80-10-10 mortgage on a 1mil home is only 100k down. And the monthly payments split by 2 people (aka a couple) is ~2k / person / month. That's 4k/month all in once you include the tax rebates.
I'm good on that, thanks.
The per-capita GDP variation between large American cities is larger than that, and there's no good reason to expect housing to cost the same in very different cities.
Some cities having housing cost at least 50% more (or double) the national average seems like something that would be the case in pretty much any country in any period of history.
I will be spending less than $2k total a month. West coast is crazy.
Bankrate calculator says it’s $700k more expensive for the same house in SF.
By the rule of thirds, that's $60K/yr meaning $180K+/yr salary is necessary. This is for suburban living in a remodeled 70's ranch home, not in an urban area.
How much do those cost in the Bay Area?
That’s for someone fresh out of a top school who hasn’t even negotiated at all. There are many new grads in the bay area that recieve this kind of comp.
Assuming 40% tax bracket, a 30k salary difference gives you 1500/month extra after taxes that you can spend on your apartment. If you consider a couple with in demand tech skills they may be significantly better off financially moving to SF, where they are likely to both find very competitive salaries. In many other areas they may have to contend with one person getting into his best career path and the other choosing from limited options to be nearby.
I am not advocating SF living, e.g. this is not my kettle of fish simply due to the quality of life choices, but from a purely financial viewpoint it is not that hopeless (yet?).
That's not a very good assumption. $130k is on the low end for anyone with enough experience to be looking at a home purchase.
I don't know why an absolute value is ever considered "insane." If salaries support it, it's not insane.
Even with the high housing prices (caused mostly by regressive zoning policies), senior engineers at a big tech company or late-stage startups should be able to afford a home.
Your normal family property (approx 1500 - 2000 ft/sq, ~1 acre land) goes for $200k - $250k. Still expensive, but doable, especially if both parents are making decent money (>= $50k/year is what I count as decent money). Less than $30k down payment brings your monthly expenses to less than $2k/mo. Exactly half price for what I'd imagine to be similar living conditions in SF Bay (albeit Bay Area public schools are probably better than NH's, though New England has very good schools).
It's clear that you're making a lot more money than I am for similar experience -- I too am less than 30 years old -- but I wonder the difference in percentage our savable income is, given the difference in costs we both pay for housing. I too wonder for others in our age and job demographic what they're able to save when living in SF Bay vs. elsewhere.
The cost of living there doesn't seem worth it to me. Heck, NE I think is too expensive! Been looking to move down to Raleigh, NC after I get married, but that's neither here nor there.
My commute is ten minutes on a bike, I live alone so I don't need a big house, and I have no use for a lawn. Your values are clearly different, so New Hampshire is the right call for you (or NC, or whatever). But they're not apples-to-apples comparisons.
If you want to live inside the Beltway, add 20%-50% to those figures, depending on neighborhood.
All those will be in livable, reasonably safe neighborhoods with decent public schools. I'm sure there are options that cost less if you look hard enough.
FWIW, I chose "nice, older town-home" for a bit under $500k. That's on two mid-career, white-collar salaries. We have enough left over to max our 401ks, take vacations, etc. The loss of one income wouldn't drive us to homelessness, but it would hurt. I walk to work, bike to grocery store, and my spouse has a 7 mile commute (it's also bike-able, which she does occasionally).
Yeah, I'm catagory #4. Been here long enough to get on the escalator when it was possible, living in a modest house in a neighborhood I could never buy back into. And I understand what the money would do elsewhere, I moved here from Minneapolis/St. Paul area, and would be shopping for lakeshore if I moved back there.
Housing is broken. Sunnyvale is at least building new high-density housing, but not at a fast enough rate. Units are sold before the dirt has been scraped clean to start construction.
The median full-time job in the US pays near $45,000. The median household income is near $60,000 today.
There are 127 million full-time employees in the US.
Or put another way, approximately 39% of all people in the labor force (~161 million) are earning at least $45,000 per year.
If you're in the top 1/3 of all full-time earners (40+ million people), you can afford a $2,000 mortgage by yourself. If 40+ million people in the US can afford something, it's not insane.
Two people with a full-time job, earning only the median, can very safely afford that $2,000 mortgage. The typical full-time median income person in the US will commonly not even have a four year degree, so this isn't a stretch premise in terms of requirements. If you want to hit $4k per month (the parent's scenario), the top 1/3 of households can manage that (tens of millions of people fall under that umbrella).
If you want to get into insane mortgage territory as it pertains to the median income, you're talking much higher. $8k-$10k+ style mortgages.
I think it is crazy that two high earning people would be spending possibly 50% or more of what they make on housing.
The problem in the Bay, and increasingly in other popular areas, is there are few options for less. Especially in places like the south bay, where it isn't really urban - it's a giant suburb that lacks dense, affordable housing options.
An average employee shouldn't have to live hours away from their job. Or spend 50% of their income on housing.
Amongst people who think this is reasonable are probably
- Dual earners hoping to bite the bullet before it gets crazier
- Those with <8yrs experience who have never seen a downturn or jobs go dry
- Lawyers, VCs, etc to whom this is nothing.
Law firm partners are in a much better position, but you can't make equity partner (not just "income partner", which is basically a glorified title they give so you can go get more clients) until you're about 40. And nobody wants to wait that long to buy a home.
Basically, "law firm partners" can be clumped together with VCs, since they both hold stakes in (hopefully) profitable businesses. But most lawyers are not partners.
