To Get a Home in San Francisco, First Get a $200,000-a-Year Job

>I suspect SF is the same. People can visit anywhere in the Bay Area and go back home and credibly say "I visited San Francisco" even if they never actually stepped foot in the city proper.

No, no they couldn't. Residents of SF are quite prickly about what is and isn't the city. You'd say you visited the bay area or possibly silicon valley not SF.

--- Ex-resident of SF

Long-time resident of Palo Alto here. SF is quite different from other parts of SV, so I don't think that happens.

I kind of doubt anyone visits Oakland or San Jose (both of which are huge destinations in "the Bay Area" but have their own international airports) and says they "went to SF." I sure hope not. It's pretty clear cut if you went to SF or not, since there's water on 3 sides of the city and not much to visit on the 4th side.

> Nobody who visit Trenton or New Haven comes back home and says "I went to New York".

You're stretching things. Trenton is 2 hours from Manhattan by car. If you stay in Northern New Jersey, you definitely "went to New York". I can get to Manhattan within 15 minutes from Hoboken or Jersey City. When you're that close, you're definitely part of the city.

I'm not familiar with housing costs in SF, so I'm not sure how considering surrounding areas would change the data, but I know in DC that the surrounding areas are by-and-large as expensive (and in many cases more expensive) than DC-proper.

The point being that whether you consider DC-proper, or DC/Arlington/Bethesda/Silver Spring/McLean doesn't really change things too drastically. Expensive cities tend to be expensive everywhere. I know that in Atlanta, for example, you can live in the city center in a nice place roughly for what it costs to rent an apartment of comparable quality pretty much anywhere in Northern VA. There is a floor (a very high floor) beneath which you will not find quality housing and really not much of a ceiling.

SF isn't in Silicon Valley. San Jose is one of 10 largest cities in the county and Oakland's pretty big too. I'm guessing that "San Francisco metro area" probably can't include either of those two larger cities, nor would it include Silicon Valley (which is 15-20 miles from SF and closer to San Jose.)

It's not that different, depending how far north you get in Manhattan. The distribution of housing types might be different, but things get pretty residential in the northern end of Manhattan, and you're as far away from "midtown" than those places are from downtown SF.

> It's the people that need to be there for one reason or another and can't afford a living wage with the incredibly inflated prices and taxes associated with living in SF and California in general.

This is more along the lines of what I meant, although I'd wager plenty of people grew up renting and have been slowly pushed out of what feels like their home by skyrocketing housing prices as well.

The people who grew up there don't have any extra wealth. So long as their parents continue to live in the same house, it's all just wealth "on paper".

Now, if they live with their parents, that is certainly a leg up in terms of not paying rent (or paying much less rent), but other than that...

Is being a homeowner really the standard situation in SF one generation back?

That same sort of thing happens in Australia, especially for coastal and beachfront properties. Where property was really cheap because it was far from major centres ended up getting really expensive over time. The only difference here is that those people tend to be squeezed out when they can no longer afford to pay the council rates (local taxes based on the value of the property). So they have to sell up, make a lot, pay a lot in income tax, and move somewhere far cheaper.

Asset rich, when your asset is your home, is the worst kind of rich. Unless you have something else very very compelling to back it up.

If you sell, then say goodbye to your city. If you don't sell, then you don't have this capital, and you still live in a very expensive place.

You can mortgage it for a lot of capital, but this is a poisoned chalice.

Other means to actually realise any of that wealth is to try your luck and speculate downwards, which is extremely risky if that's your only big asset.

Lots of people are "feeling rich" without being realistically able to realise any of this wealth, since they cannot really move away from their city. This is fictitious wealth that constitutes a massive burden to the city and endangers its competitive place in the future.

It will pop sooner or later and its likely to cause massive social problems. It's causing them already even before that happened.

But if you still live in said house, you're actually LOSING money because of the increased property taxes.

