Tuesday, September 29, 2009

Millionaires

Despite what you all may think, The Wife and I are not millionaires. We will be (someday), but when is anyone's guess.

I was thinking about millionaires as I jogged through our neighborhood here in Palo Alto. Depending on how you look at the numbers, every single one of my neighbors is a millionaire. So how can a doctor and VP with no debt be the poorest people in the area?

The answer of course is "home value." The smallest home on my street is about 1700 square feet and right now Zillow lists it around $1.5 million. It's an older home, and I'm assuming the people that live there own it outright. It's not an unreasonable assumption. It's a beautiful area with very little moving in and out. So why are they driving a beat up 1990s Toyota and not a Ferrari? Well, some of them are, and I bet it's not because they are independently wealthy. It's because banks wouldn't hesitate to give them loans. See, on paper, they are worth a mint. The bank sees that home as collateral of a million+ and it's free and clear.

What they failed to account for was two fold:
1. No one could or would buy that house if the bank took it as collateral.
2. It's a bit overvalued*


If you want to see what's wrong with home values in America, it's right here in this photo. And on this street. Maybe we're not so poor after all.

* A "slight" exaggeration - home prices here are about $800 to $1000 a square foot. 15 years ago they were about $100 to $150 a square foot.

8 comments:

KenP said...

Supply side economics of a different nature. The house really isn't 1K/ft until you factor in the lot which carries a huge premium. You could move to Oakland and find something a lot more reasonably priced. Of course you'd starting thinking less about the Ferrari and more about an armored car for transport.

Maudie said...

Good gravy. My home, 10 years old, 1700 sf = 1/10th of what those homes are listed at. Oklahoma may not be sexy, but it sure is an easy place to live...

Unknown said...

2,600 square feet here, plus a 1/2 acre lot in the back for around 225K.

Location, location, location. Its funny since you go up one block and the properity values are between 550K and $1MM (lakeshore).

BWoP said...

Vegas! Vegas! Vegas!

OhCaptain said...

Strangely, the home values here are very similar to Drizz's. Go figure. I guess it pays to work at the clinic in the corn field.

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AmyC said...

I agree about the issue with home values. But there is another side to your puzzle. I know you may find this very hard to believe. But for some people, a car is just transportation. Shocking, I know. The last boss I had at IBM had $5 million in the bank and drove a 7 year old dented Honda Civic. In that same vein, billionaire banker Andy Beal flies coach.

We never saw a run up in home prices here in Austin - and aren't seeing much of a dip now. My neighborhood is running about $250K for a 2500 sq foot home.

Bayne_S said...

Google has a market cap of $162B and many of them like to live near the googleplex.