How do normal people afford the Bay Area?

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OldSport
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How do normal people afford the Bay Area?

Post by OldSport » Fri Jul 06, 2018 4:49 pm

How do 'normal' people outside of Tech, Medicine, or Law, afford to live in the Bay Area, assuming they are new to the area?

I mean very hard working professionals, say ~$200k household income, that can live very nicely in almost any other part of the country, do not make enough to afford the standard 'middle class' life there.

That hardworking professional couple could not afford a basic 3 BR 2 BA house with good schools, even if they had the >20% downpayment. This is just to qualify, let alone Boglehead principles Those houses are going for at least $1M in suburbs with >1 hr commutes to SF or SV.

State taxes are high, annual vehicle taxes are high, state taxes on investments are terrible, and so forth. It seems very hard for a family to move there unless they have >$300k stable income.

IRT
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Re: How do normal people afford the Bay Area?

Post by IRT » Fri Jul 06, 2018 4:54 pm

I think it's approaching a critical point. Agree, in the Bay Area, $200k doesn't get you very far.
Of course I've been saying this for years :)
It's hard to call the top.

gvsucavie03
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Re: How do normal people afford the Bay Area?

Post by gvsucavie03 » Fri Jul 06, 2018 4:54 pm

Are you asking for personal reasons?

Grt2bOutdoors
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Re: How do normal people afford the Bay Area?

Post by Grt2bOutdoors » Fri Jul 06, 2018 4:57 pm

I have acquaintances of mine who packed up and left. Tired of traffic, taxes, costs and did not want to go into hock for rest of their lives. Packed up and left.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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HueyLD
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Re: How do normal people afford the Bay Area?

Post by HueyLD » Fri Jul 06, 2018 5:04 pm

I know a family of four living in a one bedroom condo in the area.

But they are not moving anywhere.

APB
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Re: How do normal people afford the Bay Area?

Post by APB » Fri Jul 06, 2018 5:17 pm

They make tradeoffs. Some initial points on your framing of the question below.
  • Median family income in the Bay Area is closer to $100K.
  • Most median families in SF do not live in a 3 BR 2 BA in what you'd consider a good school district.
  • Buying a house in San Francisco is very expensive relative to renting. You can rent.
At $200K, you can live anywhere in the world, you might just need to accept tradeoffs if you're in the Bay Area or other HCOL area. Common tradeoffs made to afford living in a HCOL area are below.
  • Accept a longer commute, perhaps mitigate this with some work from home.
  • Rent fewer than 3 bedrooms. Kids can share a bedroom or convert some of your apartment space into an additional bedroom.
  • Live in a neighborhood with average schools, that's less pleasant.
Unfortunately, San Francisco is an incredibly desirable place to live due to a strong supply of high paying tech jobs, and great weather. It also has an artificially constricted supply of housing, as most of the Bay Area is zoned for single family housing. High demand, low supply = very expensive, so tradeoffs need to be made.
My posts represent my own opinion and do not constitute financial advice. I am simply a hobbyist. :)

cj2018
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Re: How do normal people afford the Bay Area?

Post by cj2018 » Fri Jul 06, 2018 5:29 pm

OldSport wrote:
Fri Jul 06, 2018 4:49 pm
How do 'normal' people outside of Tech, Medicine, or Law, afford to live in the Bay Area, assuming they are new to the area?

I mean very hard working professionals, say ~$200k household income, that can live very nicely in almost any other part of the country, do not make enough to afford the standard 'middle class' life there.

That hardworking professional couple could not afford a basic 3 BR 2 BA house with good schools, even if they had the >20% downpayment. This is just to qualify, let alone Boglehead principles Those houses are going for at least $1M in suburbs with >1 hr commutes to SF or SV.

State taxes are high, annual vehicle taxes are high, state taxes on investments are terrible, and so forth. It seems very hard for a family to move there unless they have >$300k stable income.
Sorry to hear this, and given the medium price for SFH in SF ranges somewhere between $1.4M-$1.5M, and prob slightly less in the broader Bay area, I think you are correct that one needs at least $300K in household income to afford a "middle class" lifestyle in the Bay.

muddgirl
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Re: How do normal people afford the Bay Area?

Post by muddgirl » Fri Jul 06, 2018 5:30 pm

I think like most recent discourse about Silicon Valley, this is quite hyperbolic. $200k is more than twice the median household income in most cities in SF Bay Area. It is easy to look at the outliers which get a lot of press and think that is the average.

As for state taxes, California has the most progressive income tax system. Prior to this I lived in Pittsburgh PA with a combined state/city flat tax of slightly over 6%. In California our marginal rate may be 9% but it looks like our effective tax rate is around 4%.

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roymeo
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Re: How do normal people afford the Bay Area?

Post by roymeo » Fri Jul 06, 2018 5:40 pm

$200k/year easily survives the bay area. Sheesh.
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hoops777
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Re: How do normal people afford the Bay Area?

Post by hoops777 » Fri Jul 06, 2018 5:47 pm

Anyone who thinks 200,000 is not enough income to live a nice life in the Bay Area is mistaken.Yes,you cannot live in the more expensive areas if you need a big place and have 4 kids,but people are getting a bit carried away with all the hyperbole,or they simply have expectations that are too high.
K.I.S.S........so easy to say so difficult to do.

HornedToad
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Re: How do normal people afford the Bay Area?

Post by HornedToad » Fri Jul 06, 2018 5:52 pm

6 figures is considered "low income" in San Francisco...

