I was thinking of this comment from the other day:
Proof that Palo Alto is prime: $1204 per square foot. [Burbed.com]
Real Estater Says:
My answer is: Who cares where prices will be in 2011? All you need to know is that prices will double in about 10 years.
Don’t invest in those other places outside of the Bay Area. There’s no cool jobs, no smart people, no diversity, no ramen noodles, no Pho’, therefore, no doubling in price every 10 years.
No doubt it’s special in the Bay Area, especially Palo Alto – so let’s think about what would happen if house prices doubled in 10 years. Let’s assume that a nice starter home in Palo Alto costs about $1 million, and that a typical engineer in Palo Alto makes $150,000.
We’ll have to assume a 7.2% YoY appreciation for homes to reach doubling, and let’s assume that the engineer gets a 5% YoY raise:
Hm, if this happens, the price/income ratio is a mere 6.x today, but would increase to 8.2x in 2018.
Now, a few things could change… raises could soar, stock options could soar, and obviously the assumption that there is 7% YoY appreciation is low -so that will soar.
Can you afford the risk of being priced out forever?