How Much House Can We Afford in HCOL Area?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Kookaburra
Posts: 344
Joined: Thu Apr 02, 2020 11:14 pm

Re: How Much House Can We Afford in HCOL Area?

Post by Kookaburra »

Tingting1013 wrote: Fri Sep 04, 2020 12:23 pm
Kookaburra wrote: Fri Sep 04, 2020 12:09 pm
Tingting1013 wrote: Wed Sep 02, 2020 11:17 pm For Federal taxes, the mortgage interest deduction is not gone, just limited to $750k in loan balance.

$750k * 2.7% * 37% = $7k in federal tax savings
Not necessarily savings. Remember the 10K SALT cap?

750k x 2.7% = 20,250. Plus 10K SALT. Equals 30,250. But standard deduction is 24,800, so the net savings is only 5,450 x 37% = 2,016. Yippee skippy!
I’m assuming someone who is earning $600k is donating at least $15k to charity.
Then you should probably state your assumptions in your math.
User avatar
Watty
Posts: 20680
Joined: Wed Oct 10, 2007 3:55 pm

Re: How Much House Can We Afford in HCOL Area?

Post by Watty »

jarjarM wrote: Fri Sep 04, 2020 11:55 am One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office.
One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
bloom2708
Posts: 8171
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: How Much House Can We Afford in HCOL Area?

Post by bloom2708 »

I think a lot of people out there just buy it and then try to figure it out. This may be one of those cases.

Want house, buy house.

Get a good home inspection and make sure the foundation is solid.

With Covid still flourishing, I'd rent a bigger place for a year or 2. Stash cash. Then you are in control.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
anhonymous
Posts: 48
Joined: Sat Jan 05, 2019 11:41 am

Re: How Much House Can We Afford in HCOL Area?

Post by anhonymous »

OP:
I always think that when a particular want cannot be met then the best way to solve that is by fixing the income problem and not constrain the desire at least not permanently . Your questions on own vs rent are valid but I will emphasize the point BHer "delamer" made earlier and quoted below. I think you should really look to removing some of the inhibitions on the list and put disproportionate focus on #6. I will tell you from my and others' experience you will not have peace of mind with any asset or personal decision (home, investments, child, family support) if #6 - income is at risk.

1. Reduce work hours and income to spend time with kids.
2. Have another kid.
3. Have bigger house with great schools.
4. Husband does not want to increase his income.
5. Not increase your commute.
6. Not interested in increasing your income.
7. Not wanting to do renovations on house.
8. Live near in-laws.
9. Good luck as much as skill have gotten you to your current financial place.

I know that question is personal re: income and your job stability but you may want to try to fix that as much as you can. I do applaud your self-awareness of the situation and your desire to do right by family.
supalong52
Posts: 310
Joined: Tue Feb 09, 2010 1:51 pm

Re: How Much House Can We Afford in HCOL Area?

Post by supalong52 »

hereverycentcounts wrote: Fri Sep 04, 2020 12:51 am Maybe southern CA but again husband hates heat and it’s not much cheaper.
Where we live in So Cal it's typically in the 70s during the summer with 80+ considered very warm. And then 50-60s in the winter. Homes priced around a million just 2-3 miles from the ocean and schools consistently 9-10 on GS.

Not like the Bay Area where you have to spend over 2.5 mil for a dilapidated 4 br in a bad school district. On the relatively mild peninsula, it easily gets 90+ in summer and 40s in the winter. You're looking at 105+ in the summer in the East Bay.

If you PM me I can provide some additional detail as we went from Palo Alto / Menlo Park to So Cal a few years ago and were considering some other areas.
Topic Author
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

supalong52 wrote: Fri Sep 04, 2020 1:07 pm
hereverycentcounts wrote: Fri Sep 04, 2020 12:51 am Maybe southern CA but again husband hates heat and it’s not much cheaper.
Where we live in So Cal it's typically in the 70s during the summer with 80+ considered very warm. And then 50-60s in the winter. Homes priced around a million just 2-3 miles from the ocean and schools consistently 9-10 on GS.

Not like the Bay Area where you have to spend over 2.5 mil for a dilapidated 4 br in a bad school district. On the relatively mild peninsula, it easily gets 90+ in summer and 40s in the winter. You're looking at 105+ in the summer in the East Bay.

If you PM me I can provide some additional detail as we went from Palo Alto / Menlo Park to So Cal a few years ago and were considering some other areas.
Thanks. My husband also wants to live in an area where it rains. Not that it rains here a lot, but... more than SoCal? I have a few friends in SoCal, I wouldn't mind moving to LA. Traffic is pretty horrible, but it wouldn't be a bad trade off for an affordable house. And the culture is great!
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
User avatar
willthrill81
Posts: 20911
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

Watty wrote: Fri Sep 04, 2020 12:39 pm
jarjarM wrote: Fri Sep 04, 2020 11:55 am One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office.
One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
“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
oldfort
Posts: 1739
Joined: Mon Mar 02, 2020 8:45 pm

Re: How Much House Can We Afford in HCOL Area?

Post by oldfort »

willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Watty wrote: Fri Sep 04, 2020 12:39 pm
jarjarM wrote: Fri Sep 04, 2020 11:55 am One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office.
One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
Because workers aren't a commodity and top tech talent won't work for $100k/year.
User avatar
willthrill81
Posts: 20911
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

oldfort wrote: Fri Sep 04, 2020 2:16 pm
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Watty wrote: Fri Sep 04, 2020 12:39 pm
jarjarM wrote: Fri Sep 04, 2020 11:55 am One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office.
One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
Because workers aren't a commodity and top tech talent won't work for $100k/year.
Sadly, many workers are absolutely a commodity, though I agree that 'top tech talent' probably isn't. Still, it stands to perfect reason that if such a person can live in a LCOL or MCOL area instead of the Bay area, such a person doesn't need nearly as much income as someone living in the Bay area does in order to have the same disposable income. Not only is real estate far less costly almost anywhere else, but avoiding CA income taxes is a significant benefit too. Avoiding state income taxes was a contributing factor in my decision to take my current job, which entailed a small salary reduction.
“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
jarjarM
Posts: 276
Joined: Mon Jul 16, 2018 1:21 pm

Re: How Much House Can We Afford in HCOL Area?

Post by jarjarM »

willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
Interestingly, I have a couple of college friends who work for consulting firms that has been tasked by various tech companies at one point to look into diversify workforce geographically to cut compensation cost. In the end, they found that the productivity in the local work offices isn't quite up to par to HQ after adjusting for compensation difference. Net profit per employee for FB is in the range of $600k so a 20-30% productivity difference does add up. DW's tech company tried to outsource dev/QA to oversea location such as India/Costa Rica/Eastern Europe/Ireland, it failed either due to low productivity, difficulty to hire good employees, or high attrition rate. So it's not easy to move the dev work to other satellite offices, and since July, they saw lower productivity from the WFH employees as well so there's a push to get the employees back to office next year, once it's safe to do so.

