|May, 1989, signed a purchase agreement for $289,950. for a 3X2 Calif fixer upper in a middle class neighborhood in Santa Clara, CA. This sale defined the peak of the local housing market for the next 5 years at least.<g> I put down something north of $100K, mortgaged the rest. Two years later, in the 1991 doldrums the housing market had cratered and my home's value had declined to about $210K. Sorta wiped out most of my equity, right? |
This scenario wasn't devastating to you because you got lucky and rode a one-time boom in silicon valley during the 90s that resulted in 1)a contractor workforce with extremely high salaries, 2)astronomical stock option gains, 3)even tighter housing demands as companies hired more as a result of 1 and 2.
SV has these things going against it now-
- tremendous rental capacity added in the 90s to handle the boom, most of it empty now- why buy an overpriced condo?
- current trend is to move IT workers offshore, not bring them in... less people
- above trend eliminates many of the contracting salaries and puts a downward bias for the people still here
- stock market, who knows but options expensing momentum means far fewer options and opportunities to get rich in SV
We all know housing in SV is overpriced. The question is, why was it so expensive and can it continue to hold. A lot of factors are working against high priced RE now.
I have friends who have lost 40% on their high priced hillsborough homes even though it declines like that don't show up in the statistics. This is in the 1mm range. THey lost 2/3 of their equity just like you did and its fairly devastating for them since their jobs are being moved to india. What will it take for this house to go from its 2000 peak price of say 1.3mm to 2mm, a similar rise that you experienced with your house in the 90s? Not moving 100K jobs offshore, thats for sure.