patrick.net

Depends, if you make 200k as a single person and net 140k after taxes and then can save 100k per year, then in 2 years can have 200k for downpayment.

Most of the folks buying the overpriced homes in bay area are high income couples probably making 400-500k combined income. Otherwise how can they pay 2-3 million for a crapbox here?

SJ says

Most of the folks buying the overpriced homes in bay area are high income couples probably making 400-500k combined income. Otherwise how can they pay 2-3 million for a crapbox here?

How many couples pulling that sort of dough are there? I would believe that there are tons of couples pulling $200-$250k.

As you can imagine, Jason, it really varies wildly. Take a DINK couple grossing $200k a year, netting 130k.

Baller couple:
- "High end" Avalon 2BR apartment around Palo Alto, $4000/month inc. utilities
- Eating out 5 nights per week at ~$50 per dinner, $1000/month
- Groceries & various home goods, $300/month
- Leases on a new Lexus IS350 and BMW 335i, $1200/month
- Car & renter's insurance, gasoline, $700/month
- Movies/bars/shopping/electronics/fun, $800/month
Total monthly expenses = $8000
Annual vacation to some resort somewhere, $7000
Total annual spending: $103,000
They can save $27k per year, assuming they don't contribute to 401k's and such.

Frugal couple:
- Cheap 2BR apartment close to work (Mountain View) to cut commutes, $1950/month inc. utilities
- Eating out 2 nights per week at ~$35 per dinner, $280/month
- Groceries and various home goods, $450/month
- No leases, old used cars that were paid for with cash, $0/month
- Car & renter's insurance, gasoline, $280/month
- Movies/bars/shopping/electronics/fun, $200/month (gotta have SOME fun right?)
Total monthly expenses = $3160
Annual vacation of some sort, camping in Yosemite or something, $250
Total annual spending: $38,170
Let's assume that they sock away 15% of their income into IRAs or 401k's, so there goes $19,500.
They can still save $72330 in cash.

And of course, it sounds like some on here have lived on even less than my hypothetical "frugal couple," so really, I bet that someone that was a real cheap-ass could put away $90k/year on a $200k combined salary. The semi-frugal couple's expenses were more or less modeled after my fiancee and I, although the gross income isn't the same. The grocery bill is a little high, but I like cooking and I won't compromise on my health to save for a house!

Both cases are ignoring student loans, which many DINK couples are saddled with.

bmwman91 says

I would believe that there are tons of couples pulling $200-$250k.

Really? tons??? you are maybe too quick to believe then.

sides, lettuce be honest. poeple don't save.

JodyChunder says

bmwman91 says

I would believe that there are tons of couples pulling $200-$250k.

Really? tons??? you are maybe too quick to believe then.

sides, lettuce be honest. poeple don't save.

Well, "tons" in comparison to much of the rest of the nation when talking about the Silicon Valley (Palo Alto, Mountain View, Santa Clara, Menlo Park). I would be willing to bet that there are more couples pulling $200k than there are available houses on the MLS in those areas.

bmwman91 says

I would be willing to bet that there are more couples pulling $200k than there are available houses on the MLS in those areas.

Hmmmm. can you do a zipskinny.com search and get in the ballpark at least?

Nice, thanks for the URL. Useful site.

The areas I mentioned seem to have ~5% of households pulling $200k+. That's 1 in 20 households. Given that the Silicon Valley's population is at least 1 million, and arbitrarily saying that all $200k+ households are comprised of two earners and two kids, that leaves at least 12,500 families that pull $200k+. There definitely are nowhere near that many houses listed in the same area.

Add in the fact that you can borrow $726k on a 3.5% down FHA loan in Santa Clara County (and others around here) and it is a wonder that prices are not a lot higher, honestly.

A lot of factors at play here. Not only lifestyle costs, but retirement account contributions specifically add a lot of variability between people. Between 2 people being able to contribute a max of 34k per year. Not to mention stock purchase programs, HSA (4-6k) Roth Ira(5k each if eligible). Thats another 15-50k depending on ESPP rules. (although ESPP could be used for downpayment) So it's really hard to say accurately without taking a position on your retirement philosophy.

bmwman91 says

12,500 families that pull $200k+. T

Butt not every single one of those dozen thousand families is looking for new digs, and not every single one of them is gonna say, I want as much house as I can afford. One of the richest jerks I know (I hate his guts) lives in Winnebago home and bathes in about one inch of water to save money. He gots on great with the crunchies.

$50K a year would not be a hardship for me. But then why would I want to buy an overpriced crackerbox?

If that's all I wanted to save for, and I put my mind to it, I could save 20% in 2 years. But emergency funds, retirement and other planning sucks up a lot of the extra money. With rates so low it doesn't make sense to put 20% down right now.

Friend of mine just bought a house without saving anything, zero down, here you go, more money for the banks.