I don't mind a permanent slide in bay area real estates, as I mentioned before, that means less traffic and less student per classroom, hopefully. Plus, aren 't bogleheads always advocate that primary residence is not an investment :beer
User avatar
willthrill81
Posts: 20911
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

jarjarM wrote: Fri Sep 04, 2020 2:47 pm
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
Interestingly, I have a couple of college friends who work for consulting firms that has been tasked by various tech companies at one point to look into diversify workforce geographically to cut compensation cost. In the end, they found that the productivity in the local work offices isn't quite up to par to HQ after adjusting for compensation difference. Net profit per employee for FB is in the range of $600k so a 20-30% productivity difference does add up. DW's tech company tried to outsource dev/QA to oversea location such as India/Costa Rica/Eastern Europe/Ireland, it failed either due to low productivity, difficulty to hire good employees, or high attrition rate. So it's not easy to move the dev work to other satellite offices, and since July, they saw lower productivity from the WFH employees as well so there's a push to get the employees back to office next year, once it's safe to do so.

I don't mind a permanent slide in bay area real estates, as I mentioned before, that means less traffic and less student per classroom, hopefully. Plus, aren 't bogleheads always advocate that primary residence is not an investment :beer
It will definitely be interesting to see what happens. I, for one, am quick to say that online interactions aren't the same as those in a face-to-face situation.

I wouldn't be concerned about sliding home prices from an investment standpoint per se, but I wouldn't want to pay $2 million for a home that a couple of decades later is $1 million either. A million bucks is a lot of money even by BH standards. I'd rather rent during that period and invest in assets with a high likelihood of appreciation.
“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
flaccidsteele
Posts: 1007
Joined: Sun Jul 28, 2019 9:42 pm
Location: Canada

Re: How Much House Can We Afford in HCOL Area?

Post by flaccidsteele »

TimeMan wrote: Wed Sep 02, 2020 9:20 pm I'm a lot further along and bought a $825k house and am uncomfortable with it, even with 20% down. Your proposition terrifies me to think about.
^ +1 Ditto
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
oldfort
Posts: 1739
Joined: Mon Mar 02, 2020 8:45 pm

Re: How Much House Can We Afford in HCOL Area?

Post by oldfort »

willthrill81 wrote: Fri Sep 04, 2020 2:40 pm
oldfort wrote: Fri Sep 04, 2020 2:16 pm
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Watty wrote: Fri Sep 04, 2020 12:39 pm
jarjarM wrote: Fri Sep 04, 2020 11:55 am One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office.
One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
Because workers aren't a commodity and top tech talent won't work for $100k/year.
Sadly, many workers are absolutely a commodity, though I agree that 'top tech talent' probably isn't. Still, it stands to perfect reason that if such a person can live in a LCOL or MCOL area instead of the Bay area, such a person doesn't need nearly as much income as someone living in the Bay area does in order to have the same disposable income. Not only is real estate far less costly almost anywhere else, but avoiding CA income taxes is a significant benefit too. Avoiding state income taxes was a contributing factor in my decision to take my current job, which entailed a small salary reduction.
Top tech talent doesn't want to live in a LCOL area for the most part, although Austin is building up a tech hub. They want to live in a place with good schools, great weather, beaches, the amenities a city has to offer, and a certain cultural fit. You can get all this cheaper than the Bay Area even in California, but those people have zero interest in moving to Indianapolis for a 50% pay cut. You might need to offer them a substantial raise to get them to consider moving to Indianapolis.
visualguy
Posts: 2083
Joined: Thu Jan 30, 2014 1:32 am

Re: How Much House Can We Afford in HCOL Area?

Post by visualguy »

oldfort wrote: Fri Sep 04, 2020 3:10 pm Top tech talent doesn't want to live in a LCOL area for the most part, although Austin is building up a tech hub. They want to live in a place with good schools, great weather, beaches, the amenities a city has to offer, and a certain cultural fit. You can get all this cheaper than the Bay Area even in California, but those people have zero interest in moving to Indianapolis for a 50% pay cut. You might need to offer them a substantial raise to get them to consider moving to Indianapolis.
+1

Putting the housing cost problem aside, the Bay Area is overall one of the very best places to live in the country (many would say the best). It's truly a unique place; not just nationally, but also globally. I can't think of a single place with that combination: climate, natural setting, universities, talent, culture of innovation, venture capital, diversity with highly-educated people from all over the world living and working together. Some other places have certain subsets of these factors, but no others have them all. That doesn't mean that the area doesn't have problems as well, but no place is perfect, and you have to look at the overall picture.

Top tech talent does make enough to handle the housing situation, so, yeah, they mostly have zero interest in moving away. It's trickier in more marginal cases because housing costs are truly a serious problem, but people are willing to put up with a lot to stay in the area.

A decline in the future value of housing in the Bay Area has always been something that belongs right around the bottom of the list of things to worry about in life. That doesn't mean that one should buy if they can't afford it by some reasonable measure, but if the financial circumstances do allow it, then it's very unlikely to be a bad move.
User avatar
Watty
Posts: 20680
Joined: Wed Oct 10, 2007 3:55 pm

Re: How Much House Can We Afford in HCOL Area?

Post by Watty »

visualguy wrote: Fri Sep 04, 2020 4:43 pm A decline in the future value of housing in the Bay Area has always been something that belongs right around the bottom of the list of things to worry about in life.
Talk like that should scare people.

A lot of the high house prices, all over the country are fuelled by the low interest rates. The Bay Area prices are also fuelled by RSUs that have soared in value far above what the original grant was.

Those will eventually go away.
Thegame14
Posts: 1612
Joined: Mon May 07, 2018 11:53 am

Re: How Much House Can We Afford in HCOL Area?

Post by Thegame14 »

fareastwarriors wrote: Wed Sep 02, 2020 9:44 pm Keep renting for a few years.
Grow income.
Save even more.
Good luck.
+1
cacophony
Posts: 535
Joined: Tue Oct 16, 2007 9:12 pm

Re: How Much House Can We Afford in HCOL Area?

Post by cacophony »

random_walker_77 wrote: Fri Sep 04, 2020 8:54 am ...
On that second point, a lot of expensive areas in the bay area have been relatively expensive for a long time. Los Altos wasn't always all 2M+, but it has been one of the "richer" areas for at least 30 years now.
FWIW, it looks like the average price of a house in Los Altos was ~$750k in 1998 and it's ~$3.5MM today. I couldn't find data that went back further. Adjusted for inflation that $750k purchase is about ~$1.2MM in today's dollars. So that definitely required wealth, but to a much lessor degree than today. If you go back another ~20 years it was school teachers buying houses for ~$50k :wink: (I happen to know one)
User avatar
willthrill81
Posts: 20911
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

Watty wrote: Fri Sep 04, 2020 5:02 pm
visualguy wrote: Fri Sep 04, 2020 4:43 pm A decline in the future value of housing in the Bay Area has always been something that belongs right around the bottom of the list of things to worry about in life.
Talk like that should scare people.

A lot of the high house prices, all over the country are fuelled by the low interest rates. The Bay Area prices are also fuelled by RSUs that have soared in value far above what the original grant was.

