How on earth do people afford to buy in SF? (rant) (for rent, mortgages)

[eastbayhopeful]

Originally Posted by Ultrarunner

This is so true... especially where we both live...

A co-worker told me of a good rate and term and when I read the fine print... it said must own only one property...

Not sure why that would matter... it would seem a person with a couple of paid off homes wouldn't be a bad thing

Here's another one for those that have a rental... they take all the numbers over several years and go through everything to make sure it is all properly reported and then toss/slash 25 to 40% of the income...

Uhh, what? This is how rental income is calculated:

Gross rents
- total expenses
+ taxes, mortgage interest, insurance
- PITI

all divided by 12. We only use one year's schedule E as well, not several.

No slashing there. Again, I really wonder where/who this info is coming from.....

[Ultrarunner]

Originally Posted by eastbayhopeful

Uhh, what? This is how rental income is calculated:

Gross rents
- total expenses
+ taxes, mortgage interest, insurance
- PITI

all divided by 12. We only use one year's schedule E as well, not several.

No slashing there. Again, I really wonder where/who this info is coming from.....

Provident Funding is the lender I have and the one that offered the great refi...

The best rate doesn't mean much when the loan doesn't fund...

My Grandfather was a very astute business man and originated loans for many years...

He counseled avoiding up front fees because it provides less incentive for the broker to screen...

In 30 years... the only 2 times I have paid for an appraisal or application up front have been a bust...

Should have listened...

[wf7575]

Originally Posted by DocGoldstein

Myself, the city is no place for old men.

Actually SF has a fairly old population relative to other American cities (36.5 median age, putting it slightly closer demographically to retiree-heavy Ft. Lauderdale than to a young person's city, such as say, Austin), primarily due to the inability of young people and families to afford it.

[wf7575]

Originally Posted by JrsyGal

I've been thinking about these numbers since reading this yesterday, and I'm having a hard time getting things to add up. As a young couple starting out in their 20s, it's unlikely they would have been bringing in $150k annually, and would have had things like student loans to contend with. Even for the most disciplined saver, I think it would be a big stretch to save $200k over 10 years.

Now, they go to look for a house. Even with a $200k down payment, I don't see how they can afford a house in the $750k range. The mortgage might be $3,000/mo, but what about property taxes and insurance? I imagine that would be another $1,000/mo, causing their monthly housing expenditure to eat up half of their take-home pay.

Of course nothing is impossible, but I don't see that scenario as being realistic for most people. We're considering a move from NJ and are trying to figure out how to make it work. We've got two kids in middle school to think about, so it's looking more and more like renting is our only possibility.

I feel like this post brings up an important point. Let us assume our couple are from a working class background and, like most of the nation, their parents gave them minimal assistance after they turned 18. The rapidly increasing cost of education means that if one has the education to get a professional job with promotion potential, for the first ten years of professional life you are going to be paying a significant portion of income in student loan payments. Also, very few couples both immediately achieve a 150k income straight out of school. This usually takes several years to achieve, often aided by low-paid or unpaid internships (and racking up credit card debts that will need to be paid off). Let's say our fictional couple is hard-working and lucky and able to achieve a combined income of 150k/year and have paid off their student loans and credit cards by the time they are 32. Not common to be at that point so young, but it does happen. Now they can start saving for a down payment. Using your calculations, they could save up the requisite down payment by the time they are 42 if they are focused. However, in the modern economy, particularly the tech economy that many bay area people work in, layoffs are common. At some point in that ten years, one or both will be layed off and they will have to deplete savings to get by and likely take a lower-paid position for a while. It is also almost certain that a major financial burden will happen to this couple at some point: a family member who is ill and needs care, a lawsuit, etc. Lets say all this set them back another five years. This fictional couple is now 47 and thinking of buying their first home. They have nothing in retirement. The mortgage on a 750k house is going to keep them from putting much toward retirement. And, as they are now middle class and want to help their kids get ahead, perhaps they pay for their college, resulting in them putting nothing aside for retirement. The house is now where they are gambling their entire retirement.

Most people buying nice houses in SF now are either very well paid, have family money, or made a series of housing jumps that likely involved living in the ghetto at some point and gauged which neighborhoods are increasing in property values well. The saving a little each month thing is kind of a pipe dream.

[Ultrarunner]

Originally Posted by wf7575

Most people buying nice houses in SF now are either very well paid, have family money, or made a series of housing jumps that likely involved living in the ghetto at some point and gauged which neighborhoods are increasing in property values well. The saving a little each month thing is kind of a pipe dream.

Know a few that cashed in stock options and did real well too.

Posted before about a young couple both the first in their families to attend college... at 24 they earn 200k... he is Oakland Police Officer and she is a Registered Nurse...

It can be done...

[beb0p]

Originally Posted by eastbayhopeful

Uhh, what? This is how rental income is calculated:

Gross rents
- total expenses
+ taxes, mortgage interest, insurance
- PITI

all divided by 12. We only use one year's schedule E as well, not several.

No slashing there. Again, I really wonder where/who this info is coming from.....

Not always. I tried to finance with a mortgage broker and she uses some esoteric formula that subtracts the mortgage... twice; she said every lender uses said formula (apparently not true).

