Why the Silicon Valley Real Estate Market Is Different

Boston has a reputation for very expensive housing.  Situated between the Atlantic Ocean and the Charles River, land is obviously limited there and because of local zoning and historic building laws, expansion (both upward and outward) is very difficult. 

I mention Boston because their cost of living index is in the same ballpark with Silicon Valley --- not quite as high, though pretty steep nonetheless.

Image of Black Sheep

But there's an enormous difference between Boston's median house price of $375,000 vs. Silicon Valley's $745,000, according to Businessweek.com. Does that mean we'll see Silicon Valley's real estate prices plummet to Boston's level?

Inequality of Home Prices

The fact that Boston's housing prices have dropped like your favorite metaphor is indisputable:

But in most areas of the country, there is a large difference between the median price for houses and the price of the uber-houses in the 99th percentile.  Businessweek.com calls this difference the "inequality of home prices" and ranks 20 regions across the country.

Boston has the second highest difference (i.e. one of the greatest inequalities in home prices) and Silicon Valley the smallest, ranking 20th out of 20. 

Why Is That Important?

Real estate prices are fundamentally about the jobs and earnings potential of the people who live in a region.

The article compares the Boston region and Silicon Valley, specifically San Jose, and notes that Boston has a greater "diversity of types of workers, including ones with more moderate incomes."

There is just more money in Silicon Valley with a per capita income of $56,663 in 2005.  (Note the blip in 2000!) 

Compare that with $23,353 in Boston.  The fact is that there's just more money per man, woman, and child which can go into Silicon Valley real estate.

Silicon Valley Job Growth Helps Stabilize Housing Prices

Silicon Valley unemployment is down and over 30,000 new jobs were added last year which is a good indication that investment here is heating up. 

I know it's frustrating to earn six-figures and still have to save for a large down payment to be able to afford the mortgage on your dream home.  I've been there.

But I have a friend who was a young lady wanting to start a family with her new husband.  She was looking for a house in 2003 when interest rates were dropping and she kept saying, "Prices are too high, they have to come down." 

Emotion vs. Best Interest

She's still renting an apartment today. Yes, prices were high compared to the rest of the country, but what she didn't take into account was that every one of her co-workers were willing to pay the same price she wouldn't.

I have a great deal of respect for her: she stuck to her guns.  But she substituted emotion for what was her and her family's best interest. 

Whatever you do, be open to challenging how you feel short term with the benefits you can reap long term.  And have someone who can help guide you through the thought process.