This is an interesting perspective. I'm from Marin County (the "classic" cloister of the rich in the bay area). While I was growing up (1985 - 2004), there was already a cultural gulf in the community between the older population (families that had purchased houses before the prices spiked) and yuppies who were buying housing at hugely increased prices. On paper, many people in Marin are very wealthy, but in practice this isn't as common as the stats suggest (An ex-girlfriend's parents weren't well off enough to help her attend college, but her parents were considered too rich due to their house for financial aid).

I've been lucky enough to have parents who could afford to help me with school, and have an interest in a lucrative field (computer science). However, many of my highschool classmates did not have one (or both) of those advantages. They are also squeezed between a high cost of living and the lack of jobs that provide a realistic living wage. However, unlike migrants from other areas, the less fortunate locals do not have another home to go back to. I know families that moved their entire family out of the state while their kids were still in school because it became financially untenable to live in the area.

This situation reminds me of the ongoing situation in SF. There are plenty of stories (anecdotal though they may be) of long-time residents being forced out of communities by the economic climate. It is easy for outsides to look at the Bay Area and see a city made up of tech workers making $100k+ a year, but the reality is very different. The same is true of people who bought their houses in a different economic climate. At least the parents have the "escape value" of their houses, as long as they're willing to sell off 18+ years of their lives.

If we go by the parent comment's "4x+" metric, and if we keep with the traditional personal finance advice of 33% maximum budget allocation to shelter with no other debt and that 33% covers PITI+M, that 33% expands to 1.32x of the budget. In other words, for compensating just shelter costs alone, you need a salary bump of 132%.

This doesn't account for the increased cost of living that should be compensated for, as well as any risk premium for moving in the first place. I don't see how people pencil out the numbers to convince themselves to move into either Silicon Valley or the Bay Area, and I'd honestly like to see how the numbers shake out if someone has made it work. Unless one is Fabrice Bellard-level quality, I don't anticipate most average arrivals to SV or BA ever getting a 200-250% salary increase to just stay in a Red Queen's Race personal-finance-wise.

The landowners of Bay Area are the new store owners of this new gold rush, profiting with much lower risk premiums from the majority of "prospectors"/programmers flocking to the new gold fields while the stories of "hits" keep luring in fresh meat each year.

"But still, it's insane in the Bay property market again. Anyone from the Bay knows a bubble when we see one by now. When all the hipsters and their credit-cards run out, the market will crash and the locals MIGHT be able to buy something again"

Just curious, but what happened to property prices in Oakland/SF during the last crash (2008)?

60 to 600 is a 900% increase.

Don't count on it bursting.

It's just as likely to go sideways for a decade or two with devaluation only due to inflation. Japan is the best example but Australia never had a major crash and seems to have rebounded again.

Maybe if there was another DotCom crash it might take the real estate market down with it.

Both rent and home prices are driven by supply and demand, that is, what the market can bear.

In both cases supply is the same, but for ownership, the market is global. You can live on the moon and own property in Vancouver. The price of Vancouver property is constrained only by the limits of how much foreign capital is available to be safely parked in Canadian real estate, not by the population of Vancouver. As you can imagine there is considered more of the former than the latter.

However, the market for rentals is constrained by the number and salaries of people who actually live in Vancouver. Nobody rents an apartment in a city in which they don't actually reside. You can't charge $3,000/month for an apartment in Vancouver because no one will be able to afford it. In Vancouver a junior engineer earns $60,000/year.

Vancouver salaries aren't higher than anywhere else in Canada (in fact they're lower than Calgary and Toronto, both of which have cheaper housing, and about on par with Montreal which has MUCH cheaper housing), so despite the crazy property market this keeps rents down.

SF's crazy rents are driven by the tech industry salaries that are much higher than anywhere else in the country (or in the world for that matter).

SF prices are driven by intense demand due to the tech industry. Tech continues to import more and more people but there isn't enough room for everyone.

