Just to underscore the point, Palo Alto declares not too long ago that anyone making under $100k a year is considered “low income”.
[1] https://data.census.gov/cedsci/table?q=United%20States&tid=A...
The average person with a house in The Bay probably doesn't make as much money as you think. They mostly have very high debt to income ratios.
A 40% ratio for the $125,000 household would give you a maximum purchase price of $830,000, which would be a conforming loan in the Bay Area, not a jumbo one.
https://www.zillow.com/homes/recently_sold/house_type/
In the South Bay near Mountain View, there's basically no single-family homes under $1.5M, and the majority of houses go for $2M up. Many are in the $4M+ range. You can get cheaper in San Jose ($800K-ish for a run-down 2BR from the 50s) or Daly City (low millions), but most of the Peninsula and SF has a floor at a million.
Most Bay Area residents just don't own homes. They rent permanently or maybe own a condo. But the context for this sub-thread is "people with a house", and basically all mortgages for single-family homes are jumbo if you're not paying in cash or putting >50% down.
Buying a house for $1M is firmly middle class status. True lower class people simply cannot afford to live in the Bay at all.
To be in the top 1% in the Bay Area you have to make close $1M per year.
https://www.cnbc.com/2017/06/14/how-much-you-have-to-earn-to...
I've wondered recently how much of this house price inflation is because of cash buyers from China vs. cash buyers because they sold their stock in a unicorn vs. dual-FAANG-engineers with a mortgage vs. people who leveraged up to the hilt with 3-5% down adjustable mortgages. ChuckMcM posted county property records a couple years ago that suggested the former category isn't actually a big one. The first 3 categories are relatively insensitive to downturns. The last will get hit hard this recession. If most houses are owned by people in the last category, the effect on housing prices will be much more dramatic than if they're folks sitting on houses with no mortgage.
(I used some crappy googled income tax calculators, so it'll be off, but hopefully not by a ton. I only factored in mortgage interest deductions, and I don't understand SALT deductions and didn't factor that in, so they might be able to deduct more and have even more left over?)
(We're also both using the 2018 median household income, which is like $8k more than 2017, so 2019 was probably even more. Who knows how that relates to today's chaos)
Next, your estimate for property taxes is similarly low. I don’t live in CA but where I live taxes are roughly 1% of the assessed value. Let’s say the county assesses your 1m home for 900k - and not to mention the assessment will probably increase over time - so you’re looking at about $750/mo there.
You totally forgot about homeowners insurance - required for that loan plus it’s included in the front end dti ratio. That will set you back another ~$150 per month.
That adds up to a total of $4556, almost 14% higher than your estimate and representing one trip to Disney world’s worth of extra spending over the year.
Often overlooked is the savings you should make for maintenance, repairs, and improvements. Only after buying and selling a few houses do I finally appreciate exactly how expensive they are and how “only” a $100 per month difference adds up - quickly.
For property tax, i found this california property tax calculator [0], which says it's $6,490/year ($541/month) for a home assessed at $1M in SF. That brings us to $4023/mo.
You're right I totally forgot about insurance. Oops. Sure let's use $150/mo, but IIRC that's more than I pay on mine. Maybe because I'm in a big building and the HOA has insurance for parts that I'd need to insure if it were a single family home? But I didn't factor in HOA, so $150's fair, even cheap.
$3482+$541+$150 = $4173/mo.
I still think this median household is going to have something like $4-5k/mo left over after principal, interest, property tax, insurance, and income tax. That's the most important number to get right in terms of how accessible this is. It tells us how much to they have to squeeze on everything else to make it work.
[1] https://smartasset.com/taxes/california-property-tax-calcula...
... also "$4556... representing one trip to Disney world’s worth of extra spending over the year." Holy shit really? I never would have guessed disney world is that expensive. Daaaaamn. Guess I'm never going there :(
(on second thought, I think you're right about the property tax estimate being low. I pay more than the online calculator said and my place is assessed below $1M. Maybe it's all the other stuff tacked on in SF? Add maybe ~$200/mo to my above estimate, we're still talking about something like $4k/mo left over)
I have no idea how that SmartAsset got that rate. Literally it makes no sense and is comically wrong.
San Fransisco is 1.1801%, so 11,801 on a million dollar house.
I didn’t include HOA - depends on the community, some are as low as $100/mo, others are north of $400 but often those include amenities such as lawn mowing or internet/tv or golf/social club memberships
Disney is expensive - especially if you’re taking kids (kind of the whole point isn’t it?). The costs really do skyrocket once you add little people, which I never understood until I was knee deep in it :)
Any middle class American is wealthy by the world's standard. The quality of life provided by middle class America is the life of the 1%. To not see this is to not understand how most of the world lives, and the challenges people face from being less lucky.