It's also worth noting that these figures are for a mortgage, which is in part an investment. When the trend of SF area real estate is factored in, it doesn't look as crazy. If you purchase in very popular areas (Palo/Menlo/north MV, on the Peninsula), you're pretty well insulated from downside market risk. Even during the '08 recession, things mostly just flattened out for a couple years (and have since gone on a tear). People used to joke about million-dollar-fixer-uppers. Now even the fixer-uppers are well over a million...
I just 'did the math' in Redfin's mortgage calculator on a $990,000 home. The total monthly cost came out to $6,495 or $3,247 per person (in a couple). That's almost exactly 1/2 of the take-home (after tax) pay of someone making $120,000 a year in California.
-- Monthly expenses on a $990k house in SF --
Principal and Interest: $4,185
Property Taxes: $1,015
HOA Dues: $551
Homeowners' Insurance: $183
Mortgage Insurance: $561
1) That's far more than your $2,000 per person number
2) I'm no expert but, throwing 50% of your income at a mortgage seems foolish. So whether or not you can afford it, depends on your definition of "afford"
so 900k mortgage at 4.1% interest is ~3k of interest and 1.2k of principal for first month.
Now you have 1k/month of property tax, 0 HOA (i was not talking about a condo), and 180$/month of insurance. I've been quoted 80-10-10 which have 0 PMI fees.
Let's be safe and assume that you're taxed at 30% at your highest level. Its likely you're being taxed at 40% though.
Now doing some math....
3k*0.7 + 1.2k + 1k+0.7+.180k = 4180$/month. Obviously there's maintenance and other costs but that's how much its actually costing you.
FANG companies often pay 200k+ / year total comp. Getting 100k of capital between 2 people in the bay area is doable.
I'm going to need a minute to let that sink in.
20% * $310,000 = $62,000
Emphasis that that's just the median down payment for a new home in the US today.
The median existing home sale is closer to $250,000 for 2017. So you're looking at a $50,000 down payment just at the median.
140K, 40% for taxes, leaves with 84K, 3K a month for housing (assuming you don't want to shack up with some rando Craigslist'er), leaves 48K.
Another 20K for food and booze, and you're left with 28K.
So with your estimate, you're actually left with $4k saved for the year..
So, you're telling me that the $1MM home (which will be roughly $5600/mth) will give you nearly $20k in tax deductions (in order to meet your ~$4000/mth)?? Effectively making your property taxes free for you? You're either delusional or I am going to have a very exciting tax season come next April...
See my comment below.
“so 900k mortgage at 4.1% interest is ~3k of interest and 1.2k of principal for first month. Now you have 1k/month of property tax, 0 HOA (i was not talking about a condo), and 180$/month of insurance. I've been quoted 80-10-10 which have 0 PMI fees. Let's be safe and assume that you're taxed at 30% at your highest level. Its likely you're being taxed at 40% though. Now doing some math.... 3k*0.7 + 1.2k + 1k+0.7+.180k = 4180$/month. Obviously there's maintenance and other costs but that's how much its actually costing you.”
Something like that.
Federally, local property taxes and mortgage interest on the first $1 million of principle for first and second mortgages for your primary residence are deductible from your income. For California, the rules are slightly different, but I think that they are close enough to use the same rules for estimation purposes.
Using the interest rates from your example that would be a deduction of 4.5% * $800k + 6.5% * $100k = $39.7k for the mortgage interest deduction and roughly $12.5k for the property tax deduction for a total deduction of $52.2k. If you can afford a million dollar house, you are probably in either the 28% bracket or the 33% bracket for federal taxes and in the 9.3% bracket for California taxes so that will save you $14.6k-$17.2k on federal taxes and $4.9k on California taxes.
I know a non-tech dual-earner couple who managed to save a down payment like that in the Bay Area, but they were living rent-free in a house owned by one of their parents well into their 30s.
Basically I've never personally paid more than 2k/month in rent in the bay area.
Their responses were ... well ... sad. I don't blame them. Or the companies.
I was amused by the offered salaries, after I explained the basic economics to them. Pointing out that the net income after taxes/expenses is so low as to effectively put me and my family into poverty.
The smart ones responded positively to "keep me where I am, have me hop a plane N times per month."
The dumb ones said "but BA real estate only goes up." Which, is a large part (but not the root cause) of the problem. If this were true, then BA real estate would be little more than a barely concealed Ponzi scheme. Which, maybe, it is. I dunno.
What is interesting to me is that the rest of the country has been wising up for a while. So now you can get the benefits of BA salary/comps working locally. This is a welcome development, though rent seeking behavior seems to follow this, so it is only good for a while.
nitpick: Ponzi scheme = fraud, giving people fake investment accounts, like Bernie Madoff's operation.
It's more akin to a pyramid scheme, greater fool theory, speculative bubble, etc.
And even in your calculation, means that after 4 years you can do the downpayment. Its not unreasonable for house prices to be where they are in that calculation.
For example, I looked at comparables for my current home in a recent job hunt. My reasonable sized (1700 sq ft) house in a good area of Michigan (western Wayne county, bordering Washtenaw and Ann Arbor) is about $250k if we sold today. As far as I could tell, this would not be the down payment on a roughly similar house in comparable neighborhoods in the Bay Area.
[added]
When I was looking up the mortgage costs to help in my negotiations, it was looking close to $100k/year in payments (6500-8500/month). Which meant, when I looked at that in terms of after tax income, we didn't have much money for things like food, sending kid to college, cheap clothing .... stuff we might like to do like going to movies ...
So, yeah ... there's that ...
The back of the napkin numbers on those parameters; each of those people need to have a salary of 130-150K/year. Certainly not crazy for the well placed Apple, Google and Facebook employees but pretty much a pipe dream for the unwashed masses.
forgetting property taxes?