Frankly, people sacrifice alot for it. Especially the non-tech support workers or even higher end occupations. Why would you live in the bay area as a nurse, doctor or teacher unless you have family there or you are married to an engineer/someone in tech?

https://www.mercurynews.com/2017/04/22/ ... ow-income/

muddgirl
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Re: How do normal people afford the Bay Area?

Post by muddgirl » Fri Jul 06, 2018 5:59 pm

The more I think about this topic, the funnier it is. "Why would anyone want to live in the SF Bay Area? Rich people pay too much in taxes, and there are so many rich people that middle class people can't afford to live there!"

IRT
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Re: How do normal people afford the Bay Area?

Post by IRT » Fri Jul 06, 2018 6:01 pm

If you're young a single, a $200k _salary_ is more than enough. Rent a 1br/studio apartment, max out your 401k and you'll still be stuffing money into a taxable account. If you're older with 2.5 kids, a $200k _household_ income will not get you a 3br house/condo, maxed out 401k, and investments in future colleges. One way or another, you'll have to make a sacrifice-- either in your commute or the place you live. It's just the math...

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Re: How do normal people afford the Bay Area?

Post by Carefreeap » Fri Jul 06, 2018 6:03 pm

As someone said, you make trade-offs. And if you read most threads here on BH the Bay Area is not Boglehead approved. :annoyed

We bought in 1990, a 3/2 dump for about $240k in a SF Peninsula City about 10 miles from SF City Hall. My husband's salary was 50k. Therefore we were at nearly 5x his salary, a definite Boglehead no-no.

Somehow it worked out. I got a job the day we closed escrow. That house is now worth about $1M. (House next door sold for $1.3M two weeks ago but it was expanded from 1,000 sq.ft. to 1700 and was updated and maintained).

The neighborhood was not a top tier neighborhood when we bought. It's actually improved over the last 28 years with better schools, more diverse population and thanks to Global Warming, a lot less foggy than when we first moved here. FWIW we knew our first house here was a starter house. We moved five years after buying it. After looking for two years we wound up moving four doors up the street to a different subdivision with a larger lot, twice the size, with beautiful ocean and valley views. The "new" house is probably worth close to $2M today.

Sometimes you have to suck it up a while in order to get what you want. Our first house was a disgusting wreck. Carpets were literally crumbling when you touched them, paint was yellowed due to the chain smoking former owners and the kitchen walls, ceiling, and appliances were covered in grease. I wouldn't move in for the first month we owned it. Most dual income couples today would not deal with what I did.

You pays your money and you takes your chances...

ETA: After seeing the posts above; we did move out of the area for 9 years and retired and returned in mid 2012. We live on about $75k/yr just fine. I think we paid about $3.5k in combined Fed and State taxes in 2016.

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InKirkWeTrust
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Re: How do normal people afford the Bay Area?

Post by InKirkWeTrust » Fri Jul 06, 2018 6:09 pm

They don't!

https://www.msn.com/en-us/money/realest ... ocid=ientp

"Over a million more people moved out of California from 2006 to 2016 than moved in, according to a new report, due mainly to the high cost of housing that hits lower-income people the hardest."

and

"Those migration patterns are shaped by socioeconomics. Most people leaving the state earn less than $30,000 per year, even as those who can afford higher housing costs are still arriving. As the report noted, California was also a net importer of highly skilled professionals from the information, professional and technical services, and arts and entertainment industries. On the other hand, California saw the largest exodus of workers in accommodation, construction, manufacturing and retail trade industries."
Control the controllables

mervinj7
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Re: How do normal people afford the Bay Area?

Post by mervinj7 » Fri Jul 06, 2018 6:15 pm

OldSport wrote:
Fri Jul 06, 2018 4:49 pm
State taxes are high, annual vehicle taxes are high, state taxes on investments are terrible, and so forth. It seems very hard for a family to move there unless they have >$300k stable income.
CA state taxes are fairly progressive. If you were an married boglehead making $100k/year (median household income) and you contributed $18k/yr (half the max) to your 401k, your CA state taxes are ~$2300/year. That's less than what I used to pay in Massachusetts. I'm assuming you don't live here since you are criticizing the tax system for "normal" people.
We don't make >$300k and I still feel like we live a decent middle class life. Of course, we wished we made more so we could live in a snazzy place like Palo Alto but so far Campbell has been pretty nice. :D

HornedToad
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Re: How do normal people afford the Bay Area?

Post by HornedToad » Fri Jul 06, 2018 6:26 pm

mervinj7 wrote:
Fri Jul 06, 2018 6:15 pm
OldSport wrote:
Fri Jul 06, 2018 4:49 pm
State taxes are high, annual vehicle taxes are high, state taxes on investments are terrible, and so forth. It seems very hard for a family to move there unless they have >$300k stable income.
CA state taxes are fairly progressive. If you were an married boglehead making $100k/year (median household income) and you contributed $18k/yr (half the max) to your 401k, your CA state taxes are ~$2300/year. That's less than what I used to pay in Massachusetts. I'm assuming you don't live here since you are criticizing the tax system for "normal" people.
We don't make >$300k and I still feel like we live a decent middle class life. Of course, we wished we made more so we could live in a snazzy place like Palo Alto but so far Campbell has been pretty nice. :D
I don't think they are that progressive but I'm not familiar with Massachusetts. Once you get above $100k it escalates quickly and between Fed and State it's a decent chunk.

Here's the married filing jointly 2018 brackets.