Similarly, the average American making over $40k a year will not consider themselves the 1%, but to the average citizen of the world they are.
People who own homes in the Bay Area do not have massive disposable income. But they do have wealth.
Now that same family, income and house with a paid off mortgage is in an entirely different situation.
The difference is the wealth they accrued in paying down their mortgage. They claimed value in doing so. But merely having a massive mortgage in the Bay Area does not _inherently_ equate to wealth.
There are definitely subtleties, like how feasible it would be for you to reduce expenses while keeping your income the same. Life.. gets complicated.
"Workers in America don't need better pay or benefits, they're already wealthy by world standards!"
"Workers in China don't need basic safety protections and sane work hours, they're already better off than workers in sub-Saharan Africa!"
Edit: This applies to countries with relatively reasonable populations with respect to their resources. This does not apply to places like China and India where there is a huge population to support.
This is all true - and all of those are possible while still being wealthy. The peculiarities of US culture are different from being wealthy. As another example you don't need to have an obsession with guns to be a wealthy country, but the US does.
It's been said many times before about similar statements, but this is not true or mathematically possible. I believe it's off by about an order of magnitude.
Middle class in the US is something like $45,200 to $135,600 in household income, which is roughly half the population.
Half the population is about 2% of the world population. And every American is not wealthier than everyone outside the US.
If you google something like "global income percentile" you will find a considerable amount of BS claims - the first one I found was on Investopedia. For fun or ideology or whatever, the meme that middle class Americans are in the top 1% is something that people will just go on the internet and lie about.
I didn't spend enough time looking to find really satisfactory sources, but in trying to find something relatively unbiased I ended up with something that suggested the US middle class might very roughly be around the top 10% globally.
Source: https://www.pewresearch.org/global/2015/07/08/a-global-middl...
(Note that in the terms of the linked article, it seems like the global middle class is a tier below the US middle class, so if about 85% of the world is "poor" or "middle class", then the remainder or 10-15% equates to the US "middle")
Is that because all of the people working service jobs can no longer afford to live in the Bay Area which makes $1 million 'not wealthy'?
Those people who make minimum wage of course work there so do we include or exclude them from this pov?
Nothing bad can come from putting things (yourself?) into a global human perspective. Considering how much chance is involved with where we are born, a middle class person/family in the US is quite wealthy by default.
I wonder how many take pause on any regular basis just to acknowledge and appreciate the relative wealth that they were lucky to be born into?
Median household in SJ earns ~120k. Median for USA is ~$60k.
Even if the SJ resident spend 40% on housing, they come out WAY ahead of the median household spending 25% on housing.
Average cost of a house in America is around $380k, average cost of a house in San Francisco is $1.7M according to Zillow. San Jose is $1.2M. Fremont is $1.1M. The cheapest (and not a great place to live and horrible commute) place in the Bay Area is Vallejo and that's still $450k.
So 3-6x more expensive depending on where you look generally.
- Gas: is still $3 a gallon here while a majority of the nation enjoys close to $1 a gal.
- State taxes: run close to 10% on professional salaries, most other states have 4-5% or no state taxes.
- Housing: This one is the big one, try finding a 3 bedroom house for less than $1M in the san jose/pennisula area, it just isn't possible (I am excluding parts of east san jose where housing is cheaper). A typical house in the US goes for roughly 350k. rent is no better, a 3 bdrm rental in a half decent area runs you 3.5k on up.
- Property taxes: this one is tied to housing, enjoy paying 1.5% a year forever on your $1M+ house, that is 15k+ a year
This is highly regional. We are currently at somewhere around $1.75/gallon.
Twenty miles away, though, has $0.99 / gallon.
Doesn't make sense to me.
Trust me, I hear the same thing in discussions about DC area salaries and COL. Relative to the rest of the nation, software developers here have a high income and high COL, but the income more than makes up for it here too.
There's nothing wrong with that notion, but some will find it odd that, before that transaction happens, a family owning an upscale countryside home is wealthier than a family owning a cramped Bay area home, but after that move happens, the family that moved in from the Bay area is now the wealthier one.
It means that merely having the option to sell your home and buy a countryside manor doesn't make you wealthy until you actually follow through with it.
Being able to pay for a $1,000,000 house and put 200k down makes you well off.
They..are?
they end up in possession of an asset worth $1MM. ill-liquid sure but still a durable asset. you can borrow against that asset, it appreciates proportionally, you can eventually sell it, etc. what's the difference between it and $1MM and equities holding? i don't understand how you think being in possession of something like doesn't cross the threshold for wealth simply because other people in the neighborhood are also wealthy?