Silicon Valley housing prices and the emotional stages they’ll put you through

Stages of Silicon Valley real estate sticker shockIt’s no surprise that housing prices in and around Silicon Valley are extremely high. So when moving to or purchasing a home in the area, know that getting over Silicon Valley real estate sticker shock happens in stages.

The 5 Stages of Housing Sticker Shock

First there is disbelief or denial.  “It cannot be that bad – people are exaggerating.”  That’s followed quickly by “I thought it was bad where I used to live!”

Then there may be outrage (anger is too mild a word): “Why would anyone pay that to live there?”

Next, a little bargaining: “What’s the work around? Are there any bank owned homes?  How about something older – I don’t mind a 15 year old house…” (To us, that’s a young house, by the way.) “What about buying a lot and building?”  Or the commute negotiation “I thought I had to be within 15 minutes, but I could go 30.”  A typical commute might be 30 minutes in the morning, but 45 in the evening.  Many people have worse than typical, though, as they want a bigger, nicer home, better schools, quieter location, etc.

Depression soon follows suit. This may be accompanied by “We just cannot do it” or “We are not willing to do that” (until they see that rents are $4000 for a smallish house in an only OK area and $6000 per month for a decent sized home in a good area.)

Acceptance comes at last. Either you can and will buy locally, or you won’t. For some, coming to terms with our local market costs means they’re ready to go all in, bite the bullet, and buy locally. That may mean spending more or getting less than what you would like. It may lead others to move out of the immediate area and embrace an hour-long commute, or to take the Apple or Google bus to work, if applicable. Or perhaps they choose to rent indefinitely (although this can also appear in the other stages).

Alternatively, it could lead some people to move to Seattle, Orange County or somewhere a little less overwhelming in terms of housing costs where they can buy the home they want.

Burning Money While Housing Prices RiseMoving Through the Stages – Acceptance of Housing Prices

Progressing through the stages is often not a straight line.

Sometimes people think they are at “acceptance” as they write offers which are habitually 5-15% too low.  In reality, they are actually still somewhere between the “denial” and “bargaining” phases, either refusing to believe the market data or hoping for a good deal amidst our raging seller’s market. That “good deal” doesn’t usually happen. Writing multiple unsuccessful offers frequently leads to depression, and sometimes even blaming their agent for their offers not going through (outrage), even when it’s clear at closing that their offer price or terms were the issue, and they were recieving good guidance from their agent that was disregarded (denial).

So how fast can you expect to get to the acceptance stage and write a realistic purchase offer? Honestly, everyone will go at a different pace, but the sooner the better. For people who could have bought 12 months ago but are still shopping now, that wait has cost them about +10% of their home price in many cases, possibly more. For those who have been looking 3 years, it’s more than double that. At that point, it’s like setting a match to your entire down payment.

If you want to be a successful home buyer in this crazy Silicon Valley real estate market, you will need to get onboard quickly, because the longer you take to get to acceptance, the more expensive your final home will cost when the market is appreciating, as it has been for about 3 years now.  Time is money and nowhere is that more true than in the San Jose, Silicon Valley, or South Bay real estate market.

 

 

Looking for more Silicon Valley real estate resources?  Here are a few of my other sites, blogs, and market stats tooks:

popehandy.rereport.com – real estate statics for San Mateo County, Santa Clara County, and Santa Cruz County

popehandy.com – Silicon Valley real estate, Los Gatos real estate, info on many areas of the realty market in Santa Clara and San Mateo counties

SanJoseRealEstateLosGatosHomes.com – Santa Clara County real estate, special focus on San Jose areas of Almaden & Cambrian and also Los Gatos with info on the real estate market, neighborhoods, and more

LiveInLosGatosBlog – Los Gatos real estate, neighborhoods, events, businesses, parks. Many photos and neighborhood or subdivision profiles.

 

 

 

 

 

Silicon Valley house for under $1 million

The Silicon Valley real estate market is notoriously expensive. It isn’t easy, but you can find a Silicon Valley house for under $1 million – if you are willing to drive a little further to those tech centers.

