patrick.net

You have received a lot of sound advice. I, for one, would urge you to continue to hold off just a tad longer before making a purchase.

I really do believe the higher end market is trying to find its stable point. There aren't as many move up buyers out there....many are stuck where they are. You now need actual INCOME, which you have, to purchase homes in your price point. If you haven't forgotten, buyers were previously selling entry level homes high & rolling that gain into the type of home you are looking at. The higher end market doesn't have as many qualified buyers...therefore, I think prices will slide more.

As SF Ace says, you won't be happy down the line in a mediorce home....especially as your income grows. You want the best home you can get in the best school district. The greatschools.org is excellent - use it! If you wait a year to make the leap, you will have a larger down payment....and...what IF the higher end stuff does adjust downward? A 5% dip in a $800K home is a nice chunk of change. I say wait but you also have to look at what that your stock holdings are doing since this is funding your downpayment. My advice is based on their value staying stable.

Finally, I will say something to you mother to mother. Your 1.5 yr old feels safe because her parents are there to meet her needs and nuture her with love. The traffic, noise and lack of nearby green spaces doesn't enter her focus. She won't have memories of your rental. In fact, for several more years, her world will only be centered around YOU. I understand the urge to set up a nest. But, I promise you that you can make her life wonderful whether you have to DRIVE her to a park or whether you can simply walk with her to a nearby park. Try not to worry that the move needs to be done immediately because of your daughter. Whatever you decide, you are responsible with money, have savings for a downpayment, etc so certainly you will survive even IF you bought today and you lose a little equity. Good luck to you!

artistsoul says

Your 1.5 yr old feels safe because her parents are there to meet her needs and nuture her with love. The traffic, noise and lack of nearby green spaces doesn’t enter her focus. She won’t have memories of your rental. In fact, for several more years, her world will only be centered around YOU.

That's so true. I brought my (grown) daughter past the house we lived in from when she was six years old and she was surprised at how small it was. Children's perspectives are so different from ours, and their memories are of mostly good things like when you played hide & seek with them or took them to the park, or camping, or their friends playing with them... not that you played hide & seek because you couldn't afford to take them somewhere or to the park because you didn't have a yard - or camping because you couldn't afford a nice hotel.

They're resilient - so give yourself time and find what you want when it's right. If now is the right time, that's cool. But buy the place you really like, not just a place.

Tenouncetrout says

Even though I could afford more in accommodations, I try to stay under my abilities so that if life gets sticky, it wont put me in the Toilet and upside down after three months.
My point is, that 230K combined income, you should not take for granted.

If I had a household income of 230K, I’d make damn sure I saved up at least 150K a year.

from http://www.richcreditdebtloan.com/the-two-income-trap-by-elizabeth-warren-and-amelia-warren-tyagi/

"The Two Income Trap By Elizabeth Warren and Amelia Warren Tyagi"

The main premise of the book is that our current system of having to have two incomes to make ends meet is what is driving individual family economic meltdowns....

Warren, who is a professor of economics at Harvard, and her daughter Amelia, a business consultant, present a very strong case, backed up by numerous statistics that show.. what we’re spending that second income on that is the problem. The main case in the book is that the push to send our children to good schools has led to an incredible jump in real estate prices, especially near the best schools. In order to get into those schools, hefty tuitions must be paid. This system is perpetuating itself and creating a problem that many families cannot break away from.

... They claim that in the past, Mom was the financial “safety net,” where as now, most of her salary is going towards inflated house payments, car payments, and school tuitions, instead of into savings or investments as it should be.

If Troy's numbers are right we're talking about an extra $15k

per year to own a decent house instead of renting a condo. This is hardly going to put them in the poor house.

toothfairy says

If Troy’s numbers are right we’re talking about an extra $15k
per year to own a decent house instead of renting a condo. This is hardly going to put them in the poor house.

I know. Committing to a $2200/mo average housing cost over the next 30 years doesn't sound like a big risk to me, given the very real benefits of establishing a homestead now.

Though I do see further market damage since the state government's finances may in fact collapse next year.

