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Question for momopi about my family income in Silicon Valley

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Question for momopi about my family income in Silicon Valley

Postby Winston » Thu Dec 25, 2008 8:54 pm

Dear Momopi,
Since you're very knowledgeable about business, economics, asian culture, and practical things, etc. I have a question for you.

There are a lot of stories and reports from Silicon Valley about couples making $100,000 a year yet are poor or can't afford a decent lifestyle, or are still starving, so they have to continue working more and more. There are many real life cases and examples of this, I've been told.

Yet I grew up in Fremont, a part of Silicon Valley, from 1982 to 1998, and here is what I know FIRST HAND from my own family life.

My dad worked for NUMMI (New United Motors Manufacturing Inc) during much of those years. And there his income as a systems analyst was around $30 an hour, or $1000 a week. I saw this on his paycheck stubs, even though he never liked to discuss it. $1000 a week is around $52,000 a year, before taxes I think. Then about a third of that goes to income taxes, right? Ok. But with that income, we had a nice brand new four bedroom house with a great view of Fremont from a hill, two cars, we ate out at nice restaurants twice a week, took family vacations to Reno, Lake Tahoe, Yosemite, and LA several times a year and stayed in nice hotels, ate three high quality meals a day, and even fly to Taiwan once a year. And in addition, my dad was able to put away a significant chunk of his income into mutual funds to retire on later. When he finally retired, he had a huge mutual fund to live off of (which took a huge hit in the late 90's with the stock crash of course).

So how can this be, in spite of all the stories I heard? I don't get it. All I know is that I lived all this firsthand and that we had all that and could afford it with no problem, while living the American dream, on my dad's 50k income. That I know for a fact.

So how can everyone be saying that 50k is a small income and not enough to have a decent lifestyle in the US, which contradicts my direct experience for over a decade in Silicon Valley Fremont?

Can you explain this? Is it another Twilight Zone again?

PS - My mom worked for 8 or 9 years in the 80's too. She owned a cafeteria and made about $100 or $200 a day, I think. But even if you add that into the equation, it still contradicts everything I'm hearing from people about Silicon Valley high incomes not being enough.
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Postby gmm567 » Thu Dec 25, 2008 9:56 pm

Well the main problem is the skyrocketing cost of housing. WHen I was in Silicon Valley 4 years ago...I met a couple who were both making 200k a year and over half their income went to a very small 1 bedroom house.

If you bought 30 years ago ( or even 15 years ago) the cost of the housing was much more in line with average incomes.


IT's crazy out there in California for the middle class.
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Postby momopi » Fri Dec 26, 2008 2:17 am

I've never lived or worked in Silion Valley, so will not claim any expertise for that area.

I could, however, cite a few RE examples in Southern CA:

http://www.redfin.com/CA/Tustin/647-W-6 ... me/5572291

This is a small 3 bed 2 bath condo in city of Tustin, currently on the market for $165k. Scroll to the bottom (from above URL) for price/sale history:

1998: $93,000
2004: $333,000
2006: $430,000
2008: $165,000 (listing price)


http://www.redfin.com/CA/Costa-Mesa/653 ... me/4561978

This is a 5 bed 3 bath house in Costa Mesa for $357,777 asking. Price history:

1996: $155,000
2006: $800,000
2008: $511,500
Dec 2008: Relisted at $357,777


Now please look at this article from Fortune Magazine:
http://money.cnn.com/galleries/2008/for ... une/6.html

2009 projected change: -22%
2010 projected change: -3.5%

=========

In other words, the pricing for this area is expected to drop another 22% in 2009.

Real estate pricing can be like a roller coaster in some areas. If you bought during the peak, even with $100k salary, you might find it hard to get by. Consider the Costa Mesa home example, someone paid $800,000 for it in 2006, now it's on the market for $357,777, and expected to DROP another 22% in 2009.

Let's say if you bough ta home in 2006 for $800k, and by 2010 the house is only worth $300k. Not only are you stuck with high mortgage payments, you also lost $500k in equity.

If the house drops to $280k value in 2010 and is sold through bank foreclosure. A buyer who makes $100k/year put 5% down and finance the rest. His monthly payment with 30 year loan @ 6% will be around $1,600/month, not counting PMI and taxes. He can probably afford the home and raise a family.

There's a right time and a wrong time to buy a home. The real value of property is based on its potential rental income (Hong Kong's government understands this better*). If the house costs $4,000/month to own vs. $2,000/month to rent, it's NOT a good deal. You're better off renting, and buying an income property elsewhere to build equity and make $$. Buying a home is an emotional decision and many people get in WAY over their heads.


(*) In HK, the property tax is based on 16% of its annual market rental value, less 20% for repairs & maintenance. So if your house is valued at $1000/month rental income, your annual property tax is $12,000 * 16% = $1920, minus 20%, = $1,536'ish.
Last edited by momopi on Fri Dec 26, 2008 6:49 pm, edited 3 times in total.
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Postby Grunt » Fri Dec 26, 2008 4:17 am

Ive been following the economy and financial markets over the last few years. One of my favorite sites is Greater Fool (http://www.greaterfool.ca/), by a former Canadian MP (politician). Some tidbits;

Los Angeles, CA. 2009 projected change: -24.9%

Stockton, CA. 2009 projected change: -24.7%

Riverside, CA. 2009 projected change: -23.3%

Miami/Miami Beach, FL. 2009 projected change: -22.8%

Sacramento, CA. 2009 projected change: -22.2%

Santa Ana/Anaheim, CA. 2009 projected change: -22.0%

Fresno, CA. 2009 projected change: -21.6%

San Diego, CA. 2009 projected change: -21.1%

Bakersfield, CA. 2009 projected change: -20.9%

Washington, DC. 2009 projected change: -19.9%

Now, what about Canada? Well, we do not get off much more easily, so I will give a few of my thoughts on the house value declines that we should be expecting in this great, snow-challenged land, by Christmas Eve, 2009.

1. Fort Mac, KOA 2009 projected change: -47%

2. Kelowna, BC 2009 projected change: -38%

3. Canmore, KOA 2009 projected change: -27%

4. Vancouver, BC 2009 projected change: -21%

5. Windsor-Chatham, Ont 2009 projected change: -20%

6. Victoria, BC 2009 projected change: -18%

7. Edmonton, Kingdom of Alta 2009 projected change: -16%

8. Muskoka, Ont 2009 projected change: -16%

9. Calgary, KOA 2009 projected change: -15%

10. GTA, Ont 2009 projected change: -14%
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Postby Winston » Sat Dec 27, 2008 7:47 pm

Wow momopi, prices have skyrocketed in CA. I heard that LA is cheaper than the SF area though. I guess that's why people say that when you move out of California, it's really hard to come back in.

I heard that the demand for homes will surge next year since it's been in a stall for a while.
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Postby momopi » Mon Dec 29, 2008 6:05 pm

WWu777 wrote:Wow momopi, prices have skyrocketed in CA. I heard that LA is cheaper than the SF area though. I guess that's why people say that when you move out of California, it's really hard to come back in.

I heard that the demand for homes will surge next year since it's been in a stall for a while.


Real Estate pricing goes up and down in a cycle. Back in the 1980s, there was a time when condo prices in Southern CA went up double digit % in a month. Then the prices crashed in 1990's and didn't recover until the up-cycle in 1998-2005. Now we're in the down-cycle and it's a good time to sit and wait for cheap deals.
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