Today I did a quick search and found that it’s not too hard to find a 3 bedroom, 2 bath house with at least 1200 square feet in the south county and very scenic communities of Gilroy, San Martin, and Morgan Hill. Other possibilities are in the Santa Cruz or Los Gatos Mountains, south San Jose, Evergreen, and parts of east San Jose – among others. Here’s a map showing houses recently sold with the above listed minimum criteria within the last 90 days.

Most likely areas for finding a Silicon Valley house for under $1 million

 

Silicon Valley house for under $1 million - 3 bed 2 bath 1200 SqFt or greater sold for under $1M in 0-90 days

 

The map above shows sales within the greater area many would consider Silicon Valley, but if you’re looking strictly in South Bay, check the map below which shows hits from a similar search in December 2020.

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Air conditioning & homes

Air conditioning condenser unit newerBack in the 1960’s, when I was growing up in Santa Clara, air conditioning was considered a luxury. I didn’t know anyone who had it in their homes in the immediate San Jose area. Hot days often weren’t too terrible, and if they were, we’d find our way to a pool, the beach, or a restaurant, library, or theater with A/C.  Besides, as locals would insist, “it’s a dry heat”.

Over the last few decades, though, central forced air conditioning has become more mainstream. I do believe that Silicon Valley has grown hotter in recent years and it’s less and less of a reasonable option to go without it for most home buyers.

How common is air conditioning in Silicon Valley?

Today I looked on the multiple listing service to get a sense of how common central air conditioning is in Silicon Valley homes. Here’s what I found:

Single family homes or houses for sale in Santa Clara County (home to about 1.9 million people) = 743
Of these, houses with central forced air conditioning = 457 (61.5%)
Houses with central forced air – gas = 0
With ceiling fans = 121
With wall or window units = 18
With whole house or attic fan = 17
With multi-zone cooling = 88
“Other” cooling listed = 28
No cooling of any kind = 172 (23.1%)

There may be overlap in some fields. Interesting to see that 23% had no fans or cooling listed at all and that at least 61.5% but possibly as much as 66.5% (if including multi-zone and “other”) do have central forced air.  If you are house hunting in the San Jose area, it’s important to realize that at least 23% of the homes on the market will not have any A/C. 

And from 2016:

Single family homes or houses for sale in Santa Clara County (home to about 1.9 million people) = 1408
Of these, houses with central forced air conditioning = 891 (63%)
Houses with central forced air – gas (could be overlapping with the group above but if combined it’s 1010) = 119
With ceiling fans = 254
With wall or window units = 4
With whole house fan = 33
No cooling of any kind = 298 (21.1%)

In just 7 years the percentages of homes listed for sale with central A/C or with no cooling haven’t changed much, however we are seeing more homes with alternative cooling advertised. This may indicate an increase in buyer interest in this feature.

How necessary is air conditioning in the San Francisco Bay Area?

This has always been the old debate: “do we really need air conditioning?” Like many things, that depends. microclimates can have a huge impact on weather.

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Tools You Can Use When Relocating to the San Jose Area

If you’re relocating to the San Jose area, there are a few tools you can use for resources as you evaluate different parts of the region. When I started this website, I had books listed that you could purchase. Today, mostly I have websites that you should bookmark – for free!

Tools you can use - the Cal My Hazards Awareness map is a wonderful first step for researching natural hazards in California. Map showing San Jose with liquefaction zone.

Natural & Environmental Hazard Information Tools You Can Use

Natural hazards are found throughout the United States, often the major one people consider is the one hundred year flood plain. Here in the Golden State, we have some additional concerns relating to fire and earthquake risks.