There is no best-case scenario that is anything other than a major hit to the state economy. A $25B shortfall is a serious thing, but perhaps all the taxcutting in DC will give us more headroom to raise taxes here.

Menya,

My wife and are in a similar situation, although, our combined income is about $50K less than yours. I grew up in the San Jose area and know it well. Personally, I think you have to put Almaden in the number one position. Willow Glen is really nice but the middle and high school sucks. So, you probably will have to seriously consider private school. Almaden middle and high schools are great so no private school consideration.

I am concerned that you are only thinking about holding onto a house for 10 years (or there about). Based on that alone, I would say keep renting and saving. Almaden, Willow Glen, and Cambrian are all on the decline and will be for several years to come. Unless you are looking to buy and hold for 20 + years, don't bother, in my opinion.

Best of luck to you and your family.

If it were me I wouldn't want to be renting with your kid going through middle school and high school.

Why is 10 years not long enough? I realize there are some bearish people out there but You think we'll still be in a recession in 2021?

Hooch,

I learned a long time ago, the last thing the Cool and Hip Yuppies from All Over the World who came to SillyCon Valley want to listen to is the perspective of locals gleaned from their decades of living here.

I suppose they have a point. They got to where they are being so smart, and have been told so by others almost all of their life.

toothfairy says

Why is 10 years not long enough? I realize there are some bearish people out there but You think we’ll still be in a recession in 2021?

Sure. Why not? Got any ideas where growth is going to come to this economy, in the face of all the headwinds we're facing?

Sure, AAPLers and GOOGlers have a bright future this decade, but other than that it's pain city.

Troy says

toothfairy says

Why is 10 years not long enough? I realize there are some bearish people out there but You think we’ll still be in a recession in 2021?

Sure. Why not? Got any ideas where growth is going to come to this economy, in the face of all the headwinds we’re facing?
Sure, AAPLers and GOOGlers have a bright future this decade, but other than that it’s pain city.

It's hard to say where growth will be but at the very least I see it getting back to normal. It's not normal that tech companies shed thousands of jobs bracing for the worst recession since the Great Depression. We'll slowly come out of this.
Maybe not back to the heyday of 2007 but in the next 10 years unemployment rate below 8% shouldn't be out of the question.

Thanks all. Different opinions are very valuable indeed. I suppose I could stay in the home for 20 years, if I buy in the area where the kid can go to public middle and high school.

Troy, I am a novice when it comes to cost of ownership - please explain to me how it is I will be paying $2,200 over 30 years? I love that number, but I don't get it. Thank you.

As fas as having mroe kids, I hope that ina few years we may have one or two more. It's possible we will have two because we will have to undergo in vitro fertilization, which normally carries a 50-50 chnace of having twins. That's when 4th bedroom could become handy (if we get lucky enough to get pregnant, it was a struggle first time around)

Also, do you suggest we put down all 200K we could?

Ah, a part of me just want to stay where we are and not deal. I think this is such a big decision and I am not knowledgeable enough to make the right choice. I know so many people who got burnt, but also sveral people who just recently bought and think they had done the right thing.

Troy says

toothfairy says

Why is 10 years not long enough? I realize there are some bearish people out there but You think we’ll still be in a recession in 2021?

Sure. Why not? Got any ideas where growth is going to come to this economy, in the face of all the headwinds we’re facing?
Sure, AAPLers and GOOGlers have a bright future this decade, but other than that it’s pain city.

I'm going to agree with Troy. Where do most people expect value or growth to come from? US is in permanent decline in this global economy. Housing in US is probably 10 times more expensive than in most of the world where bubbles do not exist.

Since jobs are mainly going overseas, and salaries in US are declining so will the prices until the world will catch on. Supply and Demand. Only place where housing will go up is with inflation, and thats still a loss, not a gain, for those who actually understand what inflation is.

Bottom line, rotting wooden boxes don't produce anything which is why there is no reason to expect anything out of it.

Well, just my $.02

The chances of prices increasing in that market segment over the next couple years sits somewhere between 0 and a cold day in hell.

