A $300k Salary Feels Like $100k in the Priciest US Cities
bloomberg.com
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Buying a big TV or a new iphone would be a lower % of total salary since those wouldn't scale w/ the location. And then you'd turn around and pay $20 for a cocktail. But what do I know, I live middle of the country :)
If housing was not connected to fundamentals, home sale prices would have been exposed and taken a nose dive with the movement in interest rates. People aren't getting any easy money. They are still buying.
But prices have fallen (and even more, volume, has fallen, whether because there are fewer buyers are because sellers are deferring because of the fall in prices). This is clear in national figures, and hot metros that at some other times have defied downward real estate trends also show it.
Prices are still, on median, 100k higher NOW over pre-pandemic. That's 33% more in just a few years. Sale to list prices is still at 98.9%. Off the peak of 103.1% but money was WAY cheaper then.
March 2020 median home price was $300k. March 2023.... $400k. [1]
March 2020 loans were about 3.5%. March 2023.... 6.5%.
It costs a shit ton more to service a loan now, inventory is down, yet prices are only 30k off the peak.
Is everyone buying a house with these interest rates a moron? No they aren't. Are banks approving risky loans now? No they aren't.
Volume is irrelevant when we are talking about fundamentals. Sellers are a key part of that. If they pull inventory due to the numerous factors in the housing market and the economy, then the prices are what they are. There is no shadowy hand now keeping home prices higher over their fundamentals, nor a shadowy hand telling the homeowners to not list their home. This is the market at work; and its been resilient with what is going on.
And to my point, if you couple supply and demand with the state of affairs and you look at build cost you'll see that current inventory is priced at or better than any fundamental analysis would suggest. And not overpriced.
I ONLY buy on build/replacement cost. Sure some areas went crazy, but if you are disconnected from build costs, you are rolling the dice and I highly recommend you don't do that unless you love the house so much you don't care what happens. But by and large, housing prices are NOT disconnected from replacement costs. They are still cheaper.
If you can buy a "used" house for 300k. Or build a new house for 350k (+6-12 months of your time and carrying costs on the housing you are currently at and potential unexpected costs), then where is the disconnect? I don't see it.
If housing WAS disconnected from the fundamentals, then you'd simply see a shit ton more building going on and with more inventory and less buyers and affordability due to interest rate hikes, price would drop a lot. That's not the case. There has not been a meaningful price drop with the interest rate hikes, we just have less buyers on average, and about 4% less on the sales price to list.
People waiting on the sidelines in most markets aren't going to be happy as inflation keeps on trucking, build costs are out of control, and inventory is low. Rent will go up.
"Year-over-year rental price growth will rise from 5.8%, as of June 2022, to 8.4% as of May 2023, according to a Federal Reserve Bank of Dallas forecast that uses data from the federal government’s consumer price index"
You used to be able to just stash cash and then when interest rates jack up you could get a real deal. No more. Housing is an inflation hedge and the market has been pumped up.
When the pivot occurs and cheaper money returns because the asset owners would rather have inflation than deflation, the housing market will go even higher IMO. 30T debt and 180+T in unfunded liabilities along with a pissed off world that has gotten drunk off cheap USD leaves no choice but to print in overdrive. I won't be holding USD or more than retirement money in the stock market. I'll be primarily in RE and private companies. If you are big on stocks, you may still do ok - we've seen that we can print and not cause extreme inflation, by pushing dollars into equities. But I think that game will end as it's further exposed and money rotates out.
Not true in most markets. Compare to build/replacement costs.
In a high inflation environment with 30+ trillion in national debt and 186 trillion in unfunded liabilities, I'll take my chances with hard assets that are connected to fundamentals like housing.
They WILL pivot and print in overdrive. There is no way out at this point. And not just the US, the world cannot handle higher interest rates which causes more demand for the dollar. The entire world is jacked up on eurodollar debt that is not sustainable. And those with the assets will gladly choose inflation over deflation.
"Inflation is transitory". "Banks are fine"
We're led by morons, shills and thieves.
10 years ago this was a far bigger deal as the western game was the only one in town. Nowadays nonaligned countries can pivot to the Russia/China axis and still get resources and manufactured goods.
Getting resources and manufactured goods has nothing to do with my statement about sustainability.
