Silicon Valley Housing Market Gets Wired
Aerospace engineer Fanny Zuniga is a whiz at math but she proved no match for the Silicon Valley real estate market.
Zuniga spent most weekends this summer in a fruitless search for a house priced around $220,000 after she learned that her landlord planned to increase the monthly rent on her one-bedroom apartment in Sunnyvale to $1,100. Not only did she fail to find a house she could afford, she couldn’t even find another decent apartment to rent.
“I wasn’t prepared,” said Zuniga, 29, who ended up moving across San Francisco Bay to Fremont, where she rents a three-bedroom home for $1,200 and faces a far longer commute to her job. “By the time I had told the Realtor I wanted a [house] it was already gone. It was awful.”
House-hunting horror stories like Zuniga’s have become commonplace during the past year as the booming high-technology economy in the Silicon Valley has sent home sales and prices soaring.
The region, which straddles Santa Clara and San Mateo counties, is clearly California’s most heated housing market even as most of the rest of the state continues to limp along with flat prices and modest sales increases.
In scenes that echo Southern California’s real estate frenzy of the late 1980s, buyers are lining up overnight to buy new homes and sellers are flooded with multiple offers to sell existing homes.
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Flush with cash from high-paying jobs and high-tech company stock offerings, swarms of software engineers, product managers and entrepreneurs have descended on the area’s condominiums, ranch houses and ivy-walled estates.
“It’s nuts up here,” said Santa Clara stockbroker Matt Gellene, who along with his wife, Beth, started looking for a home last summer. The Gellenes recently purchased a new house only after touring countless overpriced existing homes--”absolute dumps and they are $250,000 or $300,000”--and putting up with indifferent sales agents for new homes.
“We give them our names and number,” said Gellene, 28. “They don’t call. They don’t care. They are going to sell it anyway.”
Home sales in Santa Clara County, which covers most of the Silicon Valley, soared 24% from January through October compared to the first 10 months of 1995, according to DataQuick Information Systems, a La Jolla-based real estate research firm. Meanwhile, the median sales price in the area has risen nearly 5% to $264,000.
Prices have risen even more strongly in some highly sought-after communities, such as Atherton, where the median price has jumped 10% since last year to $935,000, as newly enriched high-tech entrepreneurs seek out trophy properties.
“A lot of money has been made very quickly by a lot of people,” said Alain Pinel, who heads the regional real estate operations for Coldwell Banker. “The first thing we noticed [last year] was how easy it was to sell expensive homes.”
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As home prices spiral out of reach for many residents and apartment vacancies plunge below 1%, business and civic leaders worry about where the Silicon Valley’s secretaries, supermarket clerks and other lower-paid workers will find places to live. With little existing open space to build on and tight growth controls in place, more and more workers are being pushed out to distant suburbs in search of affordable housing.
Affordable housing advocate Gertrude Welch says local churches that help homeless and unemployed people get back on their feet have been stymied by the housing crunch.
“They can get jobs but no housing” said Welch, who works with the Council of Churches of Santa Clara County. “It’s a serious situation.”
Newly hired workers “can’t even rent a place while they are looking for a house to buy. It’s that tight,” said Leslee Coleman, who studies land use and transportation issues for the Santa Clara Valley Manufacturing Group, a regional business association.
Many home builders are simply unable to keep up with demand. Los Angeles-based Kaufman & Broad Home Corp. had to limit sales at its California Impressions project in San Jose after it sold 32 homes on opening day in mid-March. By the end of July, the 120-house development was sold out at prices starting at $284,000.
“We had to slow our sales down because obviously we couldn’t make houses that fast,” said Lisa Kalmbach, who heads the company’s San Jose-area division.
The Las Lomitas School District landed an unexpected windfall after a small parcel of its surplus land in Menlo Park was auctioned off to home builders this summer for $4.6 million--more than 50% above expectations, said district business manager De Motterman.
“The price kept going up and up and up,” she said, referring to rival bids.
In the affluent cities of Atherton, Woodside and Palo Alto, developers and wealthy new homeowners have purchased older homes by the score, only to tear them down and replace them with much larger, flashy estates equipped with limestone floors, wine cellars and video intercom systems. Many of these tear-downs--called “scrapers” by local agents, as in “scrape them off”--have sold for $500,000 and up.
However, many residents are angered by what they regard as vulgar displays of wealth out of character with existing homes and neighborhoods. The city of Palo Alto near Stanford University imposed a moratorium on residential demolition after some turn-of-the-century homes were leveled to make way for giant new houses.
“I think people have been kind of shaken by what’s been going on,” said Jeff Brown, a 38-year-old aeronautical engineer and Palo Alto resident. “You start to feel that everybody drives a BMW and that everybody owns a million-dollar house.”
