patrick.net

First some facts.

1. Almost all houses in decent areas on the Peninsula are priced $600k or more.
   Decent Peninsula areas are Millbrae, Burlingame, parts of San Mateo, Foster City, Belmont, San Carlos, Menlo Park, Palo Alto and Mountain View
   On redfin, there are very few houses under $600k in the areas I mentioned: redfin map showing houses under $600k
   On the map we can see most of these lower priced houses (meaning those under $600k) are clustered in 3 areas: redwood city, the lower income east side of san mateo and east palo alto
2. $600k is the --starting-- price of a small starter home. that's the lowest price you'll likely see to buy in these areas. these starter homes are typically sold to first time home buyers and the younger, lower income demographic.

   if you want a bigger home it'll cost quite a bit more. A decent non-starter (meaning larger) house will start around $800k but can be much more if you want an established neighborhood (anything in Palo Alto).

3. $600k, with 20% down, 30 year fixed at 4.5% with 1.25% property tax is $3k/month; $36k/year (excludes deductions, insurance and fees)
4. Working backwards, how much do you have to make to afford a $600k house?
   If a household spends 30% of net pay on mortgage: $120k/year net; $210k/year gross.
   If a household spends 50% of net pay on mortgage: $72k/year net; $120k/year gross
   paycheck calculator
5. for 2009, from the bureau of labor statistics, the san francisco and san jose mean wage is $61,940 and $66,780.
   san francisco wages
   san jose wages
   looking at the median hourly rate, we can presume median wage is equal to or less than the mean wage.
   meaning half the jobs probably make less than $61,940/$66,780.

   you get paid more in san jose, so let's look at that city.
   the mean wage for all occupational groups in SJ is under $100k, with the exception of: managers, engineers, lawyers.
   there are 888k total jobs in san jose; 74k managers, 83k engineers, 6k lawyers for a total of 163k high paying jobs. that is 18% of all jobs.

   this theory that most people in the bay area make $100k+ is nonsense. roughly 4 of 5 jobs pay under $100k.

Let's summarize the facts.

• $600k is the starting price of a tiny house
• you need $120k/year (50% of net pay) or $210k/year(30% of net pay) to afford this tiny home
• 50% of jobs pay $60k/year or less. 20% of jobs pay more than $100k.

Now the analysis.

50% debt to net-income
you can have 2 people making the mean wage($60k+$60k=$120k); or one person making a high wage(at $120k) to afford a $600k mortgage. although they'll be paying 50% of their net take home for the mortgage+taxes.

but what is important is that there is no possible way (unless you have the mortgage fraud we had in 2005) that a single person with a median income can realistically afford this starter home. you need either two mean wages, or a high income wage at 50% of debt-to-net-income.

30% debt to net-income
if you do the more realistic scenario of 30% of net pay to pay a $600k mortgage; then you need one income of $210k/year or two high income wages (both at $105k/year or some combination) just to afford a starter home.

Conclusion
it's entirely unrealistic, without substantial price appreciation, for two high salaries to pay for a starter home that should be sold to the lower income demographic.

in a sane world, someone earning the mean wage or less would be buying this starter property(which would be priced much lower than $600k).
i'm hoping for people to come to this realization and maybe we'll see a return to sanity.

#housing