Tax Bracket Tax Rate
$0.00+ 1%
$16,030.00+ 2%
$38,002.00+ 4%
$59,978.00+ 6%
$83,258.00+ 8%
$105,224.00+ 9.3%
$537,500.00+ 10.3%
$644,998.00+ 11.3%
$1,000,000.00+ 12.3%
$1,074,996.00+ 13.3%

Honestly, the problem with the bay area is that in the ~$150k-250k it's painful. Taxes high enough that it hurts, not quite enough income/savings to buy a decent house without a horrendously long commute, you "feel" like you should be doing better than you are with that salary and the demands from jobs, commute, etc. Now, if you bought a house 3-5+ years ago then you are fine since that was before the ~60%+ runup in prices, but with the recent increase in house values alot of people are priced out. Or once you get above ~$250-300k+ or have family to gift money for downpayments...

I know a few people that are moving outside the Bay Area when they have kids so that they can buy a house and afford day care/middle class life. Sacramento, Napa area, Central Valley, out of state.

hoops777
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Re: How do normal people afford the Bay Area?

Post by hoops777 » Fri Jul 06, 2018 6:27 pm

I hope you all realize that the Bay Area is much more than SV and SF.
There are many nice places you can buy for in the 800,000’s both single family homes or nice townhomes in good areas.
If you want to live real close to SV or in the heart of SF,well then you are talking bigger bucks which is your choice.

Like everything else in life,if you want the best location,the best this,the best that it costs more.I have no idea why someone who is not in tech and making big bucks would want to live in SV.An income of 200,000 does quite well for the “normal” professional in the Bay Area.
K.I.S.S........so easy to say so difficult to do.

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roymeo
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Re: How do normal people afford the Bay Area?

Post by roymeo » Fri Jul 06, 2018 6:34 pm

InKirkWeTrust wrote:
Fri Jul 06, 2018 6:09 pm
"Those migration patterns are shaped by socioeconomics. Most people leaving the state earn less than $30,000 per year, even as those who can afford higher housing costs are still arriving."
What part of the country is that "normal people"?
Though I know I have had neighbors that that applies to in SF & Oakland in the past 13 years...

(Kirk, You ever on ISCA?)
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dknightd
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Re: How do normal people afford the Bay Area?

Post by dknightd » Fri Jul 06, 2018 6:38 pm

I don't think that normal people would move to the bay area. At least not today.

lifeisinmirrors
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Re: How do normal people afford the Bay Area?

Post by lifeisinmirrors » Fri Jul 06, 2018 6:49 pm

Salaries are very high in that area. That couple could get cheaper housing in Iowa, but they would be earning half as much for the same job.

beardsworth
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Re: How do normal people afford the Bay Area?

Post by beardsworth » Fri Jul 06, 2018 7:00 pm

The cost of living in San Francisco itself has gone so berserk that the federal government now defines a household income of up to $117,400 as "low income."

https://www.nytimes.com/2018/06/30/us/b ... arket.html

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willthrill81
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Re: How do normal people afford the Bay Area?

Post by willthrill81 » Fri Jul 06, 2018 7:19 pm

IRT wrote:
Fri Jul 06, 2018 4:54 pm
I think it's approaching a critical point. Agree, in the Bay Area, $200k doesn't get you very far.
Of course I've been saying this for years :)
It's hard to call the top.
Now that I'm seeing lists like "The Top 10 Places that People are Leaving the Bay Area For," I really do wonder if they're at the top. That being said, the market may just remain expensive and not crash. But it's hard for me to see how prices could continue rising at their recent pace.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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roymeo
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Re: How do normal people afford the Bay Area?

Post by roymeo » Fri Jul 06, 2018 7:41 pm

willthrill81 wrote:
Fri Jul 06, 2018 7:19 pm
But it's hard for me to see how prices could continue rising at their recent pace.
Especially since they're finally starting to build some housing. It's like the Portlandia shtick but it's "We can put a condo on it!" instead of a bird.
The sewer system is a form of welfare state. | -- "Libra", Don DeLillo

The Wizard
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Re: How do normal people afford the Bay Area?

Post by The Wizard » Fri Jul 06, 2018 8:00 pm

Best way is to buy a place in the 1970s or 80s.
If you wait to buy until now, you'll pay peak prices and taxes.
That's how it works...
Attempted new signature...

Zombies
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Re: How do normal people afford the Bay Area?

Post by Zombies » Fri Jul 06, 2018 8:04 pm

Carefreeap wrote:
Fri Jul 06, 2018 6:03 pm

We bought in 1990, a 3/2 dump for about $240k in a SF Peninsula City about 10 miles from SF City Hall. My husband's salary was 50k. Therefore we were at nearly 5x his salary, a definite Boglehead no-no.

Somehow it worked out. I got a job the day we closed escrow. That house is now worth about $1M. (House next door sold for $1.3M two weeks ago but it was expanded from 1,000 sq.ft. to 1700 and was updated and maintained).
The numbers “seem” large when people think of Bay Area real estate appreciation, but they actually aren’t.

240k -> 1M over 28 years is a CAGR of 5.23%, which is pretty good.

But over those same 28 years, the S&P increased at an annualized 7.5%, or 9.7% with dividend reinvestment.

I remember when I bought my house I looked at what the previous owners had paid decades ago and was shocked, but the numbers worked out that investing still would have been fine. Of course, the calculation is more complicated — on the up side, you live there and don’t pay rent, and you get a tax break — but on the down side, you’re paying property taxes and maintenance.