In the College Terrace section of Palo Alto, neighbors accustomed to a funky blend of cottages, multicolored Victorians and modest ranch-style homes banded together after developers stepped up the demolition of old homes to build luxury residences.
“They don’t fit the neighborhood,” Pria Graves, head of the College Terrace Residents Assn., said as she stood in front of one of the offending newcomers, a large stucco house topped with a roof of fake red tiles and fronted by a large driveway and two-car garage. “They are destroying the culture and architecture that draws people here in the first place.”
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The property values in College Terrace and throughout the valley have risen in direct proportion to the rapidly expanding local economy.
Silicon Valley firms this year alone are expected to create nearly 100,000 jobs--almost a third of the state’s total employment growth, according to Tom Lieser, director of the UCLA Business Forecasting Project. Lockheed Martin Corp. alone, which has hired 1,500 new workers in Sunnyvale this year, said recently that it has more than 1,000 openings at its missiles and space unit there.
Meanwhile, more than 80 of the region’s fledgling high-tech firms have gone public in the past 18 months and raised an estimated $2.5 billion, according to San Francisco-based Montgomery Securities.
After his firm was gobbled up by communications computer maker Cisco Systems, electrical engineer John Clark sold off most of his new Cisco shares and recently bought a new, five-bedroom, $550,000 house in Evergreen Hills, a master-planned community south of downtown San Jose.
“We had to spend $100,000 more to get what we were looking for,” said Clark as he and his wife, Beth, selected floor surfaces, cabinets and other features for their future home.
The housing boom has in turn boosted the fortunes of any real estate-related business.
Real estate agent Tom Hilligoss recalls one local high-tech executive who warned him to start looking for another career because most people would soon bypass brokers and start buying and selling homes through computers and online networks. Hilligoss then helped the man buy a $1.3-million home in Atherton.
“Those who are planning to displace us are inadvertently our best clients,” said Hilligoss, who has sold more than 30 homes this year at an average price of more than $1 million, primarily to buyers in the high-tech business.
In San Mateo, Flegel’s furniture store has seen recent sales run 40% above last year, said owner Mark Flegel, who has had to upgrade his already pricey inventory of furniture to satisfy demand. One new homeowner recently walked into Flegel’s and purchased a $40,000 dining room set.
Palo Alto interior designer Jo Ann James has expanded her staff from two to seven people to handle the additional business, including the decoration or “staging” of homes up for sale. James and her designers fill empty houses with everything from linen bedsheets to antique French dining room sets to baby grand pianos.
“You have to grab the buyer at the front door,” said James, who charges her clients up to $17,000 a month for a staging. “You want them to stay long enough in the house to become involved emotionally. It’s very calculated.”
The tight market has forced buyers to take extraordinary steps to purchase a home.
In Willow Glen, an old San Jose neighborhood where sycamore trees shade rows of Spanish colonial and Tudor-style homes, buyers have gone door-to-door and taken out newspaper ads to flush out sellers. After watching homes being snapped up, contractor Ken Petrow wasted no time submitting a winning offer for a $380,000 two-bedroom, one-bath house on the first day the Willow Glen property went on the market.
“We were lucky on this one,” said Petrow of the 65-year-old house.
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San Jose agent R.C. Kost makes sure his customers are ready to strike when they find a home they like. Kost’s buyers must be prepared to submit a 3% cash deposit along with brief biographies when they make their offer. Even with such preparations, sellers have balked when asked to make such essential repairs as removing asbestos.
“They don’t want to do it, and they are getting away with it,” Kost said.
As real estate values continue to rise, home ownership will prove more elusive even for highly paid engineers and executives, which will in turn make it harder for companies to recruit talented workers.
“You find more and more employees moving out into the Central Valley,” said Katherine Strehl, public affairs manager at aerospace giant Lockheed Martin, which employs about 14,000 people in the Silicon Valley area. “It’s an overall problem in terms of recruitment and retainment.”
But the demand for housing will remain strong as long as the high-tech industry continues to blossom.
Clark, the electrical engineer who bought the new $550,000 house, has joined a new high-tech start-up company in which he owns a sizable stake. Clark already knows what he will buy when it comes time to sell his shares: “a bigger house.”
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Soaring Prices
The Silicon Valley’s booming technology industry has spurred a run-up in Santa Clara County house prices in the last two years.
YEAR: MEDIAN PRICE
* 1990: $250,000
* 1991: $239,000
* 1992: $235,000
* 1993: $233,000
* 1994: $234,000
* 1995: $239,000
* 1996: *$264,000
Source: DataQuick Information Systems
*Median for sales through Oct. 31.