[bmw335xi]

When it comes to rental income lenders will use 75% of gross rent as income. The 25% is assumed for maintenance etc. If you have loans on rental properties, they will be included in your back ratio.

[beb0p]

Originally Posted by wf7575

I feel like this post brings up an important point. Let us assume our couple are from a working class background and, like most of the nation, their parents gave them minimal assistance after they turned 18. The rapidly increasing cost of education means that if one has the education to get a professional job with promotion potential, for the first ten years of professional life you are going to be paying a significant portion of income in student loan payments. Also, very few couples both immediately achieve a 150k income straight out of school. This usually takes several years to achieve, often aided by low-paid or unpaid internships (and racking up credit card debts that will need to be paid off). Let's say our fictional couple is hard-working and lucky and able to achieve a combined income of 150k/year and have paid off their student loans and credit cards by the time they are 32. Not common to be at that point so young, but it does happen. Now they can start saving for a down payment. Using your calculations, they could save up the requisite down payment by the time they are 42 if they are focused. However, in the modern economy, particularly the tech economy that many bay area people work in, layoffs are common. At some point in that ten years, one or both will be layed off and they will have to deplete savings to get by and likely take a lower-paid position for a while. It is also almost certain that a major financial burden will happen to this couple at some point: a family member who is ill and needs care, a lawsuit, etc. Lets say all this set them back another five years. This fictional couple is now 47 and thinking of buying their first home. They have nothing in retirement. The mortgage on a 750k house is going to keep them from putting much toward retirement. And, as they are now middle class and want to help their kids get ahead, perhaps they pay for their college, resulting in them putting nothing aside for retirement. The house is now where they are gambling their entire retirement.

I don't know about you, but most people in their early to mid thirties likely do not yet have family member who need medical care and victims of lawsuits are even rarer. Even if a family member need medical care, it's not a given that the young couple has to pay dearly for it (there are insurance/medicare that potentially can take over).

We should keep in mind that roughly 30%-35% of the college grads have no student loans and another 5%-10% borrowed only small amount. That's approx 35% to 45% of college grads not burdened by student loans.

Again, not everyone can save $100k in ten years; but the point is that it is not impossible and even if say, only 25% of the people manage to do it, that's still a lot of people.

Many things can derail the ability to save $100k in a decade - too much debt (student loan, etc), having kids at too young an age, getting married too soon, investing poorly, got sweep by the housing bubble, failure to land a high paying job, getting a divorce, living beyond one's means, etc, etc. Yes, not everyone can save this much money, but again, the point is that it doesn't take a miracle to achieve it - all it takes is some spending discipline and avoiding the pitfalls along the way.

[Azmordean]

I too am new to the area and the housing market here is insane. And I'm not even in the city, I'm down in Mountain View. I make good money, 6 figures, but like OP I can't see that I will ever be able to buy a home here. The fact is, almost no one can afford to buy a home here by working like a normal person. The only way you afford a home is by hitting the stock option lottery.

Even piece of **** 2 story garden condos built in the 1950s with a laundry room "down the hall" start at 500K. It's ludicrous.

I was talking to a guy on a plane once who happened to be a developer - I asked why developers don't build here given the insane prices - seems like it would drive new units. He said the issue is the regulations and permitting process. In Fairfax County, VA (very rich county just outside DC, also an expensive market, but nothing like here), he said from start to finish the permitting process would take about 11 months. Here in the "*******ed" Bay Area it takes in excess of 4 YEARS. So must developers tell CA to **** off, and we are where we are.

9 moths before I moved out here I bought a nice 2br 2ba condo in Fairfax County (where I'm from) for 229K. I moved here for work. Now I'm renting out my condo back home - so I can at least take some consolation in the fact that I'm building equity SOMEWHERE, even though I'm flushing 2500 a month on a decidedly average 2br apartment here.

I love this area in a lot of ways - the climate (Though i miss winter), the natural beauty, and SF is a cool city. But between the utterly insane income taxes, the ludicrous property values, and the sickeningly liberal political atmosphere, I think I'd jump at the opportunity to move somewhere more reasonable (back to Virginia, or maybe Nevada). But my job is here, and I like it a lot. I could go back to federal contracting in DC, but don't really want to do that right now. And the fact remains, I couldn't make in other places what I make here. Sure I'd save 12K a year or so on housing payments and another 6K on taxes - so say 20K total - but the fact remains I'm making something like 50K more than I would back home. So objectively I'm better off here despite the insanity.

So for now my strategy is to forget about buying a home here - instead I'll pay off all debts (plan to pay off car soon), max out my 401(k), and otherwise get things in good order. Then I'll be in a nimble position to either (a) buy here if the bubble bursts and the market ever becomes anything approaching realistic or (b) if I decide to get out of dodge. In the mean time, my condo in Virginia is paying for itself, so I'm building a bit of equity there and have a place to "go back to" if I want to, or perhaps sell in a few years if I decide to be here longer term.

I know logically, all of that makes sense, but it doesn't change the fact that it IS depressing to make 150K and feel like you can't afford a 1950 condo in the bad part of town.

[beb0p]

One thing to note is that financial advisers would say saving 13% per year is pretty conservative. When you dig deeper, most said the over simpified rule of thumb of 10% is not enough and most experts advocate saving 25%!


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