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Comment by coldcode | Hacker News Reader

The site is very nice, but how does anyone afford houses that expensive in those areas?

I live in Texas and my nice modern 2000 SF house is only $190.

It's tough! As a company we're trying to make it cheaper by refunding half of our commission back to the buyer [0]. If you're doing an FHA loan, that can be almost 50% of the down payment. We can also help with the purchase of low income housing if you qualify [1]. We're actually thinking about building some tools to make this inventory more accessible. You might also try checking out our cheekily named list of fixer-uppers, Shitty Listings [2]. As you'll notice, a "fixer-upper" near the California coast can still be pretty pricy but I think there's just a fundamental supply constraint. Incidentally, that's most likely why real estate has been a lasting and valuable asset class.

[0]: https://www.openlistings.co/our-commission-refund [1]: http://sf-moh.org/index.aspx?page=262 [2]: http://www.shittylistings.com/

FYI, your links in the footer on shittylistings.com point to localhost:3000 :P

This is for the "IT 1%ers", those Bay Area/SV kids that make middle 6 digits 2 years out of college. The rest of the world has to make do.

$190k, I assume.

Salaries are higher here for one. Say $190k vs 4x as much, $760k. Assuming magic 10% down appears in your pocket, 0% property tax, ignore the differences in state/local taxes, and assume a spherical chicken in a vacuum.... $3200/mo vs $800/mo.

4 times as much! Wow! That's a lot of money. Right? Except.. it's "only" $29k/yr. Most cost-of-living expenses don't scale with income. Now, of course, your salary has to be more than that to cover taxes, but say 20% overall tax rate, you really only need $36k more per year, which you might see straight up on a single salary, based on cost-of-living pay adjustment alone. If you're married, suddenly you only have to make $18k per person per year more.

If you follow the "1/3 of your salary" rule, it would suggest that you need to make $86,400 per year more, which is why expensive housing sounds so expensive. One would hope that in a low cost-of-housing market, you're not spending 1/3 of your income on your housing, because then you really don't have a lot of money left over for retirement or food or entertainment. Similarly, in a higher cost-of-living market, you might fudge that a bit and pay more than 1/3 of your salary, which still leaves you more money for your 401k and transportation and entertainment, and all those things that really don't scale with cost of living much at all.

You could also look at the high cost of living as a savings plan. As long as you retire before whatever particular housing cycle bubble bursts, you can still retire to Texas (or wherever) -- you can just do so with more money (equity, savings, retirement plan, etc).

Also, some tax and expense treatment of housing is pretty regressive. You're probably not getting a mortgage interest/property tax income tax deduction on a cheap mortgage; on a more expensive one you are, so you're immediately paying a lower effective interest rate and property tax rate (if you want to look at it that way). You're not paying PMI for that sub-20% down payment because it's not federally backed. etc.

This is not to say it's cheap, or easy, or affordable for everyone, or even smart. It's just saying how it's possible, and how it's probably not as bad as it sounds.

Imho, the biggest problem (especially in the Bay Area) is that there's such a ridiculous ratio of cash buyers to available properties that even folks who have a typical 20% down payment are still having a hard time buying starter homes in desirable ("close to work") areas. For example, I have $200k equity in my current home (NC) and if I move to the San Jose area that would still require me to put in another $100-200k of savings to "compete" for a mediocre 1500-2000sqft place near work. At that point, I'd be going from a $2k/mo mortgage to a $4k/mo mortgage, plus a 3x in annual property taxes because the home is so much more expensive. I disagree with your "only" incremental additional income requirement in this case, because if the alternative to buying a "cheap" home is paying $4000+/mo rent (I have two kids and need at least a 2BR apt), that just delays home buying even further while I throw away potential DP/mortgage on rent.

Perhaps I am being unreasonable because I'm coming from a low CoL state, but I think the 1/3 your salary rule is a very good, smart target (unless you can easily get a HELOC or equity loan in case of emergency because you put so much down when you bought the place).

"I have $200k equity in my current home (NC) and if I move to the San Jose area that would still require me to put in another $100-200k of savings to "compete" for a mediocre 1500-2000sqft place near work."

Do you mean you'd need that $400k down to "compete"?

You would have no problem buying a $1MM home on credit with your 20% down. That would buy you a decent place in San Jose. You could also buy the same home with 10% down, though that will require PMI on your mortgage. In either case, I don't believe you would have too much trouble from cash buyers. Yes, cash means a shorter escrow period. But if you offer more than the cash buyer, most sellers will take the higher bid. Your offer would waive your loan contingency (by getting your financing locked-down in a commitment letter).

No PMI on jumbo loans. They just require cash reserves. (which, yes, is more money on top of what you have to put down, but there's no requirement that you not spend it once you close). So take that $200k, put down 100, and keep the rest in the bank.

It's not a big deal but I bought a house in Berkeley 2 years ago and paid pmi for a year until I refid. It was a jumbo loan. So I guess ymmv.

Huh, okay, good to know. Maybe on a per-bank basis. I assumed PMI was just fannie/freddie-mandated and nobody else cared.

You bring up a very good point about the rent "alternative" not leaving much space for savings; particularly these days. I was able to rent a 2bdr house in a very desirable location for $2k in 2011, but by 2014 when I bought a house, this was considered at least $1k under market value (even though they never raised the rent). And, of course, 3 years isn't really enough time to save for a down payment!

If 1/3 is $4000, that leaves $8000 to pay taxes (call it 2400 on 12k/mo), which leaves $5600/mo to live off of. I could deal with that.

Right? Even with a massive salary and no kids you'd have a hard time paying the mortgage. It's completely absurd to me.

You rent for a few years longer. I live in Southern California, and rented a 1BR apartment 2 blocks from work for $1000/mo (increased to $1150 by the time I moved out 5 years later). I started at high five-figures salary and was a bachelor, so I had way more than a 20% down-payment by the time I started looking at buying.

One of my coworkers who started at the same time as me lived in a 3BR with two roommates for the same period of time, so he was paying half what I was in rent. He still lives modestly (2BR, working wife, no kids) and probably could retire anytime he wants now.

One reason is that this site only seems to have listings for the "top companies." These companies are very hard to get a job and and tend to pay well, so the home listings are probably skewed to suit buyers that work at the elite companies and have more money to blow than a normal person.

I bet that if and when this site begins targeting the other 99% of companies, the listings for those will trend lower to reflect the average salaries.

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