I guess my point is that even with the recent run-up in prices here, it’s pretty close over long periods whether people “win” through owning a home here. In fact, even with large appreciation on an absolute scale, you might be losing.

puhmuckel
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Re: How do normal people afford the Bay Area?

Post by puhmuckel » Fri Jul 06, 2018 8:11 pm

Nurses in the Bay Area are making $150,000 minimum some well above that. The problem that I see is that all of them want to drive a new BMW SUV, eat out in fancy restaurants ($$$) and then complain about the cost of housing. A one-bedroom in Oakland is about $2500 and most rather have a roommate than give up their brand new Mercedes or Channel bag. The biggest problem are high taxes and property taxes. I bought my condo in 2011 in the Bay Area and can easily save $50,000 a year. Of course, I drive a 2002 Acura. :happy

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HomerJ
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Re: How do normal people afford the Bay Area?

Post by HomerJ » Fri Jul 06, 2018 8:26 pm

lifeisinmirrors wrote:
Fri Jul 06, 2018 6:49 pm
Salaries are very high in that area. That couple could get cheaper housing in Iowa, but they would be earning half as much for the same job.
Yep, salaries half as much, housing is FIVE times cheaper.

It makes sense to move to San Fran for the weather, and a tech job with a chance to get really rich, but if you're just a standard professional with no stock options... you'll have a better chance of getting rich in Iowa.
The J stands for Jay

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willthrill81
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Re: How do normal people afford the Bay Area?

Post by willthrill81 » Fri Jul 06, 2018 8:45 pm

HomerJ wrote:
Fri Jul 06, 2018 8:26 pm
lifeisinmirrors wrote:
Fri Jul 06, 2018 6:49 pm
Salaries are very high in that area. That couple could get cheaper housing in Iowa, but they would be earning half as much for the same job.
Yep, salaries half as much, housing is FIVE times cheaper.

It makes sense to move to San Fran for the weather, and a tech job with a chance to get really rich, but if you're just a standard professional with no stock options... you'll have a better chance of getting rich in Iowa.
I really wonder whether the increasing numbers of people who are able to work remotely, particularly in San Francisco's tech heavy economy, will eventually have a negative impact on real estate prices there.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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willthrill81
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Re: How do normal people afford the Bay Area?

Post by willthrill81 » Fri Jul 06, 2018 8:48 pm

Zombies wrote:
Fri Jul 06, 2018 8:04 pm
Carefreeap wrote:
Fri Jul 06, 2018 6:03 pm

We bought in 1990, a 3/2 dump for about $240k in a SF Peninsula City about 10 miles from SF City Hall. My husband's salary was 50k. Therefore we were at nearly 5x his salary, a definite Boglehead no-no.

Somehow it worked out. I got a job the day we closed escrow. That house is now worth about $1M. (House next door sold for $1.3M two weeks ago but it was expanded from 1,000 sq.ft. to 1700 and was updated and maintained).
The numbers “seem” large when people think of Bay Area real estate appreciation, but they actually aren’t.

240k -> 1M over 28 years is a CAGR of 5.23%, which is pretty good.

But over those same 28 years, the S&P increased at an annualized 7.5%, or 9.7% with dividend reinvestment.

I remember when I bought my house I looked at what the previous owners had paid decades ago and was shocked, but the numbers worked out that investing still would have been fine. Of course, the calculation is more complicated — on the up side, you live there and don’t pay rent, and you get a tax break — but on the down side, you’re paying property taxes and maintenance.

I guess my point is that even with the recent run-up in prices here, it’s pretty close over long periods whether people “win” through owning a home here. In fact, even with large appreciation on an absolute scale, you might be losing.
You're comparing apples to oranges. Over the long-term, real estate prices in the U.S. have only appreciated slightly faster than the inflation rate. And this makes sense because if they didn't, housing would literally become too expensive for anyone to purchase given enough time.

What San Francisco has experienced with real estate is only a temporary phenomenon. It may continue to be expensive, like New York City has been for a long time now. But housing prices cannot keep appreciating as they have been indefinitely.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Atilla
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Re: How do normal people afford the Bay Area?

Post by Atilla » Fri Jul 06, 2018 8:55 pm

hoops777 wrote:
Fri Jul 06, 2018 6:27 pm
I hope you all realize that the Bay Area is much more than SV and SF.
There are many nice places you can buy for in the 800,000’s both single family homes or nice townhomes in good areas.
If you want to live real close to SV or in the heart of SF,well then you are talking bigger bucks which is your choice.

Like everything else in life,if you want the best location,the best this,the best that it costs more.I have no idea why someone who is not in tech and making big bucks would want to live in SV.An income of 200,000 does quite well for the “normal” professional in the Bay Area.
Buy in for the $800,000's. Oh my Lord, This coming from a family pulling a bit over $300,000 gross living in flyover country in a paid off $240,000 house. Big 10 college town with lots of stuff to do so it's not quite the boondocks, We got culture. :) I cringe at $350,000 plus houses because I don't want to work until I'm old just for a damm house.Property taxes here are murder,
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munemaker
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Re: How do normal people afford the Bay Area?

Post by munemaker » Fri Jul 06, 2018 8:58 pm

Normal people do not live in the Bay Area.

hoops777
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Re: How do normal people afford the Bay Area?

Post by hoops777 » Fri Jul 06, 2018 9:12 pm

Yes all of us suffering in California should be pitied for developing the FIFTH largest economy in the world.It is just a different place in soooo many ways.I am retired,live in one of the nicest cities in the Bay Area,have a paid off home and never even sniffed a tech job.Believe it or not,there are actually millions of successful people here who have nothing to do with SV except for maybe selling our goods or services to people who work in SV. :D
K.I.S.S........so easy to say so difficult to do.

