Silicon Valley, the southern region of San Francisco Bay Area of California, is arguably the most expensive place in the United States to live. At the epicenter of all this, Palo Alto is a breeding ground for many unicorn start-ups and overvalued technology companies. The region has a median home price of roughly $2,598,200.
To gain a perspective of just how outrageous real estate in Silicon Valley is, the median sales price of existing homes in the United States averages around $241,000.
The meteoric rise in home prices has accelerated Silicon Valley’s real estate market into bubble territory. Even San Francisco’s median cost of a one-bedroom rental floats around $3,590 per month. As the housing bubble infects much of the San Francisco Bay area, we have stumbled across the latest installment of real estate insanity that could very well be an essential clue to what comes next.
Take, for instance, a burned-out shack in San Jose’s Willow Glen neighborhood listed on Monday for $799,000. The realtor said the asking price is reasonable — given the housing market dynamics and its geographical location, said KTVU FOX 2.
The owners of an abandoned, fire-destroyed home in San Jose are asking $800,000 for the house and surrounding 5,800 square foot lot. Holly Barr
Realtor Holly Barr told KTVU the owners of an abandoned, fire-destroyed shack reflects the value of the property, not necessarily the burnt down structure. She noted in the interview, the home caught fire more than two years ago, and has been dormant ever since.
“They did leave it standing so you can remodel it versus tearing it down so you save a lot of money when you can leave a wall up and do a remodel versus a complete tear-down,” Barr told the station. The Bird Avenue address in San Jose’s Willow Glen neighborhood sits close to a proposed transit-oriented Google “village” of offices, research sites and retail stores.
Barr’s realtor Facebook page describes the home and lot combination as a “Great opportunity to build your dream home!” Since the posting, Barr told KTVU she has received ten offers and expected a contract on the property by the end of the week.
Barr has yet to list the property on multiple listing services (MLS), a suite of services that real estate brokers use for completing transactions. However, she says, a home down the street recently sold for $1.6 million. Glancing at the current Glen San Jose real estate market (Zillow), the average price of a home is around $1,365,900 with total square footage around 2,500 sqft.
Some Facebook users found the price of the shack as absurd. Here is what they said:
“800k for that…What has this area come to when a family earning good money cannot even afford to buy even a burnt out wreak.Greed, pure greed from all concerned right here,” said Cally Jayne, a Facebook user.
“And here we see a perfect example of unchecked free market capitalism. A Chinese billionaire will pay $850k without blinking an eye because all they are interested in is the land as an investment. Thousands of properties bought up like this with zero interest in actually living in that lot or renting or anything. The actual housing market shrinks as a result to the point where even Silicon Valley engineers are priced out. Years later, we’ll all shrug our shoulders and go “WHAT HAPPENED!?!” like it’ll be some big mystery,” said another Facebook user.
Shocking, one Facebook user claims this million dollar neighborhood filled with shacks is located down the street from “homeless encampments every which way you turn!!!”
Another user warns the neighborhood where the million dollar shack resides is “full of crime” and homeless people.
About a hundred comments down, Facebook users started revolting against the realtor — showing pictures of their non-shack, McMansions for substantially less in other states…
“This only cost me 250k to build but I’m in Texas lol,” said Gomez.
“This is what you can get in Spicewood Texas for under $500,000,” said another.
While it is interesting to watch the dynamics of the market. What we see in San Francisco Bay Area of California is a classic bubble. Let us explain below:
The first graph shows house prices in the Bay Area have increased faster than the national average…Why has this been happening?
S&P/Case-Shiller CA-San Francisco Home Price Index/S&P/Case-Shiller U.S. National Home Price Index
The second graph shows the working population in the region has, in fact, declined versus the national average. So, perhaps, an influx of residents is unlikely the cause behind the rising housing prices.
All Employees: Total Nonfarm in San Francisco-Oakland-Hayward, CA
The third graph follows the progression of personal incomes in the Bay Area compared with the rest of the country.
Per Capita Personal Income in San Francisco-Oakland-Fremont, CA
..And alas, the problem has been solved, the Bay Area has fewer people with much more money chasing the same houses, a classic symptom of a bubble. As for the burned out shack worth 3.3x than the median sales price of existing homes in the United State, well, that is also a sign of peak stupidity for whoever buys it next.