Why save for a down payment, just saving for retirement with the returns you are afforded by banks, wall street, equities, etc.

That's enough for me to know .. I'd never be able to afford a house in retirement even if I owned it outright.

bmwman91 says

How many couples pulling that sort of dough are there? I would believe that there are tons of couples pulling $200-$250k.

We have always had couples earning good money ! nothing new since the 70s and 80s. an old cow (CFO) i worked for many years ago did well.

In prime years both will do fine, but when you have 2-3 kids as i see many have.. your down to 1 income for a decade or so. Some wives never go back to the workforce. And of course divorce has it effects as well... AGH! dont forget child support and alimony! --- add another decade or two..

How does a couple make $200,000 a year? My goodness, what do they do for a living?

hrhjuliet says

How does a couple make $200,000 a year? My goodness, what do they do for a living?

People tend to marry someone like them. Doctors marry doctors. Lawyers marry lawyers. When you have one person who makes $100k, he or she is likely to marry someone in the same general field and thus his/her spouse is likely to make $100k.

That's what it comes down to. Double income with both people in the same field or at least fields requiring the same level of degrees and expertise and thus paying about the same.

This is actually one of the reason there's a big split between lower-middle class and upper-middle class. Lower middle class tends to have only a single income or a second income at minimum wage and the primary income is average or below.

hrhjuliet says

How does a couple make $200,000 a year? My goodness, what do they do for a living?

It's the quantum leap before hitting a brick wall for most professionals. My daughter is an engineer and doubled and tripled her salary inside of seven years when she first started out, and then...BLAM! Nothing the last five years. She's probably topped-out and can look forward to COL raises if she's lucky from here on out. If she spits out a kid, she's doomed. Sorry to say most people think everything only ever goes in one direction forever.

The other thing is, the cities where this kind of remuneration can most often be found tend to have high costs of living and taxes which cancel out the better part of the gains - but perception is powerful.

swebb says

With rates so low it doesn't make sense to put 20% down right now.

Disagree. I see this being parroted a lot.

JodyChunder says

hrhjuliet says

How does a couple make $200,000 a year? My goodness, what do they do for a living?

It's the quantum leap before hitting a brick wall for most professionals. My daughter is an engineer and doubled and tripled her salary inside of seven years and then...BLAM! Nothing the last five years. She's probably topped-out and can look forward to COL raises if she's lucky from here on out. If she spits out a kid, she's doomed.

The other thing is, the cities where this kind of remuneration can most often be found tend to have high costs of living and taxes which cancel out the better part of the gains - but perception is powerful.

Perfectly put. Engineers have a useful working life of about 25 years, in general, before they become prime candidates for replacement by energetic young grads that will work for less. Most make a dash for the management camp way before then, which isn't really any more secure as far as I can tell since there is a lot of competition among ageing / obsoleting former engineers for those positions. You have to be REALLY good at engineering and make your way into a principal engineering position (basically an internal consultant), or run your own consultancy if you want to stay technical and employed into middle-age. There aren't too many people with that sort of drive and tenacity though.

hrhjuliet says

How does a couple make $200,000 a year? My goodness, what do they do for a living?

hint... one of them is a realtor! 1 out of 50 CA residence holds a Real Estate License.

bmwman91 says

management .... isn't really any more secure as far as I can tell since there is a lot of competition among ageing / obsoleting former engineers for those positions.

Yep. And the situation brings out the worst in some people. Oh what fun in Silicon Valley!

B.A.C.A.H. says

Yep. And the situation brings out the worst in some people. Oh what fun in Silicon Valley!

Good fun, indeed. Life here is simple, really. Work more to earn more to buy shit that you don't need because everyone else does! It's ALL about individuality here, as long as you are individual just like everyone else. That's all there is to it! We like to call it the new NEW paradigm for happiness. It isn't about actually BEING happy, but doing what everyone says to do based on projected future happiness! Just keep working harder and you'll hit the happiness-payoff when it is initially offered to the public!

Depends on what’s important. For example if you save $60k towards the down payment, but nothing in retirement - then what? Is your money in savings at less than 1%? Is it in stocks hoping for a high return? Not to mention closing costs, plus a cushion for emergencies. You can't sink every last dime into a house (or at least, its not advisable).

As for me I'm not in Bay area (obviously) and I've been saving for ten years (but in reality the past five years have been the bulk of the effort. I put 15% off the top to the 401(k), fully fund the IRA, and keep the savings in a basic no frills account (earning next to zero, but its "safe"). I FINALY have enough for downpayment, plus closing, plus fix-ups, plus cushion... It wasn't easy, but I wasn't living on Roman noodles either.

And yes I'm an engineer, gainfully employed, with wife and kid.

bmwman91 says

Engineers have a useful working life of about 25 years, in general, before they become prime candidates for replacement by energetic young grads that will work for less

It's a lot less than 25 years these days!

