From time to time I think back to the time right after I graduated from Stanford and wanted badly to buy a home in or around the Stanford campus. I couldn’t quite afford a modest tract house in Palo Alto then. Today even though I am a CEO with an decent entrepreneurial exit in the rearview mirror, such a home would be an impossible dream. Home prices in Silicon Valley are extraordinarily high.
Yesterday my curiosity got the best of me so I did a 2019 comparison. I logged into Zillow to find a home similar to my Palm Desert neighborhood. For the record my home is 2,716 square feet, is nicely updated, and includes a pool and a PV solar system that meets all of my energy needs. Recent sales would value my home in the $600,000 range. Then I looked in my former zip code in Palo Alto and found the following listing that is very much like my neighbor’s 2,100 square-foot home. According to Zillow the comparable Palo Alto home is 2,019 square feet and is on the market for just under $4 million. The monthly payment is estimated at $18,900 per month; the down payment would be $800,000.
There you have it. There is an old rule of thumb that your house payment should not exceed one-third of your salary. Given that rule, you could buy my neighbors house with a household income of $80,000. To buy the same house in Palo Alto, your income would need to be $680.000.
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