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Benefits of Silicon Valley boost housing prices, rents

By Broderick Perkins

The median price of a single-family home in Silicon Valley--$760,000. The average rent of an apartment in Silicon Valley--$1,359. The cost of living in Silicon Valley? Priceless.

In the land of technology and sunshine, it doesn't appear to matter that fewer than one in five residents can afford to buy the median-priced home or that renting a decent apartment requires a two-income household.

Living in Silicon Valley isn't always easy, but life is just too good here to give up over something as trivial as a three-quarter million dollar home.

A recent study reveals that people who live in San Jose are more concerned about crime, traffic congestion and public school education then they are about housing.

"It's an absolute fact that people want to live here. That keeps housing prices high. If it wasn't for the demand, prices would drop," said Richard Calhoun, real estate broker and owner of Creekside Realty in San Jose.

The median price of Santa Clara County's single-family homes in March this year was $760,000, just $5,000 off the record high set in February, according to Calhoun, who charts and graphs official regional multiple listing service data in the Bay Area Real Estate Market Newsletter.

Housing price appreciation has cooled from the hot 20 percent rate of increase in 2005 to absolutely zero since home prices first hit the $760,000 median in June 2005, but prices haven't inflated beyond the market's capacity.

"It's not whether a buyer will buy with high prices that won't come down and rents that are going up; it's more a matter of whether they can make the monthly payment. They will buy the maximum amount of home their income will allow," said Linda C. Boyd, a broker associate with Meredith Homes and Enterprises Inc. in San Jose.

Calhoun reports that even as sales remain near record lows, those who do buy frequently pay the asking price or more. In March this year, home buyers paid an average of 100.3 percent of the asking price.

The cost of housing appears to be of less concern than other issues.

The city of San Jose's "2005 Community Survey Report" asked 1,000 residents what issues most concerned them and 13 percent put crime at the top of their list, 11 percent said traffic congestion and 9 percent said education and public schools, but only 8 percent said housing.

With the average fixed interest rate above 6.5 percent--the highest it has been since 2002--higher rates are a drag on home sales, down from 1,893 in March 2005 to 1,647 in March this year, Calhoun reported.

Buy buying isn't the only way to stake a claim in Silicon Valley.

The improved economy has allowed landlords to lure shelter-seekers who are not quite ready to buy, but, like home buyers, are attracted to the area by career opportunities, good weather, geographic and ethnic diversity and a host of attractions that let them save money on vacation travel.

Housing demand has boosted average rents in the San Jose area to $1,359 a month in the first quarter of 2006, a 5.8 percent increase from the same period in 2006. The average rent hasn't been that high since the third quarter of 2003, when the average was $1,355, according to Novato-based RealFacts. Occupancy has grown too, to 95.9 percent. The last time the occupancy rate was that high was during the second quarter of 2001, at 94.8 percent.

"Occupancy numbers have been going up almost every quarter for eight or so quarters. And the same for rent, probably mostly to due to the generally improved economy," said Chris Bates, RealFacts' spokesman.

Not so sure "whatever it takes" is the best approach right now, Romeo Danais, a longtime Silicon Valley real estate investor, is pulling up his investment stakes in San Jose and moving them to Oklahoma, Texas and New Hampshire.

He says no-money down, interest-only loans, adjustable rate mortgages, loans with longer terms, loans with options to pay so little the principal grows, two and three mortgages for one home and other "creative financing" or "nontraditional" financing approaches to the high cost of housing may have become all too common.

"When a lot of those stretched-out, thinly managed budgets get whacked with increases in their mortgage payment, we will see how strong the desire is to keep buying at these lofty prices," Danais said.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for this newspaper.