JodyChunder says

She's probably topped-out and can look forward to COL raises if she's lucky from here on out. If she spits out a kid, she's doomed. Sorry to say most people think everything only ever goes in one direction forever.

Well put. Yes, my husband is an engineer and what you are saying rings true. Not to mention he works for the City and they cut everyone in the City by 15%. Cut their benefits in half and took away their retirement. You may want to know how they took away their retirement...well, they threatened bankruptcy, like many other cities did. Better to take a deal with a city threatening bankruptcy and not risk losing everything. And becoming a mom was financial suicide in this area. The loss of my full- time income was a very sobering experience. I thought I'd go right back to work, for many reasons; I love my work and we needed the money. The reality is that when the two of us looked into those babies eyes for the first time we decided one of us is staying home, we are not letting strangers raise our children, no matter what five star rating they have. And I am sorry if this is uncomfortable for some readers, I know there are a lot of single parents that have to utilize a daycare, I'm not in any way saying that it makes us better parents, I'm just agreeing with JodyChunder JodyChunder says

Sorry to say most people think everything only ever goes in one direction forever.

We couldn't have anticipated a city job (supposedly secure) threatening bankruptcy, and we could have never anticipated the overwhelming love we felt for our child that lead us to make decisions we thought we'd NEVER make about our jobs and savings.

bmwman91 says

Good fun, indeed. Life here is simple, really. Work more to earn more to buy shit that you don't need because everyone else does! It's ALL about individuality here, as long as you are individual just like everyone else.

I nominate this for "quote of the week."

Patrick, can we start a "quote of the week" nomination system or something?

hrhjuliet says

I thought I'd go right back to work, for many reasons; I love my work and we needed the money. The reality is that when the two of us looked into those babies eyes for the first time we decided one of us is staying home

My wife and I did the same thing and she has a PhD in chemical engineering with a specialty in Li-ion batteries. So we took a major income reduction and the subsequent budgeting has not been easy. Easier than alternatives, though. I think I'm just lazy not to figure out the whole day-care, nanny thing, but also have not envied friends working it that way. I just couldn't see doing it. I'm really happy our son got her full-time for his first year. It's bad enough how little he sees me.

I can save around 50-60K/yr, but I'll be damned if any of it is going into an overpriced pile of rotting wood in the BA. Get your own money and stay away from mine you greedy sellers!

bmwman91 says

Perfectly put. Engineers have a useful working life of about 25 years, in general, before they become prime candidates for replacement by energetic young grads that will work for less.

Completely depends on the setting. If it's a company that is always on the ball updating their hardware/software, then sure. If it's manufacturing that still uses hardware/software from the 80's and 90's, then no. Infact, they will beg older engineers to come out of retirement.

The bay area is always on the up and up so you would see the elderly getting replaced there, but venture to the midwest and it's a whole new ballgame.

As for you guys claiming engineers banking 140k+, no wonder they're all getting fired! Engineers in the midwest start at 50-70k, and work up to 100k. Reasonable salaries mean some job security.

Welcome back, Taz.

Where have you been? ;-)

StoutFiles says

If it's manufacturing that still uses hardware/software from the 80's and 90's, then no. Infact, they will beg older engineers to come out of retirement.

I think there's some truth to that. I work in "old school" industry, and the ancient software they use here drives me nuts. And that's if the data is digital at all! Much of it is in old musty records still caked with mud from the Flood of '72. Thank you hurricane Agnes.

Of course down payment depends highly on the amount of house you are looking to buy. We are in the 150-160 range and we save about 30-35 per year for a down payment after all of our other retirement savings. The down payment is separate from our emergency fund. At one time I was maxing the 401k + roth (especially when the market was low in 2009) but we decreased it to focus on our down payment more for a short time more recently. Our budget is pretty close to the frugal couple above, we don't have any debt, including not wasting money on car payments or leases, but we have enough freedom to enjoy going out to dinner and occasional vacations.

We are close to having our down payment goal, but I refuse to spend a significant amount of hard earned savings on a glorified, $500k fixer upper shack, especially when my competition is all using easy money with the artificially low interest rates and low down payment requirements with FHA loans. Everything right now is punishing the saver. The max I would be willing to spend is probably 3x one of our incomes, because I don't want to be tied down to both of us working just to make the mortgage.

Michael D says

Everything right now is punishing the saver.

Absolutely, and ...FunTime says

So we took a major income reduction and the subsequent budgeting has not been easy.

FunTime says

I'm really happy our son got her full-time for his first year. It's bad enough how little he sees me.

.... and punishing parents who want to have a parent at home.

Basically this system punishes the saver, the hard working family, the person who wants to own a home, not an investment, the person who wants to raise their own child and the person who puts away for their own retirement and education and doesn't expect the government to do it for them.

