Thread, latest update from the trenches in Silicon Valley (about the local economy):
1) Recruiting
We always get aggressive calls from recruiters that are trying to steal people. Recruiters call almost daily trying to steal people. However, today, we got a "do you want to hire a CFO" call today. That was a first. With this, and other news, it sounds like the recruiting business has suddenly changed and they now have some folks they are trying to place.
2) Housing
I just heard there were two houses in Silicon Valley (not San Francisco) that were each listed for $800k. However, they were sold for $500k and $550k.
I asked, "in the face of accepting a 35% price drop (this would indicate a situation of more sellers than buyers), why am I not seeing more For Sale signs than this? How can a price drop occur without any evidence of many "For Sale" signs?
If sellers can't find buyers, there would be more "for sale" signs, right? This leading indicator would exist, so why isn't it there? Why are they selling homes at such a low price (low relative to Silicon Valley costs)? (I will not be convinced we have a shortage of buyers, until I start seeing For Sale signs, which I haven't seen yet.)
The answer was something like, the sellers had to sell them immediately - it sounded like panic selling due to folks assuming their stock options would help make their mortgage payments.
Possibly these two sellers were victims of mortgages that assumed the 3 Horsemen stocks would not drop more than 50%.
3) Silicon Valley is a stock option economy:
Over the past 3 years, the housing prices have increased significantly. The average Silicon Valley home is around $500k according to a report a couple of months ago. However, in several cities, a 3-bedroom house costs $700k. A $700k 3-bedroom house translates into $120k/yr base pay.
4) Average Salary
The Silicon Valley average income was about $80k/household per a report 3 years ago. In one of the executive-cities it was about $130k per household per a report 2 years ago.
Nonetheless, here's the main point of my post: whether you are an engineer, marketer, or executive, a lot of folks I'm hearing had established mortgages with the assumption their stock options would help them make their mortgage payments. Folks probably had assumed their stock option wouldn't drop below 50%.
Real estate costs had increased way too fast over the past 3 years, so some new hires/new folks to the area, bought homes at these over-inflated prices.
5) This is not dotcom stock, but we're talking Intel, Cisco, and Sun stock option folks.
I personally think folks shouldn't buy homes that exceed their base salary. But I can why folks are tempted. Let's run the numbers for an entry-level software engineer, an NCG with a BS degree from Stanford, and see what we get:
$70k has a net pay of $3.2/mo, which translates into a mortgage of $300k, assuming s/he puts their entire salary into mortgage payments, except $1.2k.
That wouldn't even buy a condo in Silicon Valley.
The average Silicon Valley home costs $500k. So, this is probably why many Silicon Valley employees (at Intel, Sun, Cisco, etc.) use stock options to make annual balloon payments on their mortgages.
Sounds like this has gone past the dotcom crowd and I'm hearing it is now impacting some of the infrastructure company employees. Fortunately, the long-term is solid. I wonder how long this bit of a hiccup, cycle will last? I would guess about a year.
Best regards,
Amy J PS The malls are still very packed - folks are still shopping. |
