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April 28, 2006   
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News & Advice > Market Conditions
Housing Costs No Match For Silicon Valley Lures
by Broderick Perkins

The median price of a single-family home in Silicon Valley -- $760,000.

The average rent of an apartment in Silicon Valley -- $1,359.

The cost of living in Silicon Valley? -- Priceless.

In the land of technology and sunshine, it doesn't appear to matter that, according to the California Association of Realtors, fewer than one in five residents can afford to buy the median priced home or that renting a decent apartment requires a two-income household.

Living in Silicon Valley (largely Santa Clara County) is just too good to give up over something as minor as a three-quarter million dollar home.

A recent study reveals residents who live in the county's largest and capital city of San Jose are more concerned about crime, traffic congestion and public school education than they are about the cost of homes.

"It's an absolute fact that people want to live here. That keeps housing prices high. If it wasn't for the demand, prices would drop," said Richard Calhoun, real estate broker and owner of Creekside Realty in San Jose.

The median price of Santa Clara County's single-family homes in March this year was $760,000, just $5,000 off the record high set in February, according to Calhoun who charts and graphs statistical home sales information in "Bay Area Real Estate Market Newsletter". Calhoun uses data from Campbell, CA-based RE InfoLink, the area's official multiple listing service, to publish the newsletter.

Housing price appreciation has cooled from the hot 20 percent rate of increase in 2005 to absolutely zero since home prices first hit the $760,000 median in June 2005, but prices haven't inflated beyond the market's capacity.

Valley residents' attitude is a key factor feeding the housing industry boom in the tech mecca where the axiom, "The true value of a home is whatever someone is willing to pay" apparently holds true.

"Whether or not a buyer will buy given the high prices that won't come down and rents that are going up, in my opinion, is more a matter of whether they can make the monthly payment or not. They will buy at the maximum amount their income will allow. I don't think they are as concerned about the actual price as they are about the payment," said Linda C. Boyd, a broker associate with Meredith Homes & Enterprises, Inc. in San Jose.

Calhoun reports that even as sales remain near record lows -- due in part to La Nina-driven wet weather in March -- those who do buy frequently pay the asking price or more. In March this year home buyers paid an average of 100.3 percent of the asking price.

Rather than the cost of housing, buyers are more concerned about other issues, according to the city of San Jose's "2005 Community Survey Report".

When 1,000 residents where asked what issues most concerned them, 13 percent put crime at the top of their list, 11 percent said traffic congestion, 9 percent said education and public schools, but only 8 percent said housing.

With the average fixed interest rate above 6.5 percent -- the highest its been since 2002 -- higher rates are certainly plaguing home and condo sales by further pushing up the cost of homes. Total existing home sales -- condos and single-family homes -- dropped from 1,893 in March, 2005 to 1,647 in March this year, among the lowest on record for the month, Calhoun reported.

But that doesn't mean there's a Silicon Valley exodus fleeing high home prices.

With the increase in jobs, especially in the technology field, landlords are able to lure shelter seekers who are not quite ready to buy, but, like home buyers, are attracted to the area by career opportunities, good weather, geographic and ethnic diversity, and a host of attractions that let them save money on vacation travel.

The city's report was released on the heels of another report that says the average rents in the San Jose-Sunnyvale-Santa Clara MSA rose to $1,359 a month in the first quarter of 2006, a 5.8 percent increase from the same period in 2006. Occupancy has grown to 95.9 percent, according to Novato-based RealFacts.

RealFacts' rental data includes 416 properties with 50 or more units, for a total of 74,795 units -- everything from studios to four bedroom apartments -- but the majority of the data base is comprised of older one- and two-bedroom apartments with fewer amenities.

Rents are relatively high, but more affordable compared to the peak rent average of nearly $2,000 a month set in March of 2001 during the height of the dot com boom.

"I've often said, I would rather live in a one-bedroom condo here than in a five-bedroom spread in Texas and that seems to be the opinion of 99 percent of my buyers. None of them seem concerned about prices. If interest rates rise they will still buy, but they will buy less. Whatever it takes to live here, that is what they will do," says Boyd.

Not so sure "whatever it takes" is the best approach right now, Romeo Danais, a long-time Silicon Valley real estate investor is pulling up his investment stakes in San Jose and moving them to Oklahoma, Texas and New Hampshire.

He says no-money down, interest-only loans, adjustable rate mortgages, loans with longer terms, loans with options to pay so little the principal grows, two and three mortgages for one home and other "creative financing" or "non-traditional" financing approaches to the high cost of housing may have become all too common.

"When a lot of those stretched out, thinly-managed budgets get whacked with increases in their mortgage payment, we will see how strong the desire is to keep buying at these lofty prices. It may take another 1.5 to 2.5 years, but ... when it happens, it'll [happen big]," Danais said.

"I am the embodiment of an optimist. I just don't have a lot of long term confidence in the prices of Silicon Valley real estate. That's why I have moved my dollars out of the area, and that's why many other people are doing the same or are considering it," he added.

Published: April 24, 2006




Related Articles:

  • Silicon Valley Home Prices At Record Levels As Sales Tumble
  • Silicon Valley's 'Buyers Are Leaving' Market
  • Silicon Valley Inches Toward Buyers Market
  • Silicon Valley Takes Holiday Breather
  • Silicon Valley Housing Market Stabilizes
  • Silicon Valley Home Prices Fall $27,000

    Broderick PerkinsBroderick Perkins, is executive editor of San Jose, CA-based DeadlineNews.Com, an editorial content and editorial consulting firm. Perkins has been a consumer and real estate journalist for 28 years.


    Copyright © 2006 Realty Times®. All Rights Reserved.

  • Broderick Perkins
    Columnist Broderick Perkins



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