framing gentrification as an unmitigated good.

[woolvalley]

Depends what is driving the housing appreciation. You can end up like Toronto & Vancouver where it keeps on going up anyway despite local incomes being far far away from those purchase prices, for a decade+

[dlwdlw]

Yea, even if the local working population can’t afford them, the bay area can still be viewed as a hot spot to be causing housing to go up because they represent scarce investments/stores-of-value. Pressure could then push salaries higher into a positive feedback loop.

[eldavido]

I think there's some truth to this, but the big story is simpler.

Prices have doubled in the past 5 years. Because of Prop 13, if you've been an owner through this, you just stay where you are.

Then the whole question becomes making sure things don't change. I think it's just a bunch of lucky owners who bought here 20-30 years ago with no intention or ability to sell, and not much interest in building new stuff.

As far as stores of value, housing is a pretty bad one. It falls apart, is heavily taxed, and is relatively illiquid. I think you'd do a lot better with stocks, or bars of gold.

[nopinsight]

Another feedback loop in action: SV & SF unaffordability pushes out service workers and causes the area to become a prime location for the deployment of service work automation technology, which may result in better chances for the startups in this field starting out here.

It is still unclear how economical this sort of automation will be in other parts of the world though. If it does turn out big, Silicon Valley will have a first shot at it.

[eldavido]

I think people dramatically overstate the case for automation.

It may be that certain jobs get automated. But look at what Tesla is going through; they're using more people, not less, and basically admitted they screwed up trying to automate so much assembly work from day 1.

On the other hand, the electorate here (SF) seems to want to push minimum wages to $20/hr, so maybe you'll end up right.

[Apocryphon]

This might only apply to white collar jobs in tech. People in the service industries and public servants don't receive the same sort of rising pay bumps that engineers and managers do.

[newshorts]

Don’t bart janitors make $200k?

[Apocryphon]

I was thinking of teachers.

[closeparen]

+1. Between unicorn RSUs and salary, I have more than enough long exposure to the Bay Area tech industry’s fortunes. I’m not sure that my anxiety about homeownership even makes sense.