  • California MyHazards can display a map anywhere in the state with information relating to liquefaction zones, earthquake faults, 100 year flood plains, and high fire risk areas. (The info for the very high fire hazard severity zone has not been updated, so use the Cal Fire map for that info.)
  • Cal Fire map for all of California with the high fire severity zones shown – zoom in to find the areas of concern
  • Flooding from Dam Failure (potentially caused by earthquakes as well as other possibilities) is scary. Learn more about those zones at the link I’m providing here. (As of this writing, the Approved Inundation Maps link is not working.)
  • A Barclay’s Locaide will outline earthquake faults, flood plains, and other natural hazard zones you might want to know about. This is now out of date, but you may be able to locate a used one online or see if a local real estate association of Realtors bookstore has it available.
  • Earthquake Zones of Required Investigation can be used throughout the state to identify landslide, liquefaction, and other zones relating to quakes.
  • Something else to know is that there are state mapped earthquake faults (the more active ones, such as the Hayward or San Andreas Fault) and also the city, town or county mapped fault zones (for example, the Shannon Fault). The latter may have been dormant for 11,000 years or more.
  • Buying a home? Sellers usually provide a Natural Hazard Report, an Environmental Hazard Report, and a Tax Report from a company such as JCP. This same company / site has a great amount of information on local conditions on its About the Hazards page that newcomers would benefit from.
  • When buying a home in California, consumers are given a link to download brochures, or one combined document, on a variety of hazards. I’m not sure that most of them take the time to read it, but it’s excellent info and I highly encourage anyone living in CA, whether renting or owning, to read it:
    Homeowner’s Guide to Earthquake Safety & Environmental Hazards

Environmental Hazard Zones: Research Tools You Can Use

  • Local concerns also include environmental ones, such as Superfund sites.
  • Some sites with spills, leaking underground storage tanks, or other issues can be found at this Cleanups in my community page (nationwide info)
  • Mercury, or quicksilver, was mined in Almaden (New Almaden and related mines) and east Los Gatos (Guadalupe Mine area) – it is a naturally occurring element in cinnabar. For that reason, creeks in those areas should not be entered or fished in. It can be found in other creeks and rivers, too, but primarily in Almaden. 
  • Asbestos is another naturally occurring element here. It was prized for being somewhat fire resistant and was mined under Communications Hill. It’s something to investigate if you want to live in that area.
  • Oil, gold silver, and other elements were mined here as well as granite (we still have quarries active in Santa Clara County today, a couple in the Cupertino area and one in the hills by Lexington Reservoir just outside of Los Gatos). Some old mines are not mapped if they are on private land, so one of the disclosures we have relates to unmapped, abandoned mines., which may be found in more rural pockets of the county.
  • Flooding from dam failure (dams are human made, hence it’s not a “natural” hazard ) is a risk in a large part of Silicon Valley. Most of the areas at risk from flooding due to dam failure are listed on this site. 
  • Noise pollution: use either How Loud or Noise-Map. We discussed the pros, cons, and shortcomings of these on our main blog: Measuring Noise Pollution

Other Priorities for the Tools You Can Use list

In addition to natural and environmental hazards, there are big plusses that will attract new residents.

It is also helpful to have a knowledgeable Realtor as your resource!  Please call me if you’d like assistance in your move to SIlicon Valley. I’d be happy to help you.

 

Related Reading to Tools You Can Use:

Silicon Valley liquefaction zones (on the Valley of Heart’s Delight blog)

Is there a radon risk in Silicon Valley homes? (Valley of Heart’s Delight blog)

Smoke and air quality

Silicon Valley liquefaction zones (on SanJoseRealEstateLosGatosHomes.com, our Valley of Heart’s Delight blog)

Elevation map – learn your home’s elevation (on SanJoseRealEstateLosGatosHomes.com, our Valley of Heart’s Delight blog)

Do you  have a high water table? (on our Live in Los Gatos blog)

Are fire seasons new?

Absorption Rate

One of the simplest ways of assessing the real estate market is to check the absorption rate, often called the months of inventory.

In short, it tells you the pace of home sales (beyond the simpler days on market). It informs you:

  • if you’re buying, whether or not you need to hurry or if you can take your time!
  • if you’re selling, this figure tells you what the odds are of your success in the next month. That could impact your selling strategy.

What is the months of inventory, or the absorption rate?

Water and a faucet - understanding the absorption rateThe absorption rate tells us how quickly the current inventory will be absorbed, or sold off, if sales continue at the same pace and no new inventory were to be added.