Those will eventually go away.
How about we look at what's recently happened Manhattan, another VHCOL area with a far longer history as a desirable place to live than that of the Bay area?
A total of 2,343 real estate deals were closed across the four boroughs—33% drop as compared to last year's July. Compared to June, sales increased sharply by almost 40%. However, there was the sharpest decrease in the median sales price of the four boroughs. The median sales price in July was $680,000, trending down by 13% year-over-year.
emphasis in original
https://www.noradarealestate.com/blog/n ... te-market/

Anyone who thinks that that cannot happen in the Bay area is, frankly, delusional.
“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
visualguy
Posts: 2083
Joined: Thu Jan 30, 2014 1:32 am

Re: How Much House Can We Afford in HCOL Area?

Post by visualguy »

willthrill81 wrote: Fri Sep 04, 2020 5:17 pm Anyone who thinks that that cannot happen in the Bay area is, frankly, delusional.
Anything "can" happen. It's a matter of probabilities, not absolutes, and it's also a matter of time horizon. In the long run, even the sun will be extinguished, so, yes, Bay Area real estate will be worth nothing eventually. Within the time frame that matters to us, it's one of the last things to worry about, which doesn't mean a 0% probability of trouble, just that it's below the threshold of worry, and other things are more worrisome.

For some reason, predicting a crash of housing prices in the Bay Area has a long and stubborn tradition that goes back decades. There used to be a popular web site called patrick.net for a forum that was dedicated to this supposedly imminent and inevitable crash which was very active for years. People did eventually give up in the face of reality, and it died a natural death, but this persistent tradition is still somewhat alive, even if not nearly as much as it used to be.
jarjarM
Posts: 276
Joined: Mon Jul 16, 2018 1:21 pm

Re: How Much House Can We Afford in HCOL Area?

Post by jarjarM »

visualguy wrote: Fri Sep 04, 2020 5:58 pm
willthrill81 wrote: Fri Sep 04, 2020 5:17 pm Anyone who thinks that that cannot happen in the Bay area is, frankly, delusional.
Anything "can" happen. It's a matter of probabilities, not absolutes, and it's also a matter of time horizon. In the long run, even the sun will be extinguished, so, yes, Bay Area real estate will be worth nothing eventually. Within the time frame that matters to us, it's one of the last things to worry about, which doesn't mean a 0% probability of trouble, just that it's below the threshold of worry, and other things are more worrisome.

For some reason, predicting a crash of housing prices in the Bay Area has a long and stubborn tradition that goes back decades. There used to be a popular web site called patrick.net for a forum that was dedicated to this supposedly imminent and inevitable crash which was very active for years. People did eventually give up in the face of reality, and it died a natural death, but this persistent tradition is still somewhat alive, even if not nearly as much as it used to be.
All it take is a major earthquake that's over due. Bay area real estates really suffer from 1989 to 1994, then dotcom/semi happened. :twisted: That's why I spent a year earthquake proof my house, but man it was tough :oops:
cupfire
Posts: 15
Joined: Mon May 15, 2017 12:56 pm

Re: How Much House Can We Afford in HCOL Area?

Post by cupfire »

I find that non-Bay Area BH-ers are a little too negative. While I am not going to encourage you to buy, I will not discourage you either. This is a risky place, but smart people like you should be able to navigate around the risk. I am offering my own history to show you that while there are challenges, it is definitely possible to own a nice house in a nice area here.

Mid to late 1990s - show up here in Bay Area for a software engineer job. Save some money without any particular goal. Get married to another SW engineer.

2000 - Paid an outrageous price of $750k for a SFH in Cupertino a few weeks before Dot Com peak madness. 6000 sq ft lot, < 1200 sq ft starter house. Lousy timing. HHI was $200k

2001 - Laid off during Dot Com bust. Was going nuts. Luckily bounced back with a new gig a few weeks later.

Next few years - Had 2 kids and stayed put. Did nothing except basic maintenance on the house. Switched jobs twice.

2012-ish - Father-in-law passed away. So MIL had no place to go except come and live with us. We are from India, and this is pretty normal. So we needed a bigger house. Current house worth about $1.1M

2014 - HHI now $260k + RSU. Bid on a run-down fixer upper house, also in Cupertino, for a stupidly high $1.9M and “won”. 2500 sq ft, 12000 sq ft lot - potential to be worth a lot more. Had to gather every penny to scrounge up enough to close loan + reserve. Old house worth about $1.3M. Need to decide to rent or sell old house. DW laid off and was mostly unemployed for two years. Now VERY house poor, keeping two mortgages. Thankful that the bank insisted on us having a reserve to get a loan.

2015 - HHI down to $180k after I switched jobs and DW’s layoff. After a few weeks of dithering and analysis, decided to remodel, add a family room to old house and sell. Borrowed from family and friends and used every 401k rollover/loan trick to get money for remodel. House sold for $1.7M. Finally had a financial cushion after about 14 months of very tight finances.

2016 - Decided to remodel new house because it was in terrible shape. Decided that this was our forever house and spent a year thinking about what kind of remodel to do to suit our needs.

2017 - Finalized a design - full redo, with significant restructuring and an addition of space. Took a year to get a permit. DW finally got a new FT job just in time for construction to start. Move to an apartment. HHI is $320k

2018 - Construction is mostly done, and we move back in. Cost us $600k which was mostly from a HELOC and some from selling ESPP/RSU stocks.

2019 - Mortgage now $900k, new house appraised at $3.0M+ for refi. HHI is $360k + RSU. We can live comfortably even if one of us is laid off.

I am stating all this to tell you that it is possible to buy a home even without astronomical compensation. My RSUs have been in the $25k - $50k range per year. I did take a big risk in 2014, buying a crappy house for a huge amount of money. But if both of us had continued to be employed, we would have been fine. DW’s layoff was very stressful because it came when our finances were stretched the tightest. Even then, we managed to fund the remodel of the old house and sell and get back on our feet.

I really love the Bay Area and want to retire here. It makes sense to buy a house if that is your aim, but set it up such that if you have a loss of income, you can still manage with belt tightening. I also advise you not to buy in school districts with 5/10 rankings unless you get a great deal or are clairvoyant enough to know that the location will gentrify like crazy. If you have confidence and evidence (via practice interviews) that you can find good employment quickly after a layoff, that would put you in a better position.
Topic Author
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

:happy
cupfire wrote: Fri Sep 04, 2020 9:51 pm I find that non-Bay Area BH-ers are a little too negative. While I am not going to encourage you to buy, I will not discourage you either. This is a risky place, but smart people like you should be able to navigate around the risk. I am offering my own history to show you that while there are challenges, it is definitely possible to own a nice house in a nice area here.

Mid to late 1990s - show up here in Bay Area for a software engineer job. Save some money without any particular goal. Get married to another SW engineer.

2000 - Paid an outrageous price of $750k for a SFH in Cupertino a few weeks before Dot Com peak madness. 6000 sq ft lot, < 1200 sq ft starter house. Lousy timing. HHI was $200k

2001 - Laid off during Dot Com bust. Was going nuts. Luckily bounced back with a new gig a few weeks later.

Next few years - Had 2 kids and stayed put. Did nothing except basic maintenance on the house. Switched jobs twice.

