It’s generally thought that spending more than half of one’s household income on housing makes a family at risk of homelessness. An article in today’s San Jose Mercury news reported that a significant number of Silicon Valley households spend more than 50% of their incomes on housing. The article writes:

When the U.S. Census Bureau released 2007 data last week for the 800 largest counties and 500 largest cities, all nine Bay Area counties were among the top 40 counties in the country with the highest share of homeowners who spend more than 50 percent of their income on housing.

Now, labeling middle to upper-income Silicon Valley families who spend more than 50% of their income on housing as being at risk of homelessness is largely unrealistic. It’s true these families are spending a dangerous portion of their income on mortgages. However, assuming they can sell their homes and get the equity out of their houses, they likely just end up in a smaller house or convert to being renters. I don’t point this out to be insensitive of their plight. Rather, this article exposes the worst side of an American psychology of “owning” homes at all costs, even to the point of securing unsustainable mortgages where it is the bank, and never the family, that ends up owning the house.

It’s not surprising that Silicon Valley would see a disproportionate number of families spending more than 50% of their incomes on housing compared to the rest of the country. Silicon Valley home prices are incredibly high, and the culture of the Valley is so obsessed with consumerism (note, I grew up in San Jose, so this critique is coming from somewhere), that it is predictable families would lock up so much of their income on otherwise unaffordable homes.

Of course, this sets up the Valley for a big fall, one we are only seeing the early signs of. As home values continue to decline, mortgage payments will stay the same, or even adjust upward over time as many sub-prime loans do. However, the equity families will be able to extract out of their homes will fall.

This is somewhat okay in the short-run assuming the tech industry can inoculate itself from the financial crisis and that venture money keeps flowing, since as long as jobs stay stable, families can continue to make their mortgage payments. But as the declining value of Apple’s stock and a report in the New York Times on the tightening of credit available to Silicon Valley companies highlights, it appears the other shoe is about to drop in the Valley.

While this may not set the stage for a dramatic rise in Silicon Valley homelessness, declining home values, unaffordable mortgages, and a tightening of credit that threatens jobs puts the whole Valley at serious risk.