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willthrill81
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Re: How do normal people afford the Bay Area?

Post by willthrill81 » Fri Jul 06, 2018 9:36 pm

hoops777 wrote:
Fri Jul 06, 2018 9:12 pm
Yes all of us suffering in California should be pitied for developing the FIFTH largest economy in the world.It is just a different place in soooo many ways.I am retired,live in one of the nicest cities in the Bay Area,have a paid off home and never even sniffed a tech job.Believe it or not,there are actually millions of successful people here who have nothing to do with SV except for maybe selling our goods or services to people who work in SV. :D
Good for you. The NYT article linked to above actually noted that there are many who have been very financially successful in the Bay Area.

That being said, I wouldn't crow too much about California's economic size. It's mostly a function of its population. California's population of 39.5 million is 12.1% of the U.S.'s 325.7 million, and their $2.7 trillion economy is 13.90% of the U.S.'s $19.4 trillion.

Further, California's population growth is slowing. It must not be peaches and cream for everyone.
Over the past 20 years, California has experienced its slowest rates of growth ever recorded and an unprecedented migration of residents to other states. From 2006 to 2016, California’s population grew by 9%, which was low for the state and barely higher than the rest of the nation (8%). International migration to California has remained strong over the past 10 years: the state experienced a net inflow of 1.6 million. But about 1.2 million more people left California for other states than came to California from other states. Natural increase—more births than deaths—added 2.8 million residents. Overall, California gained 3.1 million residents over the past 10 years.
emphasis added
http://www.ppic.org/publication/californias-population/
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

OldSport
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Re: How do normal people afford the Bay Area?

Post by OldSport » Fri Jul 06, 2018 9:59 pm

Great replies. It makes more sense. So 'normal' professionals ~$200k can live there if they moved or bought at least 5 years ago. I'm talking about how do people like that move there now?

It seems like an unncessarily stressful rat race, if FI is a goal. Even if we made $300k and could afford it, I would be scared :greedy less to plunk $1M into a property that may drop 35% if tech crashes. That 35% alone can buy much nicer properties in great school districts in many parts of the country.

And no, we have no desire or plans to ever move there. We recently visited family there and was shocked by how hard they have to work just to get by there.

Family that bought properties in the 1980s are millionaires several times over in property equity, but their kids are really struggling.

Dyloot
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Re: How do normal people afford the Bay Area?

Post by Dyloot » Fri Jul 06, 2018 10:13 pm

I'd say that usually this forum does a great job of not letting political biases mix with Boglehead topics.

Some of the posts I'm reading smack a little of anti-California perspectives. I mean... really? Normal people don't live in the Bay Area? What exactly is that supposed to mean?

You want to know why the San Francisco Bay Area, the greater Los Angeles area, Orange County, and San Diego County are so damn expensive? I'm going to go out on a limb here and say it's because a ton of people enjoy living here, growth has been intentionally curbed, retirees don't move away, college graduates don't want to live at home and buy/rent what they can, and new-comers who make good livings move here and spend small fortunes on housing.

The end result is a supply-and-demand issue that allows those with means to buy and forces those with less means to head elsewhere. I know folks who have moved to Montana, Idaho, Colorado, and Nevada. I know others who bought condos and small houses in less-than-desired neighborhoods and sold 7 years later to get into a larger place. I know others who had help from their parents--who did quite well in the Bay Area and now have paid-off homes with Prop 13 property taxes and can shell out $100,000+ for a down payment to get their kid into their own place.

California is an amazing place. I've had the privilege of living in the Northern Bay Area and Orange County, and have loved every minute of it.

And please, don't let the colorful San Francisco cost-of-living stories fool you. It's a relatively small place with a population around 900,000. New York City has more than 8 million. Chicago has 2.7 million. The only people I know who live there want it really, really badly and pay dearly to live there.

As a poster above mentioned, most of the Bay Area is not San Francisco. Some areas are insanely expensive because the home turnover is small and generally purchased by the extremely well off. If you spent time visiting there, you'd find a huge percentage of people living there are not rich but have owned their homes for decades--purchasing the homes when they were much more affordable.

OldSport
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Re: How do normal people afford the Bay Area?

Post by OldSport » Fri Jul 06, 2018 10:40 pm

Dyloot wrote:
Fri Jul 06, 2018 10:13 pm
I'd say that usually this forum does a great job of not letting political biases mix with Boglehead topics.

Some of the posts I'm reading smack a little of anti-California perspectives. I mean... really? Normal people don't live in the Bay Area? What exactly is that supposed to mean?

You want to know why the San Francisco Bay Area, the greater Los Angeles area, Orange County, and San Diego County are so damn expensive? I'm going to go out on a limb here and say it's because a ton of people enjoy living here, growth has been intentionally curbed, retirees don't move away, college graduates don't want to live at home and buy/rent what they can, and new-comers who make good livings move here and spend small fortunes on housing.

The end result is a supply-and-demand issue that allows those with means to buy and forces those with less means to head elsewhere. I know folks who have moved to Montana, Idaho, Colorado, and Nevada. I know others who bought condos and small houses in less-than-desired neighborhoods and sold 7 years later to get into a larger place. I know others who had help from their parents--who did quite well in the Bay Area and now have paid-off homes with Prop 13 property taxes and can shell out $100,000+ for a down payment to get their kid into their own place.