2012-ish - Father-in-law passed away. So MIL had no place to go except come and live with us. We are from India, and this is pretty normal. So we needed a bigger house. Current house worth about $1.1M

2014 - HHI now $260k + RSU. Bid on a run-down fixer upper house, also in Cupertino, for a stupidly high $1.9M and “won”. 2500 sq ft, 12000 sq ft lot - potential to be worth a lot more. Had to gather every penny to scrounge up enough to close loan + reserve. Old house worth about $1.3M. Need to decide to rent or sell old house. DW laid off and was mostly unemployed for two years. Now VERY house poor, keeping two mortgages. Thankful that the bank insisted on us having a reserve to get a loan.

2015 - HHI down to $180k after I switched jobs and DW’s layoff. After a few weeks of dithering and analysis, decided to remodel, add a family room to old house and sell. Borrowed from family and friends and used every 401k rollover/loan trick to get money for remodel. House sold for $1.7M. Finally had a financial cushion after about 14 months of very tight finances.

2016 - Decided to remodel new house because it was in terrible shape. Decided that this was our forever house and spent a year thinking about what kind of remodel to do to suit our needs.

2017 - Finalized a design - full redo, with significant restructuring and an addition of space. Took a year to get a permit. DW finally got a new FT job just in time for construction to start. Move to an apartment. HHI is $320k

2018 - Construction is mostly done, and we move back in. Cost us $600k which was mostly from a HELOC and some from selling ESPP/RSU stocks.

2019 - Mortgage now $900k, new house appraised at $3.0M+ for refi. HHI is $360k + RSU. We can live comfortably even if one of us is laid off.

I am stating all this to tell you that it is possible to buy a home even without astronomical compensation. My RSUs have been in the $25k - $50k range per year. I did take a big risk in 2014, buying a crappy house for a huge amount of money. But if both of us had continued to be employed, we would have been fine. DW’s layoff was very stressful because it came when our finances were stretched the tightest. Even then, we managed to fund the remodel of the old house and sell and get back on our feet.

I really love the Bay Area and want to retire here. It makes sense to buy a house if that is your aim, but set it up such that if you have a loss of income, you can still manage with belt tightening. I also advise you not to buy in school districts with 5/10 rankings unless you get a great deal or are clairvoyant enough to know that the location will gentrify like crazy. If you have confidence and evidence (via practice interviews) that you can find good employment quickly after a layoff, that would put you in a better position.
Thanks! It is good to see your story. It sounds scary!

I think we are going to rent for a while. My new plan is rent a 4 bedroom house where my in laws can comfortably stay overnight but they don’t have to actually live with us. This is probably best option at this time. What do you think we should pay in rent? I am thinking $6000 a month.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
marcopolo
Posts: 3483
Joined: Sat Dec 03, 2016 10:22 am

Re: How Much House Can We Afford in HCOL Area?

Post by marcopolo »

willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Watty wrote: Fri Sep 04, 2020 12:39 pm
jarjarM wrote: Fri Sep 04, 2020 11:55 am One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office.
One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
Hasn't that option been available to employers for at least a decade or more. It does not seem to have affected Bay area compensation, or housing prices much in that time. Maybe "this time is different".
Once in a while you get shown the light, in the strangest of places if you look at it right.
Pessimist55
Posts: 95
Joined: Thu May 14, 2015 12:16 am

Re: How Much House Can We Afford in HCOL Area?

Post by Pessimist55 »

I live in sj. You make tons $$$. Why do you really need a house? What's wrong w renting than take on this huge debt.
I don't have a 1M house cuz I dont even make half as much as you. I have a kid and my 2br condo that I got at the bottom is getting small. My plan is to RENT! A 3br townhouses in Cupertino costs ~ 5k a mo. I can live w that when my kid reaches elementary and til high school. Put your money in the market. I'd wait keep the rsu until they are qualified to save on taxes and the appreciation --assuming your company is making money as they've appreciated significantly.
cupfire
Posts: 15
Joined: Mon May 15, 2017 12:56 pm

Re: How Much House Can We Afford in HCOL Area?

Post by cupfire »

hereverycentcounts wrote: Fri Sep 04, 2020 11:31 pm :happy

Thanks! It is good to see your story. It sounds scary!

I think we are going to rent for a while. My new plan is rent a 4 bedroom house where my in laws can comfortably stay overnight but they don’t have to actually live with us. This is probably best option at this time. What do you think we should pay in rent? I am thinking $6000 a month.
It wasn't that scary because the tough part is buying, not selling because Silicon Valley is a perpetual seller's market. When DW was laid off, I may have let off an expletive or three, but I wasn't panicking. I knew that if worse came to worst, I could always sell my old house as-is in a matter of weeks and sit on a high six figure sum until the job situation improved.

$6k a month seems a bit on the higher side. Zillow currently shows 4bd houses for rent in Cupertino for less than $5k. If you are willing to accept a smaller 4bd house at less than 2000 sq ft, you probably don't need to stretch to $6k.

This https://www.zillow.com/homedetails/2102 ... 7308_zpid/ looks pretty decent to me. There may be similar offerings in the area of your preference.
User avatar
unclescrooge
Posts: 5336
Joined: Thu Jun 07, 2012 7:00 pm

Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

Watty wrote: Fri Sep 04, 2020 5:02 pm
visualguy wrote: Fri Sep 04, 2020 4:43 pm A decline in the future value of housing in the Bay Area has always been something that belongs right around the bottom of the list of things to worry about in life.
Talk like that should scare people.

A lot of the high house prices, all over the country are fuelled by the low interest rates. The Bay Area prices are also fuelled by RSUs that have soared in value far above what the original grant was.

Those will eventually go away.
I 100% agree with what you are saying.

But go to places like Hong Kong, and suddenly bay area price look cheap at $2,000 per sqft.

At a certain point, you are not competing with local 5%, but global 1% for homes.
babystep
Posts: 244
Joined: Tue Apr 09, 2019 9:44 am

Re: How Much House Can We Afford in HCOL Area?

Post by babystep »

unclescrooge wrote: Sat Sep 05, 2020 12:51 am
Watty wrote: Fri Sep 04, 2020 5:02 pm
visualguy wrote: Fri Sep 04, 2020 4:43 pm A decline in the future value of housing in the Bay Area has always been something that belongs right around the bottom of the list of things to worry about in life.
Talk like that should scare people.

A lot of the high house prices, all over the country are fuelled by the low interest rates. The Bay Area prices are also fuelled by RSUs that have soared in value far above what the original grant was.

Those will eventually go away.
I 100% agree with what you are saying.

But go to places like Hong Kong, and suddenly bay area price look cheap at $2,000 per sqft.

At a certain point, you are not competing with local 5%, but global 1% for homes.
Bay-area real-estate has gone up slightly more than other places in the last decade but is not out of order. Please see the Case-Shiller index for SF, Dallas, and Phoenix as an example.

https://fred.stlouisfed.org/series/SFXRSA
https://fred.stlouisfed.org/series/DAXRNSA
https://fred.stlouisfed.org/series/PHXRNSA

In the last 10 years, the Case-Schiller Index has gone up from 140 to 270 for SF vs 120 to 193 for Dallas vs 110 to 201 for Phoenix.

Price increases in 10 years.

