Hard Times For Big Money Houses

The San Jose Mercury News had a front page article on how The Ranch housing development in the Silver Creek area is suffering from the tanking economy.  Half the homes are up for sale, asking price is less than the $1 million USD that they first sold for in 2003 and far less than $2.5 million at the height of the real estate boom.  The other half of the homes have mortgages in distress as their owners scramble to refinance their luxurious lifestyles.  The home owners association doesn’t have enough money for the landscaping and lighting up the stonework at night.

I called up my Dad in Sacramento and told him.  He laughed his head off.

My Dad built out the stonework for The Ranch and he didn’t mind doing the work.  What disgusted him was these overbuilt homes that look like manor houses for people with too much money trying to prove that they’re worth this much money.  This was a significant waste of time and money that could’ve been better spent on building more efficient housing.

Although we visited that area together to see his stonework, I never appreciated his disgust until a relative in my sister-in-law’s family bought a $1 million home in the Gilroy hills last year.  The kitchen was bigger than my studio apartment, and the wet bar was bigger than my kitchen.  A very nice place to visit but too rich for my taste.  Besides, I’m not too thrilled about having a mountain lion watch me through a 20-foot tall chain link fence in the backyard that separates an encroaching civilization from mother nature.

What disgusted me about the Silver Creek area was that San Jose spent $200 million in 1999 to extend water and sewer up into the foothills.  (I’m recalling this from memory since the Mercury News website search doesn’t go back more than a year.)  That’s a lot of money for a bunch of overbuilt homes in a area that requires a lot of water to keep the grass green during the summer.

With the tanking economy in recent years, the city is focused on “infilling” the areas of San Jose with either condominium towers in downtown or mixed development (i.e., retail stores on the ground floor with two- to four-story of high density housing on top) along the major transit corridors.  Real estate developers aren’t thrilled with this since high density housing doesn’t have the higher profit margin as a new development of overbuilt homes surrounding a golf course.  The economy doesn’t leave them much of a choice.

What’s going to happen to these bastions of overbuilt homes?

There are some parts of the country where it might be cheaper to tear them all down and restore the land to the way it was before.  I don’t think that will happen in the Silver Creek area or elsewhere in Silicon Valley.  There are still too many fools who need to depart with their money to prove that they’re worth the money in the first place.