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Why prices will continue to fall in the Bay Area/Peninsula
2010 Dec 1, 3:48am 39,834 views 144 comments
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Trivial
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2010 Dec 1, 4:22am
you are forgetting the rest of the high paying jobs in medical and financial sectors
your analysis has some truth but it is still far from accurate
Why are you assuming an average income household should be able to afford a average family SFH?
There are other options, like condos and apartments, which can be much cheaper than SFH.
Maybe I missed something, but why are you assuming a $600k mortgage for a $600k starter house? Many people on the Peninsula have at least 20% to put down.
FortWayne
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2010 Dec 1, 6:24am
"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."
That actually would not be affordable. The formula is Income x 3. Not income x 5. So yes, there is quite a long way down still.
I rarely see any transactions closing with a 20% down. The norm seems to be 40%+ down payment. Every transaction I look at usually involves a down payment with several hundred thousands of dollars. Appears the folks that got priced out, and lived at home for all these years saved up a pretty penny.
I also have not seen anyone get foreclosed on that needs pity. They usually walk away with several hundred thousands of dollars in equity. Worse case scenario is they paid 0% down, made some payments, and lose the house.
So there's a whole lot of people with several hundred thousands of dollars to use as a down payment to bring the monthly payment affordable for an average income.
At some point, once you see salaries exceeding the norm, these jobs move out.
The +100K jobs are shrinking given there are alternatives to being located in the Valley.
Â¥
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2010 Dec 1, 9:42am
The formula is Income x 3. Not income x 5. So yes, there is quite a long way down still.
The formula needs to change when one income is perfectly sufficient to cover all the household's non-housing outgoes.
$200,000 per year net can cover a LOT more house payment than $60,000 net -- we're talking EIGHT times the debt service power ~$160,000/yr vs. $20,000.
At 4% rates this pencils out to FOUR MILLION vs. $500,000 price points.
The formula needs to change when one income is perfectly sufficient to cover all the household’s non-housing outgoes.
Dual income families have been around for a very long time.
Â¥
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2010 Dec 1, 11:00am
Dual income families have been around for a very long time.
But $200,000+ household middle-class incomes and ~4.5% conforming loans up to $730,000 haven't.
B.A.C.A.H.
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2010 Dec 1, 11:20am
Alla youguys are looking at it from your own Nuclear Family Values point of view, maybe from the midwest or some other region of North America.
But the pricing in those Fortress places in Santa Clara County is not determined by people who come from that point of view.
You see, compared to places like Hong Kong, Shanghai, Mumbai, Singapore, the worst congested day in the worst congested commute from San Jose (or wherever) to those Fortress Communities seems like the wide open prairie in comparison.
And per sq ft., the Fortress is a bargain for those folks. Half the world lives in China and India, even the small percentage who are wealthy is a massive number of people compared to the number of properties that are sold in the Fortress Communities in the cities of the west coast.
Serpentor
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2010 Dec 1, 2:08pm
sybrib... you've been debunked with your "rich foreigner theory" yet you keep repeating the same thing. Whats your obsession with the chindians?
Â¥
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2010 Dec 1, 2:59pm
I don't think there's that much debunking to be done. There is indeed a great impedance mismatch between the top 1% of Asia and the available quality housing stock of the Peninsula fortresses.
The top 1% is 25 million people. If 1% of them want to move here that's 250,000 properties of new demand.
Alla youguys are looking at it from your own Nuclear Family Values point of view, maybe from the midwest or some other region of North America.
Sorry, I am strictly a native here!
There are not that many job available today to pay $200K salaries. Public companies are down from 420 in 2000 and 340 in 1994 to low 200s today. Funding for private is dismal. Why would anyone from Asia want to or need to move here. The growth is in Asia, not the Bay Area.
You see, compared to places like Hong Kong, Shanghai, Mumbai, Singapore, the worst congested day in the worst congested commute from San Jose (or wherever) to those Fortress Communities seems like the wide open prairie in comparison.
Force10 to expand India operations
CHENNAI: The California-based Force10 Networks, a global technology leader, on Wednesday unveiled its growth strategy for India including expansion of its operations in Chennai.
Force10's high performance solutions are designed to deliver new economics by virtualising and automating Ethernet networks.
Addressing presspersons here on Wednesday, Ebrahim Abbasi, Executive Vice-President, Corporate Business Development, Engineering and Operations, said Force10 Networks India Pvt. Ltd., a subsidiary of Force10 Networks, would increase its workforce to more than 200 from 120 in engineering, customer support and related functions by the end of 2010. It would also relocate to a state-of-the-art, 43,000 sq. ft. development lab and data centre in Chennai.
Perhaps Oregon is more suited than the Bay Area... oh thats rich! so Oregon is now calling itself "Silicon Forest". What will those marketing people think of next....
Some reason to believe Intel could be expanding Ronler
http://blog.oregonlive.com/hillsboroargus/2010/08/some_reason_to_believe_intel_c.html
Still, there are signs Intel is ready to move. Earlier this year, Intel and Washington County announced they were triggering the next round of tax deferrals in the Strategic Improvement Program, which gives Intel property tax breaks on equipment used at its six Tualatin Valley campuses, which employ 15,250 people. About a third of those work at Ronler Acres.
Intel had until 2013 to move into the new program.
And, the company is hiring. MacKenzie couldn’t provide specific numbers, but said the company has stepped up its nationwide recruitment of college graduates.
Intel has five microprocessor manufacturing facilities, called fabs, in the United States, two of which are in Oregon. The speculation in the Oregonian hinged on the notion that a third fab would be built at Ronler.
Hillsboro Mayor Jerry Willey said he’s heard nothing beyond the published reports about the possible expansion.
“It’s pretty exciting news, but I don’t think anybody’s going to the bank,†he said. “Generally, they clue us in just before they go to the media.â€
I also have not seen anyone get foreclosed on that needs pity. They usually walk away with several hundred thousands of dollars in equity.
Um.... if you have equity why wouldn't you just sell, and move?
Comments 1 - 17 of 144 Next » Last » Search these comments
First some facts.
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
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).
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
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.
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