California is an amazing place. I've had the privilege of living in the Northern Bay Area and Orange County, and have loved every minute of it.

And please, don't let the colorful San Francisco cost-of-living stories fool you. It's a relatively small place with a population around 900,000. New York City has more than 8 million. Chicago has 2.7 million. The only people I know who live there want it really, really badly and pay dearly to live there.

As a poster above mentioned, most of the Bay Area is not San Francisco. Some areas are insanely expensive because the home turnover is small and generally purchased by the extremely well off. If you spent time visiting there, you'd find a huge percentage of people living there are not rich but have owned their homes for decades--purchasing the homes when they were much more affordable.
THIS. It seems like living in the Bay Area by far favors long time residents who bought properties cheaper and the property tax rules disproportionately favor long time residents. It is so much harder for new residents both to buy into the current market and they are hit with much higher property taxes. I want no part of that.

Also, while CA and the Bay Area in particular are no doubt unique and amazing places to live, the current property values seem inflated vs. historical norms. Even if I were able to afford the exhorbitant prices, I would be reluctant to buy in at current prices.

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Re: How do normal people afford the Bay Area?

Post by HRPennypacker » Fri Jul 06, 2018 10:51 pm

OldSport wrote:
Fri Jul 06, 2018 10:40 pm
Also, while CA and the Bay Area in particular are no doubt unique and amazing places to live, the current property values seem inflated vs. historical norms. Even if I were able to afford the exhorbitant prices, I would be reluctant to buy in at current prices.
This is a whole 'nother debate. I created a thread a few months ago discussing this dilemma. The crux is this: So you (and I) are reluctant to buy in at this price. What are we to do? What if we buy in the next trough, but the prices then are still higher than they are today?

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Socrates28
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They don’t

Post by Socrates28 » Fri Jul 06, 2018 11:12 pm

That’s why they are moving to Sacramento Phoenix etc. it’s absolutely insane to pay $800,000 for a 1200 sq foot unremolded house. It’s great if you bought in the 80s early 90s but a lot of people didn’t....just drive 90 minutes up the road and save a fortune. I lived in San Mateo, Half Moon Bay and Mill Valley for several years before I moved.

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Re: How do normal people afford the Bay Area?

Post by marcopolo » Fri Jul 06, 2018 11:36 pm

HRPennypacker wrote:
Fri Jul 06, 2018 10:51 pm
OldSport wrote:
Fri Jul 06, 2018 10:40 pm
Also, while CA and the Bay Area in particular are no doubt unique and amazing places to live, the current property values seem inflated vs. historical norms. Even if I were able to afford the exhorbitant prices, I would be reluctant to buy in at current prices.
This is a whole 'nother debate. I created a thread a few months ago discussing this dilemma. The crux is this: So you (and I) are reluctant to buy in at this price. What are we to do? What if we buy in the next trough, but the prices then are still higher than they are today?
i have no real knowledge of Bay area real estate. I do find it curious that when people come on this board worried about investing in the stock market at such high valuations, the resounding response seems to be that you can't time the market, it only seems like a top now, it can still go a lot higher, etc.

But, here everybody seems to be convinced that they can somehow tell that the SF real estate market is at or near a peak, and it can't possibly make sense to invest now. Maybe they are right, but if you can't really tell when the stock market is over valued, and you should just invest when you have the money, why does the same not hold true for SF real estate?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: How do normal people afford the Bay Area?

Post by Drovor » Fri Jul 06, 2018 11:53 pm

puhmuckel wrote:
Fri Jul 06, 2018 8:11 pm
Nurses in the Bay Area are making $150,000 minimum some well above that.
I'm sure there are some but that statement is not accurate unless you factor in working a 2nd job.

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Re: How do normal people afford the Bay Area?

Post by Drovor » Sat Jul 07, 2018 12:09 am

OldSport wrote: THIS. It seems like living in the Bay Area by far favors long time residents who bought properties cheaper and the property tax rules disproportionately favor long time residents. It is so much harder for new residents both to buy into the current market and they are hit with much higher property taxes.
Agree with this. My parents and also in-laws were able to afford multiple homes. There are several factors but they would not be able to afford a single home now.

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Re: How do normal people afford the Bay Area?

Post by HomerJ » Sat Jul 07, 2018 12:11 am

marcopolo wrote:
Fri Jul 06, 2018 11:36 pm
I have no real knowledge of Bay area real estate. I do find it curious that when people come on this board worried about investing in the stock market at such high valuations, the resounding response seems to be that you can't time the market, it only seems like a top now, it can still go a lot higher, etc.

But, here everybody seems to be convinced that they can somehow tell that the SF real estate market is at or near a peak, and it can't possibly make sense to invest now. Maybe they are right, but if you can't really tell when the stock market is over valued, and you should just invest when you have the money, why does the same not hold true for SF real estate?
Because you're BORROWING a million dollars to invest in SF real estate.
The J stands for Jay

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Re: How do normal people afford the Bay Area?

Post by randomizer » Sat Jul 07, 2018 1:00 am

It's pretty clear that they don't.
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Re: How do normal people afford the Bay Area?

Post by Ron Ronnerson » Sat Jul 07, 2018 1:22 am

Here is one (longish) story from a self-proclaimed “normal “ person living in the Bay Area. In my 20s, I lived with roommates and rented. When I got married, my wife and I continued to rent for a few years. I’m a teacher and she worked for a small business. We made a combined salary of around $120k (this was in 2005).

