It's one thing to read about, and be sort-of aware of, the very high cost of living in the SF Bay Area, and quite another to actually contemplate the real numbers involved. In Oakland, across the Bay from SF, there is currently a teacher's strike, which of course is receiving detailed coverage in the local press. A news article this morning gave some rather startling detail on the cost of housing in the area, with respect to how long it would take for an Oakland teacher to save for a 20% down payment on a home purchase. TWENTY YEARS!! And in San Francisco? THIRTY YEARS! For just the down payment!
Surely that can't be right, I thought. If that were true, how the hell did my wife and I buy our first home back in 1970?
The news article then observed that the median price of a home in SF is now $1.4 million dollars. So 20% of that is about $280k. How on earth is a younger couple with "regular" jobs supposed to save $280k just to begin to buy a home?
To totally cement the impossibility of the deal, it would take about 90% of a teacher's GROSS income just to service the mortgage. Not much left to actually live on.
Back in 1970 my wife and I were hunting for a new apartment, and not having much luck. After an entire Saturday of looking at apartments advertised in the newspaper, in desperation we stopped at a randomly-chosen real estate office which we happened to be parked near. They didn't have much in the way of apartments, but the agent observed that the monthly apartment rental costs were very close to the monthly mortgage payments on a house, if we could come up with the 20% down payment. About how much would that be? Well, houses on the cheaper end of things were going for $20 or 30k, so we were looking at some 4 to 5k as a down payment.
We spent all day Sunday looking at homes, and finally found a decent place for about 24k. Between our savings and a 1k loan from each of our parents, we had no problem coming up with the $4800 down payment. Done!
Once gain it is made very clear that luck, and especially luck on timing, plays such an important part in everyone's lives. We had no control over the fact that it was 1970 rather than 2019. Pure luck in the timing of our births with relation to the major economic cycles in the U.S. and San Francisco. Had we been born fifty years later we could not have ever bought a home here either. My wife was a SF schoolteacher for 35 years, and back in the 70's I had a typical average-paying managerial job. Completely average with respect to income.
I have to wonder how long a situation like this can play out without something seriously breaking in the economy.
Comments
Regards,
Ted
Texas maynot take ur hard earned $$ upward 30s% and give it to govt for tax purposes or tax you.
... Texas/Texans have plenty of work. everyone works and no one has time to watch the news
We moved to TX in 2001 from sf bay area after grad school and bought house in few yrs later.. I was a Democrat once (way left wing thinking - we loved the Clinton's in 1990s... But things changed recently
Housing in the US is too expensive, too cheap, and just right. It depends on where you live.
One of its observations is that "Neighborhoods with persistently low home price-income ratios raise concerns about the ability of families to build wealth because home equity is the main source of wealth for middle-income families."
Texas resembles that remark: "The lowest [price-income] ratio metros are mostly located in the Midwest, especially clustered around the Great Lakes, and scattered across Texas." Those places be okay for retirement, but maybe not so good from an investment perspective.
The report says that "Evidence suggests that in many of the Northeastern and Western communities where price-income ratios are highest, those high housing prices result from excessive land use regulation—that is, from policy choices of local governments." It cites another Brookings report for details:
https://www.brookings.edu/research/reforming-land-use-regulations/
From Vox (in connection with Amazon): "New York City is, overall, much denser than DC and thankfully does not ban apartment buildings across most of its terrain. Still, relative to prices, New York actually does very little building of new units these days. And the New York suburbs on Long Island have some of the most viciously exclusionary practices of anywhere in America. And of course in Seattle itself, where the problem of tight housing markets first started to bite Amazon, apartments are only legal in about 17 percent of the buildable land."
High housing prices aren't just the result of market forces; they're also by design.
See also: A dark side to the California dream: How the state Constitution makes affordable housing hard to build
https://www.latimes.com/politics/la-pol-ca-affordable-housing-constitution-20190203-story.html
My son and and his girlfriend, who later became his wife, moved to San Diego about 14 years ago. They loved California, no snow!!! In 2007, Ryan called me and said, dad we are buying a 950 sqft condo. The cost, $320,000. I said Ryan, where is the down payment coming from? He said "dad, you don't need a down payment, they structure the loan here with other loans to buy property. Everybody does it that way. House prices keep rising so we need to get in now." I don't need to tell you what happen to the San Diego real estate market in 2008.
To make a long story shorter, they lost that place and took a huge hit on their credit. They went back to renting for a couple years but never gave up the dream of being a homeowner - which they are today. How did they end up buying a home? They moved to Pittsburg where my daughter in-law is from. They both knew it wasn't going to happen in California.
I convey that story because I understand what you are saying. Young people in SF or anywhere in Calif. just don't have the same opportunities as we had. How any young person in California makes ends meet is beyond me.
Also, the San Fran. teachers strike is national news, and good for them.
+1+1
I just (January) bought a 2200 square foot house, in a great school district, 2.5 blocks from the main drag (with supermarket, restaurants, etc.) so I basically never need to drive -- for slightly more than 1/4 of what a parking space recently sold for in my old neighborhood in downtown Manhattan.
Where I am now is a very blue neighborhood in a slightly blue state. Great food, interesting (and really different) local culture, a view of the mountains everywhere you look.
I guess none of this is relevant to investing, except for me, still in the accumulation stage, with the money I'm saving on living expenses I can now sock away 30% of my income each year.
In that sense, it is looking to be the best investment decision I ever made.
Yes, this is relevant to investing, or more generally, financial planning. Congratulations on your new home.
I noticed Michigan is at the lower end (most affordable) on the home affordability scale. Comes with a price. A 2-hour drive on our crumbling highways might help drive home the larger point.