Silicon Valley’s Middle Class

I don’t normally write about bay area real estate, you should visit my friend Trang’s blog for that, but this NYT article has got many folks talking.

Jeremy is disgusted by these folks who are complaining and that are are financially better off than 99.99999% of the rest of the planet.

Silicon Valley is not just about money

There’s a lot of other reasons people come to Silicon Valley, and it’s not just to make money, there’s culture, great consistent weather, lots of education access to just about everything (Woods, mountains, tropics in Hawaii and Mexico) and of course a thriving tech community.

National Average home prices June 2007
(Zip Realty)

Cupertino: $1,213,063 (Silicon Valley)
San Francisco: $983,611 (Silicon Valley)
Washington DC Area: $598,222
Chicago: $349,433
Dallas: $221,954
Houston: $219,668
Phoenix: $393,740
Los Angeles: $809,065
Beverly Hills: $1,442,500
Las Vegas: $354,335
San Diego: $771,576
Chelmsford: $351,953
Laguna Hills: $439,500
Sacramento: $410,630

What’s middle class in Silicon Valley?

I’ve a lot of friends in real estate, and if the average home is a 3 bedroom with 2 baths and a garage, then you’re looking at aprox $650,000-700,000 for a old shack. What should be the combined household income? Go to MLS listings to see what $700,000 will buy you, on average it will be 1000-1800 square feed, built in 1960s. These may not be in cities that are highly desired due to location, school district, or other environments.

Income needed to be Middle Class
$150,000 of combined income will be needed by most lenders to afford such a home, keep in mind this is for that 3 bedroom older home, this doesn’t account for any expenses like children, education our luxuries. So when the millionaires are done complaining “You’re nobody here at $10 million,” CEO Gary Kremen told the New York Times, we can stop to realize that total assets for many middle class folks in the Silicon Valley are indeed already over million.

1) Not everyone in Silicon Valley is here just for money
2) To live here requires a significant amount of money to be middle class, a million in assets may be close to average.

  • My millionaire friends have all worked out one critical truth – that the easiest way to get rich is by providing lots of people what they want.

    I’m happier with that attitude than the “life owes me a lifestyle” attitude.

    Oh, and on Real Estate Prices, California is famously cyclical, even compared to, say, London (where I am.)

  • I’d add one more thing to your formula:

    “the easiest way to get rich is by providing lots of people what they want.”

    to this:

    “the easiest way to get rich is by providing lots of people what they want” at a cost less than they buy.

  • Mark

    I’m hearing of more foreclosures coming to CA, so you’re right, it is cyclical.

  • Jeremiah,

    You are, of course, right on number 2.

    On number 3, I believe in market boom and bust 🙂 I’ve been an investor for too long not too.

  • Jeremiah I would be curious to know the average median income in California than say Dallas, the lowest home price on your list. Your job won’t pay as much in Dallas as it will in Silicon Valley.

  • Mark…yup, the savvy will prepare for this, save, and plan accodingly

  • Jim,

    Yes, you’re right, it’s all relative. cost of living is factored into one’s salary.

    I’ve had colleagues at previous companies who had moved from Silicon Valley to Texas (and kept their job) their salary was deducted proportionately.

  • Well, you do use the barometer of a 3 bedroom, one level home as “middle class” when I think you ought to take a look at what the average household income of the Bay Area is – (about 80 thousand – I kid you not) in terms of home ownership very few of the middle class here can afford to buy a house – meaning with a 30 year fixed mortgage.

    I think it’s worth mentioning that the propensity in California for the financially moronic, interest only loans here have artificially inflated house prices to some degree, hence the impending downturn.

  • Webomatica,

    “The average earner can’t afford the average property” when looking at whether markets are overvalued is something I’ve long been dubious of.

    The better barometer tends to be:

    “What can the average earner, with the average amount of equity to put down as a deposit, afford?”

    That takes into account that the “average homeowner” has worked their way up the housing ladder for a couple of decades before moving into “the average home”.

    I’ve written an article about this on my (UK property investment) blog – I’ll try to track back to here…

  • Webomatica, Maybe we could consider the 3 bedroom house with 2 baths to be what we consider to be middle America.

    Why 3 bedrooms? The average family may have two adults a 1 and a percentage kids. 3 bedrooms may be sufficient.

    Mark, Good points

  • Hi Jeremiah. I read this article this morning. I understand the drive and the ambition, but I think it should be coupled with a healthy dose of gratitude and compassion. It kind of cracks me up though…NYC real estate and even suburban CT and NJ go just as high in _certain_ towns.. but no one would talk about this out east. The article did reference a similar dynamic out here where I live (driven by Wall Street types). It’s just that – there wouldn’t be an article about it in the NYT. It’s a given, and people just don’t talk about $$ that way. 🙂

    Good stuff (as always….)

  • COD

    The reality is middle class people working in SF don’t live anywhere near there. They live in Sacramento, or whatever the equivalent is to the south of the city, and endure 90 minute commutes each way. It’s the same in DC. I live 50 miles south of the city, and most of my neighbors commute 90+ minutes each way daily into the Pentagon or DC.

  • Stephanie

    Great to hear from you! It’s not always about money. For some, technology that connects people is a passion. we agree.

    COD, there are slums, ‘middle class’, and upper class areas in SF too. Sunset and Richmond districts in SF are large sprawls of never ending rows of those 3/2 homes.

    Funny thing is, it takes about 40 minutes to get downtown sometimes from those districts!

  • What the NYT article fails to really point out is that much of this wealth was generated some time ago – ie the 1999 boom.

    Most of these people made a lot of money in the boom and now probably don’t earn any more than the rest of us. They were the lucky few that either cashed out before the bust hit or (as occurred to one person in the article) their holding was so large that even after the hit they still had a sizable fortune (albeit $5m not $200m).

    The real time you amass wealth like that is from the exit of stock – and in the current IPO-less cliamate it’s a lot harder to get that kind of exit. Sure companies get bought out by Google etc (the other exit), but in real terms it’s actually not that many when you really think about it.

    If we all truly believe we are NOT in a bubble then we also have to put aside designs for large swathes of the silicon valley population to be able to amass such wealth again.

    Engineers holding 0.5% of the startup they work for are not going to cash out $10m unless the company sells for $2000m (what’s that, $2b?) – and then that’s pre-tax. Facebook perhaps is perhaps in this league, but that’s about it.

  • Pingback: O’DonnellWeb - This is not a homeschooling blog » Blog Archive » A few million doesn’t go as far as it used to()

  • Ben, it’s really good to hear from you. You’re quite on top of the situation here, even for someone who was in the UK during the first wave.

    I was in the first wave, at Exodus. I saw paper wealth come and go. been through two Chapter 11s!

    Many folks I know now believe that one of the best exit strategies are to now get acquired. Not IPO

  • >Many folks I know now believe that one of the best exit strategies are to now get acquired. Not IPO

    What happened to good old fashioned “beating the competition”.

    This is where a virtual “hands up” would be cool, but i wonder how many people running startups want to beat the biggest competitor they have and how many want to get aquired by them.

    I’m not talking about being a bigger *company* than Google, Microsoft or Apple but blowing them away in maps or music etc….

    I read something in Wired a while back where someone said there will be no more big companies as they all want to sell out ASAP.

  • Jeremiah;

    In your blog you list 2007 median prices, but your link points to 2005 median prices. I’d love to see the 2007.