We thought we would never own a home in the Bay Area but then, suddenly, prices fell quite a bit. In 2010, we bought a 2150 sq ft townhouse (4 bedroom/4 bathroom) in a great neighborhood in the East Bay with excellent schools for $500k. Closing costs and the down payment took our bank balances down a lot but our cash flow was fine due to being frugal. We were in our mid 30s and had less than $100k saved in retirement accounts at that point.

We refinanced a couple of years later. The new loan dropped our mortgage payment while property taxes held steady due to Prop 13. We increased savings to retirement accounts with every raise, thanks in large part to the info I learned on Bogleheads over the past several years.

Last year, our combined income was $150k. We maxed our Roth IRA accounts, put the max in a 457b, put $5k into a 403b, and my wife’s employer put $7k into a SEP-IRA for her. I also contributed 10.25% of my salary toward a pension. This has been fairly typical for the past several years.

Today, at age 43, we have around $500k in home equity and our retirement accounts are in the mid six-figures. The plan is now for my wife to work minimally for the next couple of years while our daughter is still young. Our retirement contributions will drop quite a bit in the meantime but we're on a decent trajectory at this point. I’m expecting a pension of about $90k/year around age 60 and we should each get some social security as well. If there is a shortfall, perhaps we can sell our Bay Area home and live elsewhere in retirement.

I make $105k/year. With interest, etc. we end up with close to $110k gross income. This should be enough for us to live on while continuing to save a bit as well. Anything my wife happens to earn will be added to retirement accounts (we would prefer not to fall out of the 12% federal and 4% state tax brackets).

Our monthly budget:
Mortgage: $1810 (30 year fixed at 3.25%)
Property Taxes: $800
HOA: $289
House Cleaning: $120
Home Improvements/Repairs: $50 (one of my friends is very handy and helps out)
TV/Internet: $150
Electricity: $140
Cell Phones: $70
Water: $35
Garbage: $20
Auto/Home/Umbrella Insurance: $185 (two Corolla household)
Life Insurance: $150 (30 year term for $1M each)
Gas: $250 (I carpool with another teacher)
Car Maintenance/Repairs/Registration/Tires/AAA: $75
Groceries/Household Items: $1000
Restaurants: $200
Vacations: $100 (we’ve gone to Maui, Disneyland, and Las Vegas this year for just about free using credit card bonuses and have lots of points remaining)
Misc. (furniture, gifts, donations): $150
Technology: $100
Clothing/Shoes/Hair/Nails: $80
Pets: $80
Medical/Vision/Dental: $150
Entertainment: $50
TOTAL: About $6k/month

The Bay Area can be very expensive but doesn’t have to be. These days, for newcomers, it is particularly challenging because housing is so expensive. If that piece can be figured out, the large salaries can go far. If you’re willing to live in a small place that you rent with other people for a few years while hoarding money, you can do fine here. When you have enough saved, buy a house and keep it for a long time. As a normal person living in the Bay Area, that’s been my approach, and it seems to be working out okay. Of course, those hoarding money in the Bay Area while renting a small place might be able to retire elsewhere after a few years too. The Bay Area can offer such possibilities to people but certainly isn't for everyone.

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Re: How do normal people afford the Bay Area?

Post by pascal » Sat Jul 07, 2018 1:48 am

Dyloot wrote:
Fri Jul 06, 2018 10:13 pm
I'd say that usually this forum does a great job of not letting political biases mix with Boglehead topics.

Some of the posts I'm reading smack a little of anti-California perspectives. I mean... really? Normal people don't live in the Bay Area? What exactly is that supposed to mean?

You want to know why the San Francisco Bay Area, the greater Los Angeles area, Orange County, and San Diego County are so damn expensive? I'm going to go out on a limb here and say it's because a ton of people enjoy living here, growth has been intentionally curbed, retirees don't move away, college graduates don't want to live at home and buy/rent what they can, and new-comers who make good livings move here and spend small fortunes on housing.

The end result is a supply-and-demand issue that allows those with means to buy and forces those with less means to head elsewhere. I know folks who have moved to Montana, Idaho, Colorado, and Nevada. I know others who bought condos and small houses in less-than-desired neighborhoods and sold 7 years later to get into a larger place. I know others who had help from their parents--who did quite well in the Bay Area and now have paid-off homes with Prop 13 property taxes and can shell out $100,000+ for a down payment to get their kid into their own place.

California is an amazing place. I've had the privilege of living in the Northern Bay Area and Orange County, and have loved every minute of it.

And please, don't let the colorful San Francisco cost-of-living stories fool you. It's a relatively small place with a population around 900,000. New York City has more than 8 million. Chicago has 2.7 million. The only people I know who live there want it really, really badly and pay dearly to live there.

As a poster above mentioned, most of the Bay Area is not San Francisco. Some areas are insanely expensive because the home turnover is small and generally purchased by the extremely well off. If you spent time visiting there, you'd find a huge percentage of people living there are not rich but have owned their homes for decades--purchasing the homes when they were much more affordable.
Well said. People who don’t live here somehow think we are mindless unicorns. Land is not aplenty like in other places and there is still a huge demand for limited supply.

I can’t live in atherton or Marin county. But i can find reasonably affordable places 30 minutes away.
"Never underestimate the ability of a bad situation to get worse...rapidly." Ninegrams

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Re: How do normal people afford the Bay Area?