Debt to GDP of 338% is not sustainable [1]. It doesn't matter if countries can get resources and manufactured goods. That's like saying - well I have 3X my salary in debt but it's ok... I can buy goods on Amazon.... on more credit, with a higher rate... and still be fine. No you can't.
There's about 20 trillion in US denominated debt / eurodollar debt [2] and 65 trillion in unrecorded debt overseas [2].
In order to service US denominated debt, you have to swap your currency to get USD. This is a major problem when you already need to keep printing to service your own unsustainable debt (> 300% debt to gdp), inflation rips on goods and materials you need and tax revenues drop in an economic downturn.
When interest rates go up, it squeezes you. Everyone kept rolling debt over in a debt drunk binge fest for decades as it kept getting cheaper and they have been feeling major pain from it going the other way.
[1] https://www.weforum.org/agenda/2023/02/global-debt-2022-and-....
[2] https://www.bruegel.org/comment/euro-dollar-parity-beyond-sy...
[3] https://www.weforum.org/agenda/2023/01/65-trillion-debt-bank...
Most of the voters are morons, and are voting for these leaders.
Yes, you could say - well they don't vote in the primaries so it's their fault. But the same systems at play in the general elections are the same ones that drive the primaries. If primary voting was 1:1 with general election voting, the system would just adjust to influence accordingly.
Who exactly was going to do anything meaningful to save the finances of the US? The best options we've seen have been Ron Paul and Bernie and we saw what happened there. Funding and media are able to influence who wins. If someone says logical things and is anti Fed or even a little anti Wall Street establishment, they are painted out as nut jobs. And it's effective to the public who generally, has no savings and has little time to research like those that live more comfortably.
All candidates are all co-opted by special interests. And almost all by the financial system which is the biggest risk. It's not an accident that both red and blue appoint the same people to the Fed, despite fighting aggressive over almost every other nomination and appointment.
We also have a huge wealth gap and media divisiveness giving rise to populist candidates.
They make it one side versus the other meanwhile they both fleece the financials and economic prosperity that could occur if managed well.
We've gone past the point of no return, led by both parties at different times and here we are. Overextended. Huge wealth gap. Ripping inflation. Interest rate hikes that, in my opinion, are just theater as we can't afford to keep hiking them. And as we hike them, the world gets pissed off and moves quicker to a new world currency reserve.
No idea when that will happen, could be 10/20/30/40 years. But trade has already started to shift to other currencies. CBDCs are also underway and for everyone's sake, hopefully they don't get adopted.
https://www.zumper.com/rent-research/cincinnati-oh
I really like zumper for digestible rent data over time for a given city
As of April 2023, the average rent for a 1-bedroom apartment in Cleveland, OH is $1,136. This is a 7% decrease compared to the previous year.Amazon and Walmart online, Whole Foods and Trader Joes in person. Doctors and drugs who are in-network for insurance would be the same cost anywhere in the US
It really is mostly childcare and housing that really kills you in the expensive cities
Cost of influence, too. Granted, it’s not something most in tech think about.
Every political system has patrician and plebeian tracks. In America, the former can be bought (versus solely inherited). Being a politically-active patrician in New York involves an expensive list of patronage. That’s where the power players are, and that’s where you’ll cut casual deals.
It’s optional. And it’s different from civic responsibility. But unless you think the status quo is hunky dory, you’re going to want to change things, and the cost of access varies geographically.
> Doctors and drugs who are in-network for insurance would be the same cost anywhere in the US
I don't believe this to be true. For example for dental here is a price scaling chart based on where you live: https://www.opm.gov/healthcare-insurance/dental-vision/plan-...
I don't think people are spending upwards of $2,500 per month on impulse purchases on Amazon, groceries, or whatever, and blaming it on 'cost of living'
In Ohio I got twice the house for half the price compared to Austin. The cost of milk and eggs are way down there
I’ve lived in very expensive cities (Boston, Los Angeles) and now live in a moderately priced one (Cincinnati) and most things cost about the same except real estate. Gas (which I don’t use as I have an EV) is a bit more in California due to taxes but food, clothing, services, gadgets, utilities, etc are almost the same.
If I were a 20-something today I’d stay away from high cost cities. Real estate eats everything. I might consider living in such places for a little while to build network but would bug out after maybe two years. For example I’d say if you live in SF/SV and are approaching 30 and making under 300k you should leave.
