Moving to Bay Area with 3 kids on $230K

[mdwstrnkid]

Originally Posted by mysticaltyger

I was thinking the same thing. Having a mortgage that's almost 4x your income? That's soooo 2006.

With a 20% down payment, the income required to support the mortgage on a $1M house (i.e. $800K mortgage) with an interest rate of 6.5% is not too far away from the $230K figure that the OP posted. I got this number from a calculator while (presumably) uses the traditional income to debt ratio for housing. Am I missing something here? Sure, I understand that people should not necessarily stretch themselves to the limit to buy a home, but it does not seem out of line with the pre-2000 historical trends.

[mysticaltyger]

Originally Posted by mdwstrnkid

With a 20% down payment, the income required to support the mortgage on a $1M house (i.e. $800K mortgage) with an interest rate of 6.5% is not too far away from the $230K figure that the OP posted. I got this number from a calculator while (presumably) uses the traditional income to debt ratio for housing. Am I missing something here? Sure, I understand that people should not necessarily stretch themselves to the limit to buy a home, but it does not seem out of line with the pre-2000 historical trends.

Personally, I think we need to go back to 1970s lending standards before we get a true idea of what is actually affordable. The standards gradually got looser and looser beginning in the early 1980s.

The 1/3 of your income standard for mortgage, interest, & taxes is really a forumula for living paycheck to paycheck.

Another thing I think you missed is that when you live in a neighborhood of $1M houses, other aspects of life tend to be more expensive as well. The neighbhors generally live more expensive lifestyles and most people end up living the lifestyle of their neigbhors because it's just too darn hard to say "no, I/we can't afford to do that" to your kids and your neighbors all the time.

Read the book... The Two Income Trap for more details.

[mdwstrnkid]

Originally Posted by mysticaltyger

Personally, I think we need to go back to 1970s lending standards before we get a true idea of what is actually affordable. The standards gradually got looser and looser beginning in the early 1980s.

The 1/3 of your income standard for mortgage, interest, & taxes is really a forumula for living paycheck to paycheck.

Another thing I think you missed is that when you live in a neighborhood of $1M houses, other aspects of life tend to be more expensive as well. The neighbhors generally live more expensive lifestyles and most people end up living the lifestyle of their neigbhors because it's just too darn hard to say "no, I/we can't afford to do that" to your kids and your neighbors all the time.

Read the book... The Two Income Trap for more details.

Thanks for the book reference. I will try to take a look at it.

You are right - people too often run into problems when they try to keep up with the Joneses. It's perhaps a little different in San Francisco, where it's not too difficult to find neighborhoods of homes in the $1M range. Sure people here spend more for living expenses simply because things are more expensive in the city, but I don't see as much spending being spured on by the buying habits of their neighbors. I admittedly don't have any solid evidence other than observations through my own personal experiences.

I still think that it's possible to spend 1/3 of your income on housing costs and not live paycheck to paycheck, but I guess that depends on one's discretionary spending habits. Remember, just because that you have an income that is 4x that of the average family does not mean that you will necessarily spend 4x more than the average family..

[mysticaltyger]

Originally Posted by mdwstrnkid

Thanks for the book reference. I will try to take a look at it.

You are right - people too often run into problems when they try to keep up with the Joneses. It's perhaps a little different in San Francisco, where it's not too difficult to find neighborhoods of homes in the $1M range. Sure people here spend more for living expenses simply because things are more expensive in the city, but I don't see as much spending being spured on by the buying habits of their neighbors. I admittedly don't have any solid evidence other than observations through my own personal experiences.

I still think that it's possible to spend 1/3 of your income on housing costs and not live paycheck to paycheck, but I guess that depends on one's discretionary spending habits. Remember, just because that you have an income that is 4x that of the average family does not mean that you will necessarily spend 4x more than the average family..

To your first point, I'm sure there are people who pay a lot for rent yet live modestly otherwise. But I think cities like San Francisco and New York have a "sidewalk tax". You end up spending money the minute you hit the sidewalk. I think San Franciscans blow money on different things (think restaurants and concert/theater tickets) than suburbanites (think SUVs and oversized houses to heat and cool)...and since San Franciscans have less "stuff" it may create the illusion that they don't blow money on anything. I don't have hard evidence for this; however, I do have a friend who has never thought of himself as materialistic because he never wanted a big house or fancy car, yet always lived payday to payday and is now facing bankruptcy at age 54 as a result of that mindset.

To your second point, yes it's possible to still save if you are shelling out 1/3 of your income on housing. But I tend to think that people who push their spending on housing to the limit have a pretty strong tendency to do it in other spending categories as well.

[noahf]

Mysticaltyger raises some great points but I have to give a counter-example to the last generalization: "people who push their spending on housing to the limit have a pretty strong tendency to do it in other spending categories".

While that may be true for some, perhaps even a majority, nothing could be farther from the truth for my family.

To the original poster: In my opinion, you can easily live very well on $230k/yr in the bay area. You will have to make trade-offs, and $230k won't get you a high-luxury lifestyle in a top neighborhood with lots of extra expenses. However, you can probably pick any two of the above: high-luxury (big house), top-neighborhood, extra expenses (SUVs/cars/bling).

Our family makes a *lot* less than $230k, and housing is our largest expense. However, while our house (close to $1M) is much higher than the national average, our living expenses are quite reasonable. In the bay area you don't need much heat or AC for the seasons, there are lots of wonderful free places / parks / things to do, etc. We drive two Honda cars fully paid for (bought new in the past 5 years). It's all about how you choose to live. We shop at the Farmers market all summer, saving tons of money over Safeway while getting better produce. We probably eat 90%+ of our meals cooked at home (or picnic style on the go). We have the lowest tier of cable tv (first 30 channels, no premium), and no iPhone that so many of our friends & family have. Do we miss those things? No!

Are we glad to live in one of the best, most fun and walkable neighborhoods outside of SF proper? Absolutely. From the above "pick two" comment, we picked one "neighborhood & schools" and the other is "saving money".

It's all in how you manage your money imho. There are Wall Street folks complaining that $500k is not enough to live on (really, look it up re the bank bailouts). At the same time there are people living on a lot less than my family who are doing great. Don't count other people's money and don't spend everything you earn - save something. If you do that, you can survive anywhere.

[silverstar23]

I'm not worthy to respond to such an elite person.