If you're not sure, I'd honestly wait until this same time next year and re-evaluate.

http://www.google.com/publicdata?ds=usunemployment&ctype=l&strail=false&nselm=h&met_y=unemployment_rate&scale_y=lin&ind_y=false&rdim=state&idim=state:ST060000&tstart=631152000000&tunit=M&tlen=249&hl=en&dl=en

Here's a chart of unemployment.
You can go back even further the pattern is always the same.
Employed people create demand.

My thought is that this time it's just bigger not different.

To answer original question.

Buy if it will make your life better and happier and will not overextend you financially. Consider what you will make 5, 10, 15 years from now. Will you have enough left in savings to be comfortable without work for a year?

Only you know your finances, just make sure it is a prudent decision.

as far as prices. They have to be going down. Interest rate will eventually go up, once it goes up prices will go down. You are better off with a big downpayment on a house that is worth a lot less, than someone paying a lot on a house that is upside down and you can't refinance ever because you got at at the bottom of the interest rate.

Hope this helps.

Menya says

Troy, I am a novice when it comes to cost of ownership - please explain to me how it is I will be paying $2,200 over 30 years? I love that number, but I don’t get it. Thank you.

$800,000 price, $160,000 DP, $640,000 principal @ 5.5% 30 year loan:

Total interest paid is $668,185.86 -- but you "save" $235,201.42 via the tax deduction, leaving $432,984.44 or $1202.73/mo in "average" interest costs over the 30 years.

Property tax will be: $296,160.00, less $104,248.32 = $191,911.68 or $533.09/mo (I don't model this going up since if it's going up you'll be happy that you bought!)

"Other" expenses aren't deductible and they run about $480/mo -- $180/mo for insurance, $100 for extra HOA/utils you don't pay as a renter, $200/mo maintenance accrual.

$1203 + $533 + $480 = $2216/mo average cost of ownership over the first 30 years.

To this you should add the compounding gains you will lose from your $160,000 down payment (@ 2.8% you're losing nearly $400/mo in accruing interest from the start), and whatever investment gains you are passing up by paying PITI instead of renting still.

The mistake I made deciding not to buy in 2000-2001 was comparing the fully amortizing payment against my rent, but that distorts what buying a house really is -- a part investment and part expense.

ChrisV says

You are better off with a big downpayment on a house that is worth a lot less, than someone paying a lot on a house that is upside down and you can’t refinance ever because you got at at the bottom of the interest rate.

This is also good advice. If you can save $100,000 per year you just might find a much more affordable market later this decade and just pay cash.

toothfairy says

Here’s a chart of unemployment.
You can go back even further the pattern is always the same.
Employed people create demand.

My thought is that this time it’s just bigger not different.

toothfairy, this nation has been kicking a lot of cans down the road. California's got a $25B budget hole that might get closed quite violently next year. That's about $1000 per adult of distributed pain, whether it's tax rises or spending cuts it's going to hit the economy hard.

Pelosi losing control of the House isn't going to be good news for California.

Even if Bernanke fires up some inflation it might just be FOOD inflation and ENERGY inflation. We pulled out our orchards so the former isn't going to help us at all, and all the oil jobs are up in Richmond last I checked.

I don't know what's going to be happening here this decade, but I don't really see any good news coming. I DO see a lot of BAD NEWS coming.

toothfairy says

If it were me I wouldn’t want to be renting with your kid going through middle school and high school.
Why is 10 years not long enough? I realize there are some bearish people out there but You think we’ll still be in a recession in 2021?

I don't know if we'll be in a recession in 2021. I hope not. My point is that for the past 15-20 years (if not the past 30) have seen a mindset in home purchasing that is, for lack of a better description, a "trade up" model. One starts with a condo/townhome, buys a modest SFR in a few years, then buys a bigger SFR a few years later, culminating in the "American Dream Home" a few years after that. In my opinion, those days are gone. One cannot utilize the "trade up" model without running the risk of getting trapped on one of the lower rungs. Menya's post came across to me as if there was a bit of the "trade up" mentality and if not that then an assumption that there would be adequate market elasticity and monetary resources to move some where else. I would caution against that. In fact, with a young growing family, I would buy with the mindset of there being one purchase...the home that the family will live in until parents retire, etc. That is the way it was done 40-100 years ago. I would recommend this path for a growing family. We live in very troubling times. Nothing can be assumed. Being cautious and conservative should be the mindset.