It’s just such a bummer that the absolute worst financial decision of my life is to live in my favorite place in the world.
I get it, it’s how the world works, but it sucks to choose between daily happiness and financial security.
Unfortunately with the exception of Sacramento (which is getting pricey as of late) California doesn't have a lot of middle ground between its really desirable yet expensive places and places that are affordable but less desirable. The Sacramento area seems like a reasonable compromise for me. I can comfortably afford Fresno's and Bakersfield's nicest suburbs, but I don't know if I'd be happy in those cities. Much of the rest of the state is quite isolated from major metro areas; this has implications regarding educational opportunities for children and health care quality and availability. I don't see myself settling down and raising a family in many of California's more isolated areas due to this, though it may be a nice adventure visiting these isolated areas for recreation.
I don't know what I'm going to end up doing....maybe I'll end up marrying a woman from Vermont and end up moving there in a few years XD. But I completely sympathize with you and the crazy housing market we're contending with.
One of the big benefits is that there are so many options for day trips. Visiting Lake Tahoe and the surrounding mountains is an easy day trip. Visiting SF or the beaches is doable in a day. Napa is close. For hikers, runners, and bikers there are tons of bikes paths and hiking trails all over the Sacramento region. And there are a lot of neat places in the nearby Sierra foothills.
To summarize: If you prioritize nightlife, music, and food, Sacramento might not be the best fit, but if you prioritize affordability (relatively speaking) and getting outside, it's hard to beat the Sacramento area.
Disagree. Saving X% of one's early career salary goes a lot further when the salary goes up near a city.
I live in the midwest and invest over 50% of my salary.
I'm in my mid 30s and have almost a million in investments already.
Meanwhile I have friends from college, same major etc, who live in expensive cities and work in the same industry and they barely have anything to save after the high costs of living there.
Seems like a waste of effort dick measuring contest to me.
And even if you check that box when you do decide to cash out and move to Cincinnati or whatever nobody around you from that point forward will place any positive value upon the fact that you have checked that box.
I live in NYC because it’s densely populated, diverse, with access to world class most things (museums, restaurants, theater, music, …). I get to experience and do interesting things.
That’s why people should consider moving to these cities. No one gives a shit what Joe from Cincinnati thinks or will think in some hypothetical future.
This mindset is the problem. If the plan after 30 is to move and live next to Joe from Cincinnati, then like the parent comment says: this flippant attitude will not garner any positive value.
That's not the point of living in a city like NYC for many of the residents here. No one here I know is planning on leveraging "10 years in NYC" to impress their neighbors in Cincinnati.
I still think you can get a lot of benefit living for a while in a "center" like Silicon Valley, but a few years might be enough to absorb a lot.
Cost of living calculators assume you're trying to live in the same kind of housing in HCOL-city-A as you would have in LCOL-city-B, but there's no reason to accept this assumption.
I rationalized it this way: there is no amount of money in LCOL-city-B that could buy me the feeling of living in HCOL-city-A, so I'm going to treat the housing in HCOL-city-A the same way (i.e. mentally assume it's not available and consider that the tradeoff for getting the thing that isn't available in the lower-cost-of-living city).
This is the flipside of living in a tiny studio in Hell's Kitchen and pretending nicer apts don't exist. It's just a matter of making the most of it, in either case.
Sigh…
Nice meaning trendy and cute and hipster. Maybe other person “nice” as in a meal costs $200
This is because most goods are manufactured in Asia and imported. They differ in online retail price due to local/import taxes and in offline price due to labor/rent costs. Hence, if you purchase goods online, the price remains mostly the same within the same country.
It's an important exercise to consider whether globalised cheap labor is fair to the laborers, given that the profits of their labor are absorbed by the destination high-CoL market.
For rent, a median one bedroom apartment in SF would be $14-18k/year more than a median one bedroom apartment in Seattle, Chicago, Nashville, Orlando, Sacramento, Austin, or Fresno.
Average monthly spending on food in SF is about $150 above the national average, so that's another $1800/year you need. But that probably includes a lot of people who do their own cooking. Maybe tech workers need to buy all their meals. I found a tourist planning site that said the average tourist in SF spends $32/day on meals, so let's use that instead of $150/month above national food average. That would mean we need $12k/year extra for SF for food.