SF = 270/140 = 92%
Phoenix = 201/110 = 83%
Dallas = 193/120 = 61%
User avatar
unclescrooge
Posts: 5336
Joined: Thu Jun 07, 2012 7:00 pm

Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

babystep wrote: Sat Sep 05, 2020 1:45 am
unclescrooge wrote: Sat Sep 05, 2020 12:51 am
Watty wrote: Fri Sep 04, 2020 5:02 pm
visualguy wrote: Fri Sep 04, 2020 4:43 pm A decline in the future value of housing in the Bay Area has always been something that belongs right around the bottom of the list of things to worry about in life.
Talk like that should scare people.

A lot of the high house prices, all over the country are fuelled by the low interest rates. The Bay Area prices are also fuelled by RSUs that have soared in value far above what the original grant was.

Those will eventually go away.
I 100% agree with what you are saying.

But go to places like Hong Kong, and suddenly bay area price look cheap at $2,000 per sqft.

At a certain point, you are not competing with local 5%, but global 1% for homes.
Bay-area real-estate has gone up slightly more than other places in the last decade but is not out of order. Please see the Case-Shiller index for SF, Dallas, and Phoenix as an example.

https://fred.stlouisfed.org/series/SFXRSA
https://fred.stlouisfed.org/series/DAXRNSA
https://fred.stlouisfed.org/series/PHXRNSA

In the last 10 years, the Case-Schiller Index has gone up from 140 to 270 for SF vs 120 to 193 for Dallas vs 110 to 201 for Phoenix.

Price increases in 10 years.

SF = 270/140 = 92%
Phoenix = 201/110 = 83%
Dallas = 193/120 = 61%
Factually correct, but slightly misleading in terms of discrepancy between the 3 cities. A decade ago, home prices in Bay Area were 5x higher than Dallas, and maybe 10x higher than Phoenix.

Phoenix home prices were, and continue to remain a mere down payment on an SF home.
Lee_WSP
Posts: 3228
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How Much House Can We Afford in HCOL Area?

Post by Lee_WSP »

hereverycentcounts wrote: Fri Sep 04, 2020 11:31 pm
I think we are going to rent for a while. My new plan is rent a 4 bedroom house where my in laws can comfortably stay overnight but they don’t have to actually live with us. This is probably best option at this time. What do you think we should pay in rent? I am thinking $6000 a month.
I am not sure if anyone ever answered your question to your satisfaction, but one way to figure out how much you need to have saved up is to do the following math:


Take the rent you're willing to pay & subtract property taxes & insurance. Do a "maximum loan calculation". Subtract that from the purchase price, add in closing costs, and you've got how much you need to put down.

In your situation a 3% $6,000 a month principal & interest payment would be a $1,423,136 loan amount. So, you'd need to put down 800k to afford the 2.2 M house and be able to cash flow taxes & insurance & hoa. Add in maintenance and other costs to be more conservative.
User avatar
willthrill81
Posts: 20911
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

marcopolo wrote: Fri Sep 04, 2020 11:40 pm
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Watty wrote: Fri Sep 04, 2020 12:39 pm
jarjarM wrote: Fri Sep 04, 2020 11:55 am One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office.
One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
Hasn't that option been available to employers for at least a decade or more. It does not seem to have affected Bay area compensation, or housing prices much in that time. Maybe "this time is different".
TMK, it's never been mandated for workers to stay at home in such large numbers. In many industries, worker productivity has increased with people WFH.

Things change.

This poster estimates that their losses on a Bay area home will be over $100k.
“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
babystep
Posts: 244
Joined: Tue Apr 09, 2019 9:44 am

Re: How Much House Can We Afford in HCOL Area?

Post by babystep »

unclescrooge wrote: Sat Sep 05, 2020 9:40 am
babystep wrote: Sat Sep 05, 2020 1:45 am
unclescrooge wrote: Sat Sep 05, 2020 12:51 am
Watty wrote: Fri Sep 04, 2020 5:02 pm
visualguy wrote: Fri Sep 04, 2020 4:43 pm A decline in the future value of housing in the Bay Area has always been something that belongs right around the bottom of the list of things to worry about in life.
Talk like that should scare people.

A lot of the high house prices, all over the country are fuelled by the low interest rates. The Bay Area prices are also fuelled by RSUs that have soared in value far above what the original grant was.

Those will eventually go away.
I 100% agree with what you are saying.

But go to places like Hong Kong, and suddenly bay area price look cheap at $2,000 per sqft.

At a certain point, you are not competing with local 5%, but global 1% for homes.
Bay-area real-estate has gone up slightly more than other places in the last decade but is not out of order. Please see the Case-Shiller index for SF, Dallas, and Phoenix as an example.

https://fred.stlouisfed.org/series/SFXRSA
https://fred.stlouisfed.org/series/DAXRNSA
https://fred.stlouisfed.org/series/PHXRNSA

In the last 10 years, the Case-Schiller Index has gone up from 140 to 270 for SF vs 120 to 193 for Dallas vs 110 to 201 for Phoenix.

Price increases in 10 years.

SF = 270/140 = 92%
Phoenix = 201/110 = 83%
Dallas = 193/120 = 61%
Factually correct, but slightly misleading in terms of discrepancy between the 3 cities. A decade ago, home prices in Bay Area were 5x higher than Dallas, and maybe 10x higher than Phoenix.

Phoenix home prices were, and continue to remain a mere down payment on an SF home.
I am replying to a statement that prices have gone up mostly because of RSUs. The stocks and RSUs have gone up like 5-10x in the last decade but housing prices haven't gone up in those proportions.

If you look at the numbers then price increases are not out of order compared to other cities.

The problem may be the mental model. A 200k house becoming 400k vs 1M house becoming 2M is the same percentage increase. But if someone looks at the absolute difference 1.6M vs 800k then it has certainly become wider.

Does anyone have special knowledge to predict the bay-area real-estate prices? The market is doing its thing and prices are what they are. One shouldn't be timing or guessing against the market.
BTW, the bay-area home prices did go down in 2019 about 5-10% but they went up again 2-5% this year.

With respect to OP, one should buy the home when you need one and can afford it. One shouldn't be speculative that maybe prices will go down in 2-3 years then I will buy it.

If anything in the bay-area then one should buy sooner than later because you are mostly going to lock the price for Prop13. If you wait a couple of years and then if you will pay an additional 0.12% expense ratio for the rest of your home-ownership then most folks here will tell you that it is too high. This is what is going to happen if you wait and prices have gone up by 10%.
KyleAAA
Posts: 8584
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: How Much House Can We Afford in HCOL Area?

Post by KyleAAA »

Can you really get 2.7% on a jumbo? I looked a couple of weeks ago and I couldnt find anything less than 3.5% on a jumbo. If I paid down to the super conforming limit I could get more like 2.7%. I'd double verify.
Ron Ronnerson
Posts: 1720
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: How Much House Can We Afford in HCOL Area?

Post by Ron Ronnerson »

oldfort wrote: Wed Sep 02, 2020 10:00 pm Forget rules about how much to spend on housing. Make a budget. It doesn't need to be exact. See what's the most you can spend on housing monthly while meeting your other goals for spending and saving.
This is succinct and good advice in my opinion. I will be quite a bit less succinct than oldfort, so apologies in advance for the lengthy post that follows. I’m in the Bay Area and can understand your frustrations. I've been there. I related to much of what you shared as we also have lots of family nearby and wish to remain here for the long-run. My wife is from the Bay Area and I have lived here for over 20 years. We love it here and the Bay Area has been very good to us.