Vancouver prices are driven by speculation, primarily from international investors. The actual demand for housing in the city is comparatively low, and the typical salary for white collar work in Vancouver also doesn't support sky-high prices.

The large disconnect between sale and rent prices represents the large disconnect between who is buying vs. who is actually living in these homes.

Yep

I pulled the data from Wolfram Alpha (I searched for "median home prices [and median household income] of top 25 metro areas in the US"; I couldn't figure out the correct syntax to get it to compute the numbers for me).

That would work out to $6600 a month for mortgage, insurance, and property tax. Or over half of our take home pay.

Right, this throwaway account is misnamed. My point is not that I can't buy a house, because I could easily move further away or move somewhere with lousy schools or get a small condo. It's that the majority of houses in the city we live in are out of our reach, despite how well off we are (median price in MV is > $1M). And so it boggles my mind how there are enough people in perpetuity to maintain these prices.

Yes.

See: http://sf-moh.org/index.aspx?page=181

No, once you qualified and moved in your income can go up.

You can only lease your property for up to 6 months through the MOH program and the rate is set by them. It must be your primary residence.

Read the fine print. There is a mandatory class too.

Many below-market-rate places take a long time to sell because the salary restrictions make it difficult to get a loan, even with 10% down. The reality is that you need a large fraction in cash to afford these units. This might be the case if you're selling and moving within San Francisco, but not if you're a new low-income home buyer.

It's a lottery process, so there's no guarantee you'd get the below market home, even if you went through all the red tape.

There was already a crisis in SF: not enough housing.

That's not true. Anecdotally, I had several friends buy nice places in foreclosure in 2009-2010 for roughly 50% of what they were worth at the peak of the housing bubble. On average, housing prices fell by 25%, but (note above), in the lesser known neighborhoods, it was closer to 40%.

http://www.paragon-re.com/3_Recessions_2_Bubbles_and_a_Baby

I think the really established neighborhoods will be insulated if there is another crash -- Nob Hill, Marina, Pac. Heights, and probably the "new" neighborhoods that have gentrified quite a bit with the tech boom -- Portrero Hill, "Dolores Heights", SOMA, Mission Bay. The parts that are just getting hot now, though, could easily become less desirable and get more than a "tickle" just as they did in '08.

I'd also say that 20% down on a first home is also rare. Interest rates are low enough that PMI isn't a deal breaker, and salaries are high enough to make it easy to qualify with 10%.

> By definition, half of all homes cost less than the median.

That's not what median means

I would say no. People should not buy houses alone (or arguably at all) in major metropolitan areas.

edit: I agree with your point about college however.

> Shouldn't you be able to buy a house alone?

> The water is getting hot slowly and the frogs can't tell that the water is starting to boil.

In one of the most expensive cities in the world? Hyperbole, apart, irrespective of how amazing the economy does, there will be places which will be expensive as shit.

You still can buy a house alone, just not in San Francisco.

Florida, for instance, is very cheap. There are plenty of places in California that are still quite cheap - they're just less desirable.

A lot of San Franciscans are just unwilling to extend to others the opportunities they had themselves. Expensive houses are terrible for young people and immigrants, but great for homeowners.

>> Shouldn't you be able to buy a house alone?

No matter where you live, it will be more difficult to buy a home with a single income than a dual income.

Given that something like 60% of US households have two incomes, you'd have to expect that home pricing is at least somewhat tied to what you make on two incomes, not one. (And that's why you usually see these ratios in terms of median home price vs. median household income, but everyone immediately thinks of it in terms of per-capita income, which inflates it.)

> Shouldn't you be able to buy a house alone?

Where? Rural Nebraska? Chicago? NYC? Manhattan Island? Malibu?

All of the above?

It does not seem unreasonable to me that some more desirable locations are out of reach for some people.