Well I agree with that. It's good to buy a house with maximum flexibility.
when the family grows you can trade up or expand.

But i dont think you need to buy the exact house that you see yourself in for the next 30 years. In most cases you'll end up buying too much house.

I would buy if you feel comfortable with the payments, have a rainy day fund and are able to continue living how you would like to. Prices may or may not drop - no one knows. If they do, it will be a little upsetting, but as long as you can keep making your payments, it's not the end of the world. We were in a similar position as you, with a little one, renting, etc. and have been extremely happy with our decision to purchase.

As for which of the 3 locations you mentioned, we've lived in Cambrian (felt it was so-so), looked into WG (schools are crappy) and loved Almaden Valley (though ultimately too far from where we work). If it weren't so far for us, we definitely would have picked AV.

Menya,

I'm in a very similar boat to you, our combined income is a little less and we don't have as much saved on the down payment. Truth be told the 20 percent down payment is the only thing stopping me from buying a house right now. I don't want to pay $500+ a month in mortgage insurance.

In the near term home prices are going to go down. A lot of people are saying that March 2009 was the bottom. On wall street there is a saying that picking tops and bottoms is the most expensive job you can ever do. Until we make a higher bottom to confirm the March 2009 low, we can still go lower.

Now in 2010 you had low interest rates and the tax credit to push home values up. Checking today's rates I see 4.90% for a 30 year fixed on yahoo finance. That is about .5% higher compared to the lowest low we hit a few months back. For every 1% percent the mortgage rate goes up home prices have to drop 10% to maintain the same affordability. So because of this quick rise in rates and it being the slow season for housing I would expect a nice 10% drop before April or May.

Based on all this why should you still buy a house? 1) you can afford it on your current income. 2) Who know how the market will look in 10 years. Might be up might be down. But that 20% down payment + 10 years of payments will mean you should be above water. 3) You will get 10+ years of enjoyment living in your home. 4) Based on your current salary of 230K, assuming a slow promotion rate and a cost of living increase of about 3%, you guys will be making around 310k a year in 2021.

PS. Anyone know if you can still get 2nd loans to cover the down payment?
PPS Menya, May I know the name of the condo complex you are renting in? I have a 1000 sq ft place and need to upgrade.

I did what you're talking about. Two incomes a little lower, but not by much. We bought on the peninsula by a good k-8 set of schools with okay high schools. We couldn't afford Palo Alto, but we didn't want to consider the south bay for commute reasons. (Not just our current jobs, but lower peninsula is a decent commute to almost any job location in the bay area.)

We bought in at 850k with a 25% down payment and a further 20% in reserves so we'd have enough for a year of us both unemployed and doing the repair work we knew we needed to do. We bought a house that hadn't been updated in decades, so we did refinish the floors, repaint, and rework a bunch of the wiring and lighting.

I'd say if you can stomach renting for another year or two, do so. Cut the vacation budget and sock it away in your house fund. If you really feel like you want to buy now, make sure you really like the things that can't be changed, like lot size, location in the bay, neighborhood, etc. Then make sure you're not buying the nicest house on the block. Look for a deal, and always bid low right now. And be prepared to walk away from any house before you even start bidding. When you buy it, start rebuilding a year's worth of living expenses since it sounds like you won't have that if you put 20% down now unless you get a smaller house. Once you have a year's living expenses saved, then you can work on a repairs emergency fund, once you have that stocked up, you can increase your vacation budget again to go to fun far away places. In the meantime, camp at Lake Shasta/etc.

We wanted a 4/2 but settled for a 3/2 because it was on a double lot, and we hope to be in a position to do a real addition/remodel in 10-12 years.

Just remember, to buy at the price level you're looking at, you need to be able to cut down on expenditures, and vacations are the most likely source. You don't have to get rid of them, just scale them down significantly.

We bought, and it wasn't the best financial decision, but it did cut down on the 'where are we going to raise our kid?' nesting anxiety, especially for my wife.