We approached buying a house here a bit differently than what is often suggested and I will share the details of that process with you. I’m not recommending that anyone do just as we did as luck was involved. However, we also had utilized frugality and strategy, if I say so myself. Most expenses are non-housing and keeping those lower can make more room in the budget for a house. As long as you are saving sufficiently, who cares if you spend a bigger percentage of income on housing vs. cars, for instance? We kept non-housing expenses under control so that we could spend more on a house and that was a personal choice. Our combined income has never been more than $150k/year.

Here’s a timeline of how things went for us:

2005 - age 30 (both of us) with a net worth of -40k. Each of us had $20k of credit card debt so we were evenly matched upon getting married this year. At least the debt was at 0%. I was a brand-new teacher making $50k/year (with no health benefits) and my wife earned $11/hour.

2007 – age 32, net worth of $0. My wife got a new job that doubled her income and had nice benefits as well. We paid off all the debt and my wife started wanting to buy a house. We ran the numbers and it didn’t seem to work out. We were convinced that we would never be homeowners in the Bay Area. We lived in a two-bedroom apartment and paid around $2k/month in rent at that time.

2009 – age 34, net worth of $80k – home prices began to come down enough where we could manage the monthly cost. We put down a deposit for a townhouse that was being newly built. It was located in the tri-valley (Pleasanton/Dublin/San Ramon area) and cost a bit over $500k. Our combined salary was around $125k. We only paid a 3% down payment but there was no PMI due to the terms of a teacher loan. Our interest rate was 5.25% and the loan was for 30 years. The home was 2,150 sq. feet, 4 bedrooms/4 bathrooms, and schools in the area are 9-10/10. The neighborhood is very nice. My next-door neighbor is my sister and her family. My mother and my wife's parents both live nearby.

2010 – age 35/net worth of $100k - house construction finished and we moved in. Since we were frugal in every other spending category, buying a house that was over 4x our income wasn’t an issue. In fact, we paid $600 a month extra toward principal each month. Not including mortgage principal, we were saving 15% of our income (pension contributions and maxing Roth IRAs).

2012 – age 37/net worth of $200k – We refinanced the house. To get the best terms, we needed equity in the home to be above a certain number. We paid an additional $50k and got another 30-year loan at 3.25%. Our mortgage payment was now much lower ($1810/month) and we reduced payments to the minimum due because of the much better rate. I started putting money into a 457b instead.

2014 – age 39/net worth of $400k. We became parents this year and my wife reduced her hours to 30 hours per week, just enough to keep benefits. She worked 4 days a week, I had summers off, and my mother-in-law took care of the baby twice a week. We used a flexible spending account to further lower the $3k-$4k/year that we paid for child care between the ages of 0-3 for our kid. Our combined income was around $135k or so.

2018 – age 43/net worth of $900k, much of it due to housing appreciation but we had increased our savings rate quite a bit over the years as well. We were earning $150k/year and had a 3-year-old running around at home. My wife wanted to be a stay-at-home parent so we went for it. We cut expenses where we could. Since my employer doesn’t provide health insurance (I’m public school teacher in a large district), lowering our AGI allowed us to get a health insurance subsidy through the Affordable Care Act. I will just add that we live very comfortably (we drive newly-purchased cards, own iPhones, go on vacations, etc.).

2020 – age 45/net worth of $1.2M. We refinanced the house again to another 30-year term at 2.875%. The mortgage payment is now $1445/month (this does not include property taxes, which are still based on the 2010 purchase price due to Prop 13). I make $110k year plus another $10k through churning bank/credit card bonuses. We work, on average, a combined 30 hours per week after accounting for my time off (spring, summer, and winter breaks). Our daughter is in kindergarten and it certainly helps to have a stay-at-home parent during a pandemic with distance learning going on these days.

The future: The plan was to have my wife return full time after our daughter was in school for the whole day (which will happen in a year, when she starts 1st grade), but she may or may not choose to do that since there is no need. We have a 50% savings rate on just my income and my pension alone should fully cover our expenses in retirement. Our house is now worth $850k and we owe just under $350k on it. I’m hoping to refinance again in a few months and restart the 30-year clock again. We’re on track to pay off the house in 40 years but I don’t like that idea at current rates and would like to stretch it out for as long as possible. Leverage has been a key to success for us but it's been carefully-calculated along the way.

Conventional wisdom says that we should have not have purchased our house when we did. However, we ran a lot of calculations that said that we could afford it. The interest rate matters. Also, sending less on non-housing allows you to spend more on housing with all else being held constant. Run the numbers to see what you can afford and don’t just go off some benchmark. Bay Area prices induce sticker shock for many since they can't wrap their heads around home values here. So the automatic reaction to immediately turn away from such disgusting numbers is understandable. However, disgust, fear, and shock are emotions. Let your calculator decide for you. It's worked well for us, anyway.
KyleAAA
Posts: 8584
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: How Much House Can We Afford in HCOL Area?

Post by KyleAAA »

willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Watty wrote: Fri Sep 04, 2020 12:39 pm
jarjarM wrote: Fri Sep 04, 2020 11:55 am One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office.
One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
They cant get 2 workers anywhere else for $200k total, though. Not even close. Bay Area companies have already opened offices all over and are paying much more than that. Square and Microsoft in Atlanta are already paying new grads close to $140k, for example. I could name half a dozen companies in Atlanta off the top of my head that are paying similarly. And these are for brand new grads with no experience.
Tingting1013
Posts: 412
Joined: Mon Aug 24, 2020 5:44 pm

Re: How Much House Can We Afford in HCOL Area?

Post by Tingting1013 »

KyleAAA wrote: Sat Sep 05, 2020 11:40 am
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Watty wrote: Fri Sep 04, 2020 12:39 pm
jarjarM wrote: Fri Sep 04, 2020 11:55 am One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office.
One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
They cant get 2 workers anywhere else for $200k total, though. Not even close. Bay Area companies have already opened offices all over and are paying much more than that. Square and Microsoft in Atlanta are already paying new grads close to $140k, for example. I could name half a dozen companies in Atlanta off the top of my head that are paying similarly. And these are for brand new grads with no experience.
Agreed, my tech company pays 85% of Bay Area salaries in major metros across the country and 75% everywhere else (e.g. rural Montana). When the geographic pay schedule was published a few months ago, it caused quite a few of my coworkers to leave the Bay.
marcopolo
Posts: 3483
Joined: Sat Dec 03, 2016 10:22 am

Re: How Much House Can We Afford in HCOL Area?

Post by marcopolo »

willthrill81 wrote: Sat Sep 05, 2020 11:12 am
marcopolo wrote: Fri Sep 04, 2020 11:40 pm
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Watty wrote: Fri Sep 04, 2020 12:39 pm
jarjarM wrote: Fri Sep 04, 2020 11:55 am One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office.
One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
Hasn't that option been available to employers for at least a decade or more. It does not seem to have affected Bay area compensation, or housing prices much in that time. Maybe "this time is different".
TMK, it's never been mandated for workers to stay at home in such large numbers. In many industries, worker productivity has increased with people WFH.

