WatchAbout half the houses (single family homes only) in the Bay Are are listed over $500k.
Bay Area Under $500k: 6620 listings
Bay Area Over $500k: 5610 listings
Peninsula Under $500k: 358 listings (this numbers is off)
Peninsula Over $500k: 898 listings
$500k price.
$100k down payment
30 year fixed at 5.00% -> $2147/month payment.
$6000/year property taxes(in Santa Clara) -> $500/month.
$2647/month or $31,764/year.
using this calculator: required income is: $113,455/year
using our favorite salary calculator. net monthly: $6,014.60.
44% goes to housing costs. $3367/month is left over or $44,404/year.
in 1999 17% of californian housholds made over $100k/year.
in 1999 1/6 households made enough to buy a home priced $500k.
today 1/2 bay area homes are priced over $500k.
i claim the majority of households don't have or will not want to spend $32k/year on housing.
* not included: tax deductions, home insurance, maintenance costs, closing costs, etc.
* number of listings vary with screen resolution
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Syphillis:
Tuition at Harker ranges from 24K / yr for kindergarten to 35K / yr for grades 9-12. Mitty HS (Catholic) is 13.4 K per year.
Valley Christian HS is 16.5K per year.
Parents who covet High Standardized Test Scores for their kids, expect performance at coveted Fortress Public Schools to be on a par with (or even a lot better than) with the private schools.
Besides, the property tax and interest on the loan are fully tax deductible. Not true for private HS tuition. Imagine a family with two or three kids, all in school at the same time!
I think by your own arithmetic you can see that parents who covet such schools for their kids are including the education cost into the overall picture, something your thorough analysis did not take into account.
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i guarantee you the majority of all parents looking to buy a home are not looking to send their kids to top rated private schools.
there's not enough openings and it's cost prohibitive for the majority of families.
i'm not arguing that the best areas, with the wealthiest parents, will maintain their prices.
i'm arguing that the average joes, the ones that are happy to send their kids to any semi-decent school, cannot afford an "average" home of a half million dollars.
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Syphilis says
Agreed. It is ridiculous, to live in a reasonable middle class neighborhood here in the Bay, you need a $200k household income.
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Syphilis says
Average Joes haven't been able to afford "The Fortress", ever. Even back in the day, before the tide of wealthy immigrants changed the demographic, even then Fortress Cupertino was out of reach for average Joes. In those days Cupertino was mainly lower or middle managment types like at places like Lockheed (kinda like, the fella Michael Douglas portrayed in Falling Down). Well paid cushy tech job in aerospace, not exactly an average Joe. Actually quite wealthy by the standards of the average Joes who clean the toilets in the offices where they work, change the oil in their cars, work in the restaurants where they dine.
Average Joes not being able to afford The Fortress is nothing new around here. It was the case for many decades, nothing new.
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jaded says
I suppose it depends on what you consider reasonable and middle class.
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Still sticking with the SFH as the only acceptable "housing" I see.
The median listing in the SFBA, once you include condos and townhouses, is more like $385K, not $500K.
Of course that's not including a ton a lower end multi-family apartments, which aren't even available as condos, but if they were would be even cheaper than an average BA condo. And yet those are all perfectly viable housing options too.
Yeah, the Bay Area is still expensive, and probably overpriced, but at least be realistic. If you're going to say something like the "majority of households", you have to consider ALL households, not just those in are aspiring to SFH.
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Syphilis says
That's right!
Instead they pay dearly the "tuition" as part of the housepayment. A better value, particularly if you have more than one schoolager.
I can tell you, to a person, every single colleague of mine who lives in The Fortress ("owners" and renters both) has more than one schoolager, and all but one of my colleagues who are single OR childless resides outside The Fortress, and of those Fortress colleagues whom I have spoken about the matter all told me it was about the schools.
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sybrib says
True. For me that basically means living the way I grew up.
1. Safe middle class neighborhood (I lived in an SFH, but townhomes are acceptable)
2. Good school, with a good portion of high achievers/motivated students
3. Schools with enough resources to support gifted kids, and average kids with a reasonable chance at academic success and secondary school and a well-rounded education
4. Discrentionary income for 1X week meals out, 2-week family trips in the summer, occasional weekend day trips to local attractions
5. Savings to pay for 30-40% of college education
You need to scrimp and save to get that on a $200k income. Unfortunately, most bay area schools don't make the cut. Especially in anything that's reasonable affordable. Schools these days can't support art, music, or even basic extra-curriculars. This is ridiculous.
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jaded says
And owning a SFH to boot!
This is a superbly high standard of living for most persons in the world. As such, hardly surprising that it is not attainable except for the elites.
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sybrib says
you mention top rated schools, palo alto and the fortress. i was talking about the entire bay area.
the bay area was much more affordable in the early/mid 1990s and even more affordable in the late 80s.
average families with median incomes were able to easily buy Bay Area SFHs back then.
my girlfriends mom paid her house off in about 5 years in the 1980s on a single mid-level income.
from 2000 to around 2007 (8 years) prices went up faster than people could really afford.
from 2008 to today (3+ years) prices are slowly dropping. probably another few more years and we'll be back to generally affordable territory.
the entire city of santa clara was unaffordable in 2005/2006 ($700k starting).
today there are many smaller homes i could buy, but won't because i feel they're still over priced.
in a few years, when the same money will probably buy a mid level home, i'll pull the trigger.
my income is in the top 10% in california and without stretching (or putting a big down payment) i would be able to buy basically a dump in a blue collar neighborhood. i would be perfectly happy in a blue collar neighborhood, but there's no way i'm going to pay white collar prices. that's dumb - but apparently a lot of people are doing just that.
home prices move like the titanic, slowly but surely and like the titanic prices are sinking.