Thanks much.
I suppose it boild down to the deal I can get for my dream home. This one house we are looking at in Almaden could be had for mid to high 700s it seems which will put it at ~$340 per sq. foot.

Really questionable parts of SJ go for about $260 per sq feet. Everyone says that the bad parts have bottomed already. If bad parts bottomed at $260, then it seems to me that $340 for a GREAT (best schools in SJ) part of Almaden Valley is a good deal.

Maybe I am just going crazy being overwhelmed with this HUGE decision....

Menya says

Maybe I am just going crazy being overwhelmed with this HUGE decision….

We went through the same thing. It's not an easy thing to accept the responsibility of a $700k+ commitment. You'd be crazy not to be overwhelmed. I don't know a single person who wasn't completely scared (self included) when they purchased their first house.

Buying a house is scary as hell, even if you were to do it all cash.

It sounds like you two are reasonably prudent with your cash flow. Buying a house would make me feel 'house poor' even if I wasn't paying any more than you would have on rent because you can't ever LOWER the amount you pay by downsizing without a massive effort.

I'm guessing that the rentals for a house are going to be around 3k-3.5k, and your monthly costs for buying at 750k right now will work out to around $4200-$4500. $3300 for the mortgage, $800ish for taxes, and a couple hundred for your home owners insurance.

That's a huge jump from 2k a month, so it's going to be crazy sticker shock when you do it. If you decide to wait, rebudget as if you were making a 4500 monthly payment to see how much of a pinch it is. If you don't wait, brace yourself.

It does look like you're bit overwhelmed and quite exited about the idea of buying home. I guess you already did your math, and I assume you knew what you're getting into. Now, ask yourself, ask your husband about few things.

What do we want the most by buying home?
Why do we need X beds, Y baths and Z sqft backyard?
Are we sure this is the location we want?
Do we know all the hidden costs and fees related to the home?
Can we still afford it when one of us lose the job?
If we buy this, are we living in it or are we babysitting it?

In most cases, "I buy because I can" is not enough when it come to home buying decision. You'd better have practical answers on them. Go for it when you think you got pretty good answers on them.

If I were you, I'd go for 550~600K home. Why? To be safe and not to be one like someone I knew. The goal is to keep housing cost under 30% of current net income, and to make sure I am buying the right sized home that I can handle myself. Sure, I think you can afford 800K home as long as nothing bad happens to you guys, but I want you to make sure you guys are not pushing it over your comfort zone of any sort because it's you that are responsible whatever happens to it. Regarding that someone I knew part... it's not that they're in trouble or anything. They're doing alright. The only thing I chuckled about is the fact they got beautiful backyard. The husband is spending whole sunday afternoon mowing the lawn while the wife is going to "couple meeting" alone. The reason they bought the house w/ huge yard is their kids. Now, they are making the kids doing it whenever they get back to home from the college. lol.

If you really want to live in Almaden and you like your kid to go to school there, then before you buy you should be confident that you can pay it off quickly, say, within 10 years.

I know of a friend who held off buying for a long, long, long ... time, 15 years. Then in May 2000 she bought with 25% down. In Aug 2003 she paid off the mortgage. After that she didnt care if the whole CA blew up, or more accurately spiral down the drain.

MoneySheep says

If you really want to live in Almaden and you like your kid to go to school there, then before you buy you should be confident that you can pay it off quickly, say, within 10 years.
I know of a friend who held off buying for a long, long, long … time, 15 years. Then in May 2000 she bought with 25% down. In Aug 2003 she paid off the mortgage. After that she didnt care if the whole CA blew up, or more accurately spiral down the drain.

Well said...completely agree. So completely different from the typical US consumer. Very smart.

I know most of you think it’s not a good time, but here it is.

Both husband and I work, we make about 230K combined and have about 200K to put down towards a house.

Same here except that in 2008 when we bought our house, our combined income was $340K due to certain one time financial situations. Since then our income has hoovered around $270K - Maybe a little higher this year.

Currently we rent a 2/2 condo in downtown SJ, in not a great area to raise a child. We used to rent a 2/2 apartment in Sunnyvale with a rent of Our kid is 1 1/2 and I’d like to move to greener pastures, meaning areas where she can play in parks, less traffic, quieter…in addition, in 3 or so years we will have to look into schools. We pay 2K a month (it’s one of those newer, nicer condos, granite, 1300 sq feet, big bathrooms, blah…blah).