Things change.

This poster estimates that their losses on a Bay area home will be over $100k.
On a $1.65M home, which the OP admits he overpaid.
Seems more like typical noise in the housing market.
They have ups and downs just like the equity markets.

Calling for the collapse of high paying jobs and the real estate market seems much like the numerous postings here everyday predicting the eminent crash of the stock market.
Someday they will be right, but it is folly to think one can predict it with any kind of precision. But, then again you seem to believe you have some special skills in predicting direction/timing of equity markets, perhaps that extends to jobs and real estate as well.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Lee_WSP
Posts: 3228
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: How Much House Can We Afford in HCOL Area?

Post by Lee_WSP »

willthrill81 wrote: Sat Sep 05, 2020 11:12 am This poster estimates that their losses on a Bay area home will be over $100k.
While I generally agree with you, the example doesn't prove our argument. Contrarily, it's just showing that he is going to lose the costs of buying & selling real estate to the real estate industry which happens every time you buy or sell a house. ~7.5% of the purchase price every time a home changes hands.
User avatar
unclescrooge
Posts: 5336
Joined: Thu Jun 07, 2012 7:00 pm

Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

KyleAAA wrote: Sat Sep 05, 2020 11:32 am Can you really get 2.7% on a jumbo? I looked a couple of weeks ago and I couldnt find anything less than 3.5% on a jumbo. If I paid down to the super conforming limit I could get more like 2.7%. I'd double verify.
Owning.com is offering 2.59 APR upto $765k, so maybe jumbo has come down too?
Tingting1013
Posts: 412
Joined: Mon Aug 24, 2020 5:44 pm

Re: How Much House Can We Afford in HCOL Area?

Post by Tingting1013 »

unclescrooge wrote: Sat Sep 05, 2020 1:08 pm
KyleAAA wrote: Sat Sep 05, 2020 11:32 am Can you really get 2.7% on a jumbo? I looked a couple of weeks ago and I couldnt find anything less than 3.5% on a jumbo. If I paid down to the super conforming limit I could get more like 2.7%. I'd double verify.
Owning.com is offering 2.59 APR upto $765k, so maybe jumbo has come down too?
Jumbo has definitely come down, the question is can you get one.

https://fred.stlouisfed.org/series/OBMMIJUMBO30YF
User avatar
willthrill81
Posts: 20911
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

marcopolo wrote: Sat Sep 05, 2020 12:14 pm
willthrill81 wrote: Sat Sep 05, 2020 11:12 am
marcopolo wrote: Fri Sep 04, 2020 11:40 pm
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Watty wrote: Fri Sep 04, 2020 12:39 pm

One other problem with work from home in the Bay Area is that if that works well then there is little reason to pay Bay Area salaries since the employee could be located in a lower cost of living area and just fly in occasionally when they really need to be in the office for a meeting.

Many tech companies already have different offices around the country and around the world but at least so far they have been willing to pay Bay Area salaries to have people in the office in the Bay Area because they perceive that they get some value out of the face to face interaction. The current work from home experiment may help them decide that personal interaction is really worth paying for so they would want people in the office or that some jobs can really be done well remotely.

In many parts of the country you can hire good technical people for half of what they would cost in the Bay Area so even if you hired two people if there was a 30% loss in productivity you could still come out way ahead.

Technical superstars will always be special cases but when I was working there only a very small percentage of the tech people were really superstars and probably 95% of the tech people were doing work that would be similar to any large company.
Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
Hasn't that option been available to employers for at least a decade or more. It does not seem to have affected Bay area compensation, or housing prices much in that time. Maybe "this time is different".
TMK, it's never been mandated for workers to stay at home in such large numbers. In many industries, worker productivity has increased with people WFH.

Things change.

This poster estimates that their losses on a Bay area home will be over $100k.
On a $1.65M home, which the OP admits he overpaid.
Seems more like typical noise in the housing market.
They have ups and downs just like the equity markets.

Calling for the collapse of high paying jobs and the real estate market seems much like the numerous postings here everyday predicting the eminent crash of the stock market.
Someday they will be right, but it is folly to think one can predict it with any kind of precision. But, then again you seem to believe you have some special skills in predicting direction/timing of equity markets, perhaps that extends to jobs and real estate as well.
I'm not "calling for the collapse of high paying jobs and the real estate market." I'm just saying that those predicting that the last 20 years of growth will continue unabated for another 20 years seems sketchy to me.

Further, it is impossible for real estate to forever appreciate at a significantly higher rate than wages. Eventually, no one would be able to afford the property.
“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
marcopolo
Posts: 3483
Joined: Sat Dec 03, 2016 10:22 am

Re: How Much House Can We Afford in HCOL Area?

Post by marcopolo »

willthrill81 wrote: Sat Sep 05, 2020 2:33 pm
marcopolo wrote: Sat Sep 05, 2020 12:14 pm
willthrill81 wrote: Sat Sep 05, 2020 11:12 am
marcopolo wrote: Fri Sep 04, 2020 11:40 pm
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm

Indeed. Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?

I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
Hasn't that option been available to employers for at least a decade or more. It does not seem to have affected Bay area compensation, or housing prices much in that time. Maybe "this time is different".
TMK, it's never been mandated for workers to stay at home in such large numbers. In many industries, worker productivity has increased with people WFH.

Things change.

This poster estimates that their losses on a Bay area home will be over $100k.
On a $1.65M home, which the OP admits he overpaid.
Seems more like typical noise in the housing market.
They have ups and downs just like the equity markets.

Calling for the collapse of high paying jobs and the real estate market seems much like the numerous postings here everyday predicting the eminent crash of the stock market.
Someday they will be right, but it is folly to think one can predict it with any kind of precision. But, then again you seem to believe you have some special skills in predicting direction/timing of equity markets, perhaps that extends to jobs and real estate as well.
I'm not "calling for the collapse of high paying jobs and the real estate market." I'm just saying that those predicting that the last 20 years of growth will continue unabated for another 20 years seems sketchy to me.
Ok. Perhaps I misunderstood what you were saying.
The sentence I highlighted above and the subsequent paragraph seemed to be predicting just that?
Once in a while you get shown the light, in the strangest of places if you look at it right.
User avatar
willthrill81
Posts: 20911
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

marcopolo wrote: Sat Sep 05, 2020 4:31 pm
willthrill81 wrote: Sat Sep 05, 2020 2:33 pm
marcopolo wrote: Sat Sep 05, 2020 12:14 pm
willthrill81 wrote: Sat Sep 05, 2020 11:12 am
marcopolo wrote: Fri Sep 04, 2020 11:40 pm

Hasn't that option been available to employers for at least a decade or more. It does not seem to have affected Bay area compensation, or housing prices much in that time. Maybe "this time is different".
TMK, it's never been mandated for workers to stay at home in such large numbers. In many industries, worker productivity has increased with people WFH.

Things change.

This poster estimates that their losses on a Bay area home will be over $100k.
On a $1.65M home, which the OP admits he overpaid.
Seems more like typical noise in the housing market.
They have ups and downs just like the equity markets.