The absorption rate could be measured in days, weeks, months,  years, or decades – but the most common is the months of inventory. It’s really two data points in one: the available inventory and the number of sales in a particular period of time.

If this is hard to picture, consider a bathtub. If the tub is draining, how long will it take until the water is gone if the faucet is left off and if water continues to exit the tub at the same rate? That is the pace we are considering for homes for sale.

When homes are selling fast, in 30 days or less, often the data is described as days of inventory rather than weeks or months.

What is a fast absorption rate, and what does that mean for home sellers and buyers?

A balanced rate of sales suggests that neither home sellers or home buyers have a real advantage over the other. In the United States, anywhere from 4 – 6 months is considered balanced. Less than that is a seller’s market, and more than that is a buyer’s market. The lower the number, the hotter the market. 

In Silicon Valley, though, it’s almost never as high as 4 months – though it can and does happen sometimes.

For us, anything under 2 months is a hot market, and anything under 1 month is a super hot seller’s market.

Here’s a graph displaying the absorption rate for houses in Santa Clara County between January 2005 and now. The highest absorption rate was 14.2 in January 2008. It fell quickly from there with the next month at 12.4, then 10.1 in March, and eventually settling in at around 6-7 months of inventory for a period.

 

Absorption rate for Santa Clara County houses Jan 2005 - August 2022

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Moving to Silicon Valley: is it possible to get a house here that’s as nice as the one you currently own?

Can You Get the Same Home Relocating to Silicon Valley?“Can I buy the same home in Silicon Valley?”

I am frequently contacted by extremely bright, successful engineers or high tech professionals who are in large homes on large lots with great schools in less expensive areas of the country, or ocasionally outsisde of the country. They want to move here because Silicon Valley is the hub of innovation, a center for jobs in high-tech, our weather’s great, crime’s low, and there’s so much to do in this region. The housing costs here are extraordinarily high here, but often these professionals hope that the salaries are commensurately high such that they can replicate the home and lifestyle they are accustom to elsewhere, but in Silicon Valley. It doesn’t work that way.

Unless you’re relocating here from New York, Tokyo, or Paris (or somewhere equally astronomically priced), don’t expect the salary offered in Silicon Valley will to go as far here as it would elsewhere in the world. I’m sorry.

Relocation & Silicon Valley: Downgrade to Upgrade

Downgrade the House, Upgrade the Price…

Most relocating homeowners can expect a home downgrade and a higher price compared to what they are leaving behind. Yes, incomes are a little higher but not nearly enough to match the discrepancy in real estate prices. This is even more true with the astronomical acceleration of the market that we’ve seen in 2021 and in early 2022. Even without a wild seller’s market I tell people, as a rule of thumb, that when you move here you will pay twice as much and get half as much. (While salaries might be a little higher, they are not usually double what you’d make elsewhere.)

Sometimes I get the comment: “I don’t want to move to Silicon Valley and have my family’s lifestyle negatively impacted by having to live in a smaller house. I want the quality of life to go up, not down!”

That is completely understandable. People who move here don’t do it because of the housing. They do it for the location and the style of living that this area offers.

… to Upgrade the Location and Lifestyle!

We have the Pacific Ocean an hour or less away, San Francisco an hour away, dozens of wineries, theatre, museums, professional sports (go Sharks!), and world-reknown parks and trails. Shoveling snow? Never! San Jose enjoys 300 sunny days a year on average. If you love to be outdoors, you can make the most of it all year long here where the weather is subtropical. Our population is highly diverse and highly educated, crime is low, not to mention it’s the center of the global tech industry! There are a thousand reasons why the South Bay is probably a major upgrade… but it’s not an upgrade if you equivocate your house with your lifestyle.

So if you are considering a move to Silicon Valley, expect to pay more, get less home, and move into an amazing community in a beautiful pocket of the world.

Related Reading from this and my other blogs:

Market Reports for Three Silicon Valley Counties

What can you buy for $1 million in Silicon Valley?

Comparing cost of housing in West Valley communities from Palo Alto to Los Gatos to Blossom Valley: what will a 4 bedroom home cost?