Post by TheBogleWay » Sat Jul 07, 2018 3:45 am

hoops777 wrote:
Fri Jul 06, 2018 5:47 pm
Anyone who thinks 200,000 is not enough income to live a nice life in the Bay Area is mistaken.Yes,you cannot live in the more expensive areas if you need a big place and have 4 kids,but people are getting a bit carried away with all the hyperbole,or they simply have expectations that are too high.
^ this.

The only true "expensive" thing about living in good areas of the Bay Area would be housing. The rest is relatively similar to any other city.

You can find a house for $900,000 there right? The Bay Area includes Oakland and other areas, there will be plenty of decent houses for that price.

Monthly mortgage costs for a $900,000 home on a 30 year are what... $5,500/mo? $200,000/year after taxes is what, $150,000 after taxes? That's $12,500/month income after taxes. Subtract mortgage costs of $5,500/month and you're left $7,000/month for whatever else you need in life.

With a sensible car or two ($800/month for two sensible cars with insurance) you're down to $6,200/month. I won't go through all the details but if your home payment and tax payment is taken care of, and your two cars are taken care of, you should be fine with $6,200/month leftover for all other expenses. $6,200/month is more than the average American makes BEFORE taxes, and that's after your home and two cars, and your home is building your net worth and not a complete loss.

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Re: How do normal people afford the Bay Area?

Post by mmmodem » Sat Jul 07, 2018 3:50 am

Ron Ronnerson wrote:
Sat Jul 07, 2018 1:22 am
Here is one (longish) story from a self-proclaimed “normal “ person living in the Bay Area. In my 20s, I lived with roommates and rented. When I got married, my wife and I continued to rent for a few years. I’m a teacher and she worked for a small business. We made a combined salary of around $120k (this was in 2005).

We thought we would never own a home in the Bay Area but then, suddenly, prices fell quite a bit. In 2010, we bought a 2150 sq ft townhouse (4 bedroom/4 bathroom) in a great neighborhood in the East Bay with excellent schools for $500k. Closing costs and the down payment took our bank balances down a lot but our cash flow was fine due to being frugal. We were in our mid 30s and had less than $100k saved in retirement accounts at that point.

We refinanced a couple of years later. The new loan dropped our mortgage payment while property taxes held steady due to Prop 13. We increased savings to retirement accounts with every raise, thanks in large part to the info I learned on Bogleheads over the past several years.

Last year, our combined income was $150k. We maxed our Roth IRA accounts, put the max in a 457b, put $5k into a 403b, and my wife’s employer put $7k into a SEP-IRA for her. I also contributed 10.25% of my salary toward a pension. This has been fairly typical for the past several years.

Today, at age 43, we have around $500k in home equity and our retirement accounts are in the mid six-figures. The plan is now for my wife to work minimally for the next couple of years while our daughter is still young. Our retirement contributions will drop quite a bit in the meantime but we're on a decent trajectory at this point. I’m expecting a pension of about $90k/year around age 60 and we should each get some social security as well. If there is a shortfall, perhaps we can sell our Bay Area home and live elsewhere in retirement.

I make $105k/year. With interest, etc. we end up with close to $110k gross income. This should be enough for us to live on while continuing to save a bit as well. Anything my wife happens to earn will be added to retirement accounts (we would prefer not to fall out of the 12% federal and 4% state tax brackets).

Our monthly budget:
Mortgage: $1810 (30 year fixed at 3.25%)
Property Taxes: $800
HOA: $289
House Cleaning: $120
Home Improvements/Repairs: $50 (one of my friends is very handy and helps out)
TV/Internet: $150
Electricity: $140
Cell Phones: $70
Water: $35
Garbage: $20
Auto/Home/Umbrella Insurance: $185 (two Corolla household)
Life Insurance: $150 (30 year term for $1M each)
Gas: $250 (I carpool with another teacher)
Car Maintenance/Repairs/Registration/Tires/AAA: $75
Groceries/Household Items: $1000
Restaurants: $200
Vacations: $100 (we’ve gone to Maui, Disneyland, and Las Vegas this year for just about free using credit card bonuses and have lots of points remaining)
Misc. (furniture, gifts, donations): $150
Technology: $100
Clothing/Shoes/Hair/Nails: $80
Pets: $80
Medical/Vision/Dental: $150
Entertainment: $50
TOTAL: About $6k/month

The Bay Area can be very expensive but doesn’t have to be. These days, for newcomers, it is particularly challenging because housing is so expensive. If that piece can be figured out, the large salaries can go far. If you’re willing to live in a small place that you rent with other people for a few years while hoarding money, you can do fine here. When you have enough saved, buy a house and keep it for a long time. As a normal person living in the Bay Area, that’s been my approach, and it seems to be working out okay. Of course, those hoarding money in the Bay Area while renting a small place might be able to retire elsewhere after a few years too. The Bay Area can offer such possibilities to people but certainly isn't for everyone.
Thanks for this post. I'm also an abnormal person in the Bay Area making a tad under 6 figures with a mortgage and stay at home wife with 3 kids. Not everyone feels entitled to a 3 bed/2 bath home walking distance to Golden Gate Park. We're perfectly happy living an hour away from the the city. The key is the $1800 mortgage. It isn't impossible if you are willing to start with a 2 bed condo in a less than good neighborhood and work your way up building equity.

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Re: How do normal people afford the Bay Area?

Post by LadyGeek » Sat Jul 07, 2018 6:52 am

This thread has run its course and is locked (not personal nor actionable). General comment threads are off topic in the forums with "Personal" in the title. See: A reminder that non-investing general comment threads are OT
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