So someone coming to SF from one of those other places needs an after tax income that is equal to their after tax from their $100k in their old city, plus $30k after tax for rent and food.
That requires a salary of $148k.
That's a long way from $300k, so what other costs are missing?
That can’t be right. A burrito or sandwich costs $18-$20 after tax, health mandate etc, and that’s at a walk up and buy kind of place.
If you get fries with that, it’s another $6-$8.
A sit down meal? Probably 50% more. I don’t see how $32 is a reasonable estimate.
I’d guess closer to $50
That being said, I think it's a bit disingenuous to compare cost of living like that. If you enjoy living in a large city, you probably have a lifestyle that isn't possible in small town America and you're probably willing to have a smaller living space in order to have that lifestyle. For me, living in a city means there is so much to do that I can pretty much just use my apartment as a place to sleep and spend most my waking hours somewhere else. That's not for everyone but if it is you, you'd probably be way better off making 300k in sf than 100k in the middle of Kansas.
On the other hand, if you don't go out much and spend most your time at home and want a large house to entertain guests and raise a bunch of kids and have 100 acres of land to ride your dirt bikes. You're probably better off trying to do that with 100k in Kansas.
For example you can have a rent controlled apartment renting for $500 a month, that tenant leaves, and the new tenants would sign for $3000 a month. There's no requirement the new master tenants would get the $500 a month. Whereas I believe in NYC's rent control the apartment itself is set at $500 a month, and anyone who moves in, that's what they pay.
In SF the rent controlled properties, both for rent and for sale (yes you can buy super affordable apartments in SF if you don't exceed certain income) folks just have to make less than a certain amount a year. The income tiers are listed here, and are higher than I expect some would expect. https://sf.gov/reports/may-2022/income-and-rent-limits-inclu...
There is also a citywide rent increase cap of 3.6% currently (its calculated based off inflation and other factors) on any and all rental units, regardless of income or rent control status : https://sf.gov/information/learn-about-rent-increases#:~:tex....
Edit - put another way, there's a sort of implication that if a unit is "rent controlled" then it is cheap, and this is not necessarily the case in the SF rental market.
As for moving to a cheaper place… their jobs are in the city. That’s why they live there to begin with.
Have you missed the inflation crises? Have you missed the absolute fleecing of the middle class due to stagnant wages? Have you missed the student debt crisis? Have you missed the disinvestment in black and brown communities? Have you missed the ramshackle, near collapse of public transit and other infrastructure? Have you missed the teacher/police/fire/EMT/911 operator shortage? Have you missed the homelessnesss/housing crises?
What city have you been living in?
1. For a person living alone modestly, $300k even in the Bay Area is more than enough to put away a decent chunk of money for retirement. Just run the numbers.
2. Pundits also vastly overestimate taxes, which are low in the US. The top tax rate is for anything above 400k, so the amount you pay is way lower if you make $300k/year.
3. High cost of living areas have more amenities overall which may not be factored into calculations. Things like walkability, so you don't have to pay for car, car insurance, gas, etc.
4. More public services, another amenity . more convinence. like better schools, better public transportation, nicer neighborhoods (this may be subjective).
5. Expensive mortgage is not like pissing the money away--you are building home equity.
The interest portion is the price you pay to be able to purchase that equity. Compare how much does get thrown away, and the value of that tiny slice of equity relative to other investments. Maybe Big city real estate is really that good (it seems better to me than anywhere else).
Furthermore a 30 year mortgage in the Bay Area locks you into a high earning life style These are somewhat stressful jobs with market ups and downs. It almost becomes impossible to pursue an alternative, like a career change.
What about selling and moving out? You can, but if you're forced to that situation is also where you incur the most real estate risk (high transaction costs, forced to sell underwater, etc).
* Expensive, scarce land
* High construction costs
* Rampant NIMBYism
To some degree, we dug ourselves into that mess, and can dig ourselves out if we work at it.
I am sure others could provide reference salaries. It seems like in 20 years salaries have more than doubled.
Cost of living has gone up quite a bit. Most meats are double per pound compared to pre-covid.
[1] All figures exclude bonus, which is a huge part of compensation on Wall Street.
https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=55000&year1=20...
Looking back, those early career gains were huge. And yeah, inflation is painful.