Similar situation again except that we didn't have kids at the time and we lived much more frugally than you do ($1,300 2/2 apartment with bad management next to caltrain tracks and outside laundry + only one car between me and wife). On weekends however, we only ate out + took a small vacation each year. Otherwise, we saved everything we could.

I am nervous. The rates are good and that makes me want to buy now. We are looking to stay in the home for 10+ years, until our child is done with at least middle, if not high school.

We were finalizing our home purchase when the financial crisis hit in Sept. 2008. That was the height of nervousness with people predicting end of western financial system. Since it was a short sale it took a while to materialize, but literally the level of nervousness was so high that no one was buying a house at that point. We were able to negotiate hard and ultimately it cost us $1M and is in a good school district in one of the so-called "fortress" peninsula areas.

Any advice is welcome!

There is definitely an increased standard of living and mental peace that comes with living in your own house and I guess the key question for us was how long we were willing to wait for the housing market to get done crashing while living in a shitty place and while being able to easily afford a better place to live - we waited four years (2005 to 2009) accumulating around 100K each year if not more.

We gave 25% down payment on our $1M house and have since paid off another 15% and now have 40% equity in the house. All of it our own hard earned money (no soft loans from family, friends, or relatives, etc). Our total mortage payment right now is $3,200 and this house would rent for $3000 if we put it on market tomorrow. We are told (by educated opinion) that our house has not declined in value since we bought it, but really I wouldn't care even if it did decline by 10% or so. 10% loss in house value seems very acceptable to me against tugging two heavy loads of laundry from my apartment to the apartment laundromat (a few hundred yards distance) every week :-) or listening to the caltrain and goods train passing by that train track that was literally 50 yards away from my apartment.

Menya,
Good luck. One thing though, If you are comparing $/sqft then compare same size homes. For example, a 2000+ sqft home in bad san jose location, you can have for $500K whereas in good location, same size house would cost 700K+ for sure. Smaller houses have higher price per sqft as compared to bigger houses.

Alraaz - I was. the homes were similar in size.

You know the market is cockeyed and buyers and sellers are jaded when people earning 230K a year are even having this discussion... about San Jose.

I just saw that the price is $800,000.

Is that house built out of gold with diamond windows? That sounds like financial suicide, leading straight into indentured servitude and years of regret down the line.

Considering this is a 2,000sf (4/2) and not a mansion with lots of land, this would be like paying $100,000 for an entry level honda civic.

I find it almost unbelievable how expensive homes are in SJ. I grew up in the Bay Area, but work in Davis at the moment. The wife and I just bought a place in Vacaville, CA. Closed on Dec 10.

To give you some perspective, it's a 1973 ranch style house, 3/2, 7900 sq/ft lot, 1560 sq/ft house with a pool. The house has been improved significantly and has no major issues. Cost us $285k. It's pretty much move-in ready. Our monthly payment is comparable to rents in the area.

How is SJ so much nicer than Vacaville? I just don't see it. Are all the salaries there so much inflated that everyone can afford to overpay? It just seems crazy.

a4adam says

Are all the salaries there so much inflated that everyone can afford to overpay? It just seems crazy.

house prices just take a long time to drop. there will continue to be price drops in SJ in the coming years.

75th% apr06@$1.1M-dec10@$660k. 56mnth. avg of $8k decrease/month; $96k/yr
50th% apr06@$740k-dec10@$445k. 56mnth. avg of $5k decrease/month; $60k/yr
25th% apr06@$600k-dec10@$300k. 56mnth. avg of $5k decrease/month; $60k/yr

it'd be interesting to plot a linear trend line against the data to see how the actual prices fluctuate around the trend line.

http://www.housingtracker.net/asking-prices/san-jose-california/
Month SFH+Condo Inventory 25th Percentile Median 75th Percentile
Dec 2010 7,109 $299,450 $444,975 $659,000
Apr 2006 4,426 $599,966 $739,333 $1,098,833