The problem is that in the game of home ownership the situation where every couple buys a home that they can afford on the lower of their two incomes is not a Nash equilibrium. If everybody else is doing that, then you and your spouse can be the exception and use both your incomes to get a mansion. Now everybody else sees how well you're living and they mimic your approach. It doesn't take long until it is no longer possible for families to buy a house on the lesser of their incomes.

> (a) tack on ridiculous extras like paying for water

Umm..If your lease says you don't pay for water, you don't. We had a lease that said we didn't pay for it.

> b) raise your rent by a ridiculous amount after your first year.

An overwhelming majority of the apartments in San Francisco have stringent rules on how high the rent can go up every year for a tenant who is renewing their lease. Mine was 4% or so IIRC.

If you're buying something comparable it's not $3k/month, it's $5k/month + $900/month in property taxes + all maintenance and expenses + the lost opportunity cost of investing all that money in diversified assets.

Questionable - remember that interest over the life of a 30 year loan often dwarfs the principal itself. Depending on how long you live at a place, whether the price goes up or not if you sell and various sales costs, your tax "savings" from deducting mortgage interest might only be a small discount on getting screwed in general.

The problem of buying in SF is that it is a high-risk earthquake area. If a big earthquake occur, not only you may lose your house, but you STILL have to continue to pay the mortgage... on a house that does not exist anymore.

Even if you have earthquake insurance, insurers typically go out of their way to avoid/reduce claims they have to pay (this is exactly what happened to numerous Hurricane Katrina victims: http://rt.com/usa/katrina-state-farm-insurance-fraud-596/ )

On the other hand, if you are renting and your house gets destroyed, you move to a new house and you don't have the financial liabilities a homeowner would have.

> better then apple stock over the past 2 years)

That's extrapolating based on current conditions. It's a bet that a) nothing meaningful is done about housing supply, b) the overall market doesn't turn south and c) the US cheap-dollar policy of low prime rates doesn't change.

I'd be suspicious about 2&3, though I'd probably agree about (1) - never underestimate municipal incompetence when that incompetence means tax coffers fill faster.

Coming from Austin (high property tax, no state income tax), a decent number of very successful people I spoke to there told me they planned on possibly moving to CA to retire simply because of the flipped property/income tax ratio (and them wanting CA weather over the other low property tax states).

"For people just moving to the city and haven't established any roots, don't rent or own: be a roommate. It is the best deal possible and you'll be own your way to making this place your home, if you want it to be."

Solid advise. I have been living in SF for the past six years and this is what I did initially. I now live in a rent controlled aparment and I have no intention of moving.

If you are going to be working in SF another viable option to consider is getting a place near a BART station in Oakland/Berkeley. Both are much cheaper places to live in than SF or the South Bay.

How is one group succeeding hurting other groups in any way. I would argue that this helps others!

Including tax revenue.

As to middle managers, I'd agree.

It is anecdotal based on colleague's daughter. Sample size of 1, but I do hire mid level and its above that.

But if that were the case, then schools would simply be forced to pay higher wages for teachers. That, or teachers would be willing to travel further (perhaps in exchange for slightly higher wages).

In either case, the idea that a city can just "break" because it is too expensive for ordinary workers, ignores basic microeconomics.

The laws of supply and demand imply that wages go up to deal with lack of supply of certain professions. Whether that lack of supply is caused by a nationwide talent shortage, or a local high cost of living, makes no difference.

Name calling is not cool. If you have an issue w/ a comment of mine in history, other that they are not liberal or aligned w/ your POV, ping me offline w/ a reference to it. This down voting because you disagree is also not cool. Look at how other websites only have 'like'. Plus you only give some people down vote, and you can go and down vote each of my comments. hth.

Prices of everything should be relative, else it does not work. Someone is buying those homes.

What difference does it make to the seller if its a all-cash?

I'm assuming he had his loan pre-approved before hitting the market?

I take it those load deals entail some risk to deal completion due to the bank requiring due-diligence and making sure the house isn't an absolute lemon?