Interesting groups to punish.

hrhjuliet says

Basically this system punishes the saver, the hard working family, the person who wants to own a home, not an investment, the person who wants to raise their own child

Absolutely. The Republicans like to talk about "family values" but they've destroyed the traditional family economically: both parents have to work just to make ends meet.

hrhjuliet says

Basically this system punishes the saver

It's only punishment by the social system, though, right? I enjoy the benefits of my choices. I think it's silly that people are so caught up by ownership. Unless you love doing house projects, architecture enough to spend all your money and time outside of work, the benefits of ownership just don't come anywhere close to balancing the detriments. Thre are no financial benefits unless you struggle to save but find it easy to make your shelter cost a priority or buying is so inexpensive that all the additional costs are a wash with renting something similar. I doubt that happens anywhere. I'd want a mortgage payment half of the rental price so that making it just so or repairing it was an all cash prospect. Some of my friends doing projects on their houses in the Bay Area are borrowing further to do it. I think that's common even today after all the HELOC chaos.

FunTime says

Some of my friends doing projects on their houses in the Bay Area are borrowing further to do it. I think that's common even today after all the HELOC chaos.

Probably true. After all, if you spend most of your income on the mortgage payment, how much is left over to fix the plumbing and dry rot?

freak80 says

Welcome back, Taz.

Where have you been? ;-)

Traveling again. Also, took time away from the social sites, just to make sure I wasn't addicted. Verdict: really didn't miss it much.

Also, I'm enjoying my overpriced house that I rent for a steal. Also doing some improvements to it. I plan on staying there for at least a few years. Got a 2yr lease signed. Life is good!

FunTime says

It's only punishment by the social system, though, right? I enjoy the benefits of my choices. I think it's silly that people are so caught up by ownership.

There is more to punishing the saver than just home ownership. ZIRP is affecting a lot more.

JodyChunder says

Disagree. I see this being parroted a lot.

I have thought it through -- not just parroting.

The reason I think it would make sense for me is that I have other places to use my money, and the interest rate is pretty low. Taking into account tax advantage, the effective interest rate is even lower.

A few examples of how I would otherwise use my down payment money:

1. Instead of $60k for a 20% down payment, use only $30k for 10%. That leaves enough money to max out a 401K and 2 IRAs. This is an opportunity missed if you don't use it, and the benefits of tax deferred growth are too big to ignore.

2. Same scenario, but keep the $30k for an additional cushion. Getting laid off, having a major home repair (etc) could really put the squeeze on you if you have too much capital tied up in your house. For the 4% interest it makes sense to keep some cash on hand to hedge your bets.

Also if you have any other outstanding loans that are at a higher rate you might consider paying them off instead of putting down a bigger chunk of money.

Obviously it's your choice, but I would think long and hard about how I was going to use the 20% I saved up...I think there are better ways to put it to use than laying down the full DP..

-s

I don't live in the BA, but I love how much money I can save now that I no longer have to rent. Say you're taking home $3k per month, and that's split among rent, expenses, and savings, all at $1k each: once you buy, your capacity to save doubles. (Well, almost. Add property taxes and maintenance to your expenses.) More than double if you're not living the frugal life described with those numbers.

I'm lucky enough to live in a condo with low maintenance and low property taxes, and my monthly expenses are so low. I want to hang on to this place for decades in case I need to live in it again some day.

Where I live there is no 401k, so for me it's an academic discussion, but I've long thought that the first step toward a safe retirement is to have a home to live in when you're old. With that in mind, I like the idea of saving frantically to buy your first starter home while you're still young, then paying it off, while keeping in your field of vision the idea of living in it again when you retire. That's much better peace of mind than entrusting the fruits of your labor to the whims of fund managers.

I'm still quite wary about the supposed advantages of deferring taxes. Who knows how obscenely high tax rates will be, and how little your money will have grown, and how much value inflation will have taken from it, when the time comes to retire? You might be better off paying the taxes now while they're still "reasonable". In an era of near-zero interest rates on savings, hugh government deficits, and a Fed leader who openly advocates inflation and the destruction of everyone's purchasing power, I like the home acquisition strategy a lot more.

Someone got a good deal on a condo. I just looked at a two bedroom two bathroom foreclosure condo the other day, it was only like 70k, great deal. However, just the taxes and HOA dues alone came to $175 less than I pay for my rent which includes everything except my phone and ISP, and those taxes and HOA will go up, guaranteed. I'm saving far more renting than owning anything. If just some people are able to save 30-50k per year quite easily I can see where the 30% cash buyers are starting to come from. It won't be long before we are a nation of renters. If I could find a really, really small place with low property taxes, I would consider buying, but then I would have to leave the city and my city job to find something like that.

I know one thing for sure saving for two full years like a freak to dumpp it all on a depreciating asset with a mortgage debt on top of it is sheer INSANITY in my book.