The fact is that enough people enjoy those benefits to maintain the trend.
You should get out more. None of those things are true anymore, if they ever were.
Either policy adapts in these areas to be accommodative for general living, and not simply a hub and spoke office commuting model, or the people leave and area fails to prosper.
Hawaii, NYC and some others likely to stay supported due to already being great places to live for other reasons beyond work.
The real reason people have been moving to these places.
There's no way to solve the problem. Unless you love living in those places, you can do much better for your future by leaving ,especially in this era of more acceptance of remote work.
There are unique factors that can make this person in New York more valuable than in Houston. Chiefly: once their function is in Houston, why not Honduras?
I agree, and it's something that I'd like to get ahead of if it's the world we're approaching.
In a world where high-skill-non-managerial jobs can be outsourced easier, wages will become depressed. Would you rather take what you have saved and try to get something in Houston now, or watch from New York as your income stagnates but your expenses grow with inflation?
Nobody knows the future, and remote work could very easily be phased out. Or we lean in and US companies draw from a pool of tens of millions of talented international software engineers.
It's a hell of a situation.
EDIT: lots of tweaks here and there.
Depends on if you’re learning and growing or coasting. Truth be told, I’m presently the latter, which is partly why I moved to Wyoming. That is not an option if you’re starting out. And it won’t be when I shift back into first gear.
I also fear remote is here to stay, with all of the wage changes that will create for skilled American labor (it'll do lots of good too, don't get me wrong!)
EDIT: >I don't see how anyone builds much of a life there before they're 35 anyway.
By this I suppose I meant that I don't see how I could build much of a life out there before I'm 35. I know a few people who pulled it off, but I'm under the impression it is an outlier outcome in a city of outliers.
I do too. And it means a return of apprenticeship. Nothing more, nothing less.
Because Houston is a large, relatively rich city with a well-educated workforce within a short drive of other large, rich cities and a short flight of others, whose citizens understand the unique problems that face American citizens and therefore can serve as excellent early adopters for consumer solutions for the American market?
Agreed. But if one's job and life go remote only, this ceases to be a differentiator. My entire argument is geography is far from becoming irrelevant. But if someone in Houston takes no advantage of their proximity to said "rich city with a well-educated workforce," they're competing against anyone with internet.
The example sustains itself. If petroleum engineering could be done remotely, there is no chance it would continue to pay a premium for Houston-based talent.
> I’m not a fan of Houston but I think it has a much more impressive economy than New York
New York's economy is that of control and administration. Houston is to it as Baton Rouge is to Houston.
Most of the people I know moving to those places are doing it mainly to escape cities run by politicians who care more about what people on Twitter think of them than actually helping their citizens. High crime, apathetic city councils, and poor schools are the cited reasons.
Most people I know who have moved have all said a similar thing: cost of living is a fraction and taxes are lower. It's not just politics - people aren't moving to Louisiana. Texas and Florida offer economic opportunity.
However, I'm 34 years old and I'd like to get married and have children one day. Having grown up in a low-income household, I want to be able to provide a middle-class standard of living for my future family. I want my children to have good educational opportunities and live in a safe neighborhood. However, these things are not cheap in America, and in Silicon Valley these things are very expensive, generally requiring the income level of two highly-paid professionals in order to afford purchasing a home in a safe neighborhood with good public schools. Private schools are also very expensive. I don't see a path toward home ownership in Silicon Valley unless I win the lottery (either something like the Powerball or I win "the startup lottery"), and so I see two potential alternatives: (1) continue to rent in/near Silicon Valley while exploring homeownership opportunities elsewhere (which is still expensive, but renting in Silicon Valley is much cheaper than paying mortgages on comparable properties), or (2) leave Silicon Valley and base my career somewhere else where home prices are cheaper, either taking advantage of remote work opportunities or starting my own business.
How bad are your debt payments?
Not trying to shame or anything. That just sounds insane that you could be barely making ends meet on 200k
I have a different philosophy on this. A 401k is basically your life raft of last resort. And it's so tax advantaged that you're throwing away money not to use it. I'd rather pay to hold debt while maintaining and growing my assets, and rely on inflation + asset growth + wage growth chipping away at the debt. If the economy crashes and credit freezes up, a good credit score from paying down my debt won't mean anything. But a bank balance still will.