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Syphilis says
Yep, my partner and I were one of 'em. Below median income in those days, actually. I was still in college at the time. Bay Area, yes. But not in The Fortress.
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Syphilis says
Syph, I could've written it too. I live in basically a dump, in a blue collar neighborhood. My partner and kids and I are perfectly happy in our blue collar dump. Never did drink the (Hip and)-Cool Aid.
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add condos and town homes for shits and giggles
60/40 split:
Bay Area Under $500k: 10750
Bay Area Under $500k: 7300
29/71 split:
Peninsula Under $500k: 512
Peninsula Under $500k: 1228
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SF ace says
And there is a good chance their employer wont either.
Hello! Nebraska... do you Yahoo !
http://careers.yahoo.com/jsearchresults.php?pagenumber=3&prev=1&next=&crumb=PPjBlB6Olcj&sortfield=PostingDate&sortorder=desc&sort=&concept=&action=&submit_x=&totalrec=33&resume=&key=&reqid=&jcat=&city=NE-Omaha&proximity=&datecreated=Date+Posted&submit_x=Prev+15
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SF ace says
how many years have you been arguing housing prices are sane or should be increasing?
case shiller for the bay area shows 3 downs years from 2006. a single up year - which coincides very strongly with the government home buyers tax credit.the home buyer tax credit simply extended the bursting of the bubble by one year. after the credit expired, prices are heading down again.
prices are still too high. most of the knife catchers have already bought. sales volume is dropping.
i expect prices to continue to drop this year assuming there's no government intervention.
let's also take into consideration the government's recent suggestions of decoupling itself from the housing market.
this is bad for those counting on home prices increasing for two reasons
a) the obvious one is that if fannie/freddie go away, private businesses will have to fill the gap of providing/backing mortgages. this necessarily means mortgages will be more expensive and ultimately result in lower priced houses.
b) the less obvious point is that the government is strongly signaling their future intentions with respect to real estate.
they want nothing to do with it. they realize the government subsidies to home owners is partially responsible for this mess.
the mess being inflated prices and a subsequent crash. the government wants to exit the mess of subsidizing housing. and if they are successful, prices should decline.
there's still way too much bubble mentality today. i guess if you're blind, tone deaf or in denial you'll
be oblivious to the signs. it takes a big picture view, and a micro view to make sense of things.
i'm not calling for any crashes, but a slow deflation. you can see year after year fewer people are excited about real estate, the frenzied open houses are still happening but less and less. bidding wars see prices that never get close to the fervor that existed in 2006. it's pretty easy to identify the direction of the trend. all these smaller signals are congruent with the bigger macro picture of a declining real estate market.
of course there are still positives (although not as positive as they used to be - which is the point), and bubble heads pick up only on these cues ignoring the vast amount of contradictory information.
here's when i'll consider the RE market to be normal:
- interest rates are around 9% or higher.
- defaults/foreclosures are back to historical averages.
- down payments are 10%-20%.
from a purely risk averse point of view the best time to buy will be when these conditions are met. prices will almost certainly be higher in this environment, but then the potential for a continued declining market has been reduced which is what i'm interested in - capital preservation instead of appreciation.
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sybrib says
In most of the US this is attainable, or close enough for a middle class family.
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San Jose, CA
sybrib says
Yes, it is true there are some outstanding schools districts in some parts of the BA, however renting a house in these area is far cheaper then buying. So if you use the education argument you can also reasonable argue that renting in these are is far cheaper then the cost of sending 3 kids to a private college prep. The real question is that if there truly is sustainable value in these homes then why is rent in these areas so affordable?
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Evil, I agree with you. I know a couple of Fortress Resident coworkers who are doing that, for the reason you said. They don't drink the Cool-Aid. You don't have to own your residence to get your kids a coveted slot in a coveted school. You just have to be a resident. But if you wanna "rationalize" the high cost of owning, well that's true, too.
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evilmonkeyboy says
great point.
there are also condos and townhomes in Palo Alto listed between $375k-$550k. $414-$518/sqft.
$375k is affordable in the fortress or anywhere for that matter.
the cheapest home for sale in Palo Alto(redfin) is $850k. $966/sqft.
more than 2 times as expensive as the cheapest condo on a price and price/sqft basis.
if the rationalization is the location demands a premium, then renting, condos and town homes should all demand premiums. but then what explains the large discrepancy between buying a single family home and other lesser living accommodations (see price-to-rent below).
price to rent ratio calculations for PA.
http://www.paloaltoonline.com/com_info/by_the_numbers.php
Median home price (through June 2006)*: $1,395,000
Median home price (through June 2005)*: $1,350,000
Median home price (1990): $457,800
Double digit number at the end is price/annual-rent ratio
Average monthly rent (2006): $2,162 (two bedroom, two bath)** -> 54
Average monthly rent (2005): $2,111 (two bedroom, two bath)** -> 53
Average monthly rent (2006): $1,754 (one bedroom, one bath)** -> 66
Average monthly rent (2005): $1,613 (one bedroom, one bath)** -> 70
Median monthly rent in 1990: $825 -> 46
price to rent across the US
http://economix.blogs.nytimes.com/2010/12/22/buy-vs-rent-an-update/
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Clearly the only answer is deregulation of the banking sector.