Adam, you really don't see much of a difference between SJ and Vacaville? I don't mean to pick on Vacaville, but for the most part, it is in the middle of nowhere. You have so many more job opportunities in SJ. The pay is probably a little higher in SJ, but not really enough to justify alone the higher cost. Almaden Valley of SJ is a lot nicer than Vacaville; we're not talking the sketchy parts of SJ. I'm guessing the schools are a lot better too. There is simply a much higher concentration of people in SJ causing prices to stay high. Vacaville doesn't have that issue. I'm pretty sure the weather in AV is better than Vacaville too. It can get hot there, but it's not as bad as Vacaville. Whether all of the perks of AV make it worth 2x or 3x the price of Vacaville is certainly debatable, but the two towns/cities are not even close to comparable.

ch_tah says

Adam, you really don’t see much of a difference between SJ and Vacaville?

I do see it, but not enough to justify housing costs that are effectively 2x to 3x

ch_tah says

Adam, you really don’t see much of a difference between SJ and Vacaville? I don’t mean to pick on Vacaville, but for the most part, it is in the middle of nowhere. You have so many more job opportunities in SJ. The pay is probably a little higher in SJ, but not really enough to justify alone the higher cost. Almaden Valley of SJ is a lot nicer than Vacaville; we’re not talking the sketchy parts of SJ. I’m guessing the schools are a lot better too. There is simply a much higher concentration of people in SJ causing prices to stay high. Vacaville doesn’t have that issue. I’m pretty sure the weather in AV is better than Vacaville too. It can get hot there, but it’s not as bad as Vacaville. Whether all of the perks of AV make it worth 2x or 3x the price of Vacaville is certainly debatable, but the two towns/cities are not even close to comparable.

But will your average job in SJ pay you $300,000 a year because thats the income needed for that kind of average house? I live in Los Angeles, salaries are similar here to SJ, they are probably averaging 40 to 60,000... not 300,000 though.

Chris_In_LosAngeles says

But will your average job in SJ pay you $300,000 a year because thats the income needed for that kind of average house? I live in Los Angeles, salaries are similar here to SJ, they are probably averaging 40 to 60,000… not 300,000 though.

A couple where both work in the High Tech field, not even in management positions, just as let's say senior software engineers or senior analysts will make over 200k+ combined income in SJ.

I know for a fact that I pay my senior software engineers more than a "VP" at a banking or entertainment industry client would make in L.A. The high-tech industry does pay a lot more than the general jobs you have in the L.A. area, and there's a lot of those jobs in Silicon Valley.

That being said, they all want to live in the more coveted parts of SJ like Willow Glenn, or Almaden (thus the basic principles or Supply vs. Demand take over). They all know they can commute just 30 minutes more to the Santa Teresa part of SJ and live in nice cookie-cutter tract homes for half the price, but aren't willing to settle because:

A. They don't want to live next to people who make less than 100k per year combined.
B. They don't want their kids to attend the inferior schools in the Santa Teresa neighborhood.

Please note that Santa Teresa isn't an extreme comparison...East San Jose would be an extreme comparison. Santa Teresa is a perfectly fine, live-able community, but a couple who makes 150k+ won't want to set their roots there if they can pull off Almaden or Willow Glenn.

People with "average salaries" in SJ or LA will either rent in these neighborhoods if possible, or not even consider these neighborhoods because they're so far off the DTI that their income level can support.

In L.A. we have the top 2 school districts in the state of CA in similarly coveted, expensive communities (San Marino & La Canada). A well-to-do couple with two kids can save around $1 million in total K-12 private school tuition by purchasing a home there and sending their kids to public school. So, that's why people are willing to pay a $300k to $400k more in those communities for the same home in a surrounding city...when their kids are done attending K-12, they can sell the home and get back that premium (pass the torch on to another couple)...something they couldn't have done with the private school tuition.

In the City of San Marino, there aren't even any apartments permitted, so you end up having to rent a 3-4 bedroom home for $3500 to $4500 at a minimum if you want to have your kids attend the schools there without purchasing a home. That all adds up to home values being kept high there compared to other areas with bad schools.