Calling for the collapse of high paying jobs and the real estate market seems much like the numerous postings here everyday predicting the eminent crash of the stock market.
Someday they will be right, but it is folly to think one can predict it with any kind of precision. But, then again you seem to believe you have some special skills in predicting direction/timing of equity markets, perhaps that extends to jobs and real estate as well.
I'm not "calling for the collapse of high paying jobs and the real estate market." I'm just saying that those predicting that the last 20 years of growth will continue unabated for another 20 years seems sketchy to me.
Ok. Perhaps I misunderstood what you were saying.
The sentence I highlighted above and the subsequent paragraph seemed to be predicting just that?
That doesn't say anything about the collapse of high paying jobs or the real estate market.

Several others have said that Bay area salaries are pretty much in line with those of high tech jobs in other parts of the country. If so, then that brings into direct question why it makes financial sense for those in this line of work to voluntarily choose to live in an area where purportedly 'decent' homes are $2 million or more when the U.S. median priced home is 1/8 of that price.
“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
oldfort
Posts: 1739
Joined: Mon Mar 02, 2020 8:45 pm

Re: How Much House Can We Afford in HCOL Area?

Post by oldfort »

willthrill81 wrote: Sat Sep 05, 2020 4:37 pm
marcopolo wrote: Sat Sep 05, 2020 4:31 pm
willthrill81 wrote: Sat Sep 05, 2020 2:33 pm
marcopolo wrote: Sat Sep 05, 2020 12:14 pm
willthrill81 wrote: Sat Sep 05, 2020 11:12 am

TMK, it's never been mandated for workers to stay at home in such large numbers. In many industries, worker productivity has increased with people WFH.

Things change.

This poster estimates that their losses on a Bay area home will be over $100k.
On a $1.65M home, which the OP admits he overpaid.
Seems more like typical noise in the housing market.
They have ups and downs just like the equity markets.

Calling for the collapse of high paying jobs and the real estate market seems much like the numerous postings here everyday predicting the eminent crash of the stock market.
Someday they will be right, but it is folly to think one can predict it with any kind of precision. But, then again you seem to believe you have some special skills in predicting direction/timing of equity markets, perhaps that extends to jobs and real estate as well.
I'm not "calling for the collapse of high paying jobs and the real estate market." I'm just saying that those predicting that the last 20 years of growth will continue unabated for another 20 years seems sketchy to me.
Ok. Perhaps I misunderstood what you were saying.
The sentence I highlighted above and the subsequent paragraph seemed to be predicting just that?
That doesn't say anything about the collapse of high paying jobs or the real estate market.

Several others have said that Bay area salaries are pretty much in line with those of high tech jobs in other parts of the country. If so, then that brings into direct question why it makes financial sense for those in this line of work to voluntarily choose to live in an area where purportedly 'decent' homes are $2 million or more when the U.S. median priced home is 1/8 of that price.
A lot of the other tech hubs, while not as extreme as SV, can have high priced real estate: New York, Boston, Redmond, Seattle, Bellevue, Washington DC, and Los Angeles to name a few. $250k isn't going to get you a 'decent' home in any of those places.
User avatar
willthrill81
Posts: 20911
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

oldfort wrote: Sat Sep 05, 2020 4:52 pm
willthrill81 wrote: Sat Sep 05, 2020 4:37 pm Several others have said that Bay area salaries are pretty much in line with those of high tech jobs in other parts of the country. If so, then that brings into direct question why it makes financial sense for those in this line of work to voluntarily choose to live in an area where purportedly 'decent' homes are $2 million or more when the U.S. median priced home is 1/8 of that price.
A lot of the other tech hubs, while not as extreme as SV, can have high priced real estate: New York, Boston, Redmond, Seattle, Bellevue, Washington DC, and Los Angeles to name a few. $250k isn't going to get you a 'decent' home in any of those places.
So you are saying that working in this industry requires an in-person presence and cannot be done adequately fully online? I don't work in tech, so I genuinely don't know.

And I just looked, and the U.S. median home price is currently $320k, more than I remembered it being.
“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
marcopolo
Posts: 3483
Joined: Sat Dec 03, 2016 10:22 am

Re: How Much House Can We Afford in HCOL Area?

Post by marcopolo »

willthrill81 wrote: Sat Sep 05, 2020 4:37 pm
marcopolo wrote: Sat Sep 05, 2020 4:31 pm
willthrill81 wrote: Sat Sep 05, 2020 2:33 pm
marcopolo wrote: Sat Sep 05, 2020 12:14 pm
willthrill81 wrote: Sat Sep 05, 2020 11:12 am

TMK, it's never been mandated for workers to stay at home in such large numbers. In many industries, worker productivity has increased with people WFH.

Things change.

This poster estimates that their losses on a Bay area home will be over $100k.
On a $1.65M home, which the OP admits he overpaid.
Seems more like typical noise in the housing market.
They have ups and downs just like the equity markets.

Calling for the collapse of high paying jobs and the real estate market seems much like the numerous postings here everyday predicting the eminent crash of the stock market.
Someday they will be right, but it is folly to think one can predict it with any kind of precision. But, then again you seem to believe you have some special skills in predicting direction/timing of equity markets, perhaps that extends to jobs and real estate as well.
I'm not "calling for the collapse of high paying jobs and the real estate market." I'm just saying that those predicting that the last 20 years of growth will continue unabated for another 20 years seems sketchy to me.
Ok. Perhaps I misunderstood what you were saying.
The sentence I highlighted above and the subsequent paragraph seemed to be predicting just that?
That doesn't say anything about the collapse of high paying jobs or the real estate market.
Come on willthrill81. What did you mean when you said:
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?
That's not predicting that the high salaries in the Bay Area are doomed?

and then:
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
That's not predicting the housing market will follow a similar demise?


Regarding:
willthrill81 wrote: Sat Sep 05, 2020 4:37 pm Several others have said that Bay area salaries are pretty much in line with those of high tech jobs in other parts of the country. If so, then that brings into direct question why it makes financial sense for those in this line of work to voluntarily choose to live in an area where purportedly 'decent' homes are $2 million or more when the U.S. median priced home is 1/8 of that price.

Because people like to live in places they think are nice, and are willing to pay a premium for it.
We moved to Hawaii, quite expensive. Some refer to it as the "paradise" tax. I am not sure about it being paradise, that is overblown, but it does have many nice qualities that many feel are worth paying for. If everyone chose the cheapest place to live, cheapest car to drive, etc. the world would be a pretty boring place.
Once in a while you get shown the light, in the strangest of places if you look at it right.
User avatar
willthrill81
Posts: 20911
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

marcopolo wrote: Sat Sep 05, 2020 4:56 pm
willthrill81 wrote: Sat Sep 05, 2020 4:37 pm
marcopolo wrote: Sat Sep 05, 2020 4:31 pm
willthrill81 wrote: Sat Sep 05, 2020 2:33 pm
marcopolo wrote: Sat Sep 05, 2020 12:14 pm

On a $1.65M home, which the OP admits he overpaid.
Seems more like typical noise in the housing market.
They have ups and downs just like the equity markets.

Calling for the collapse of high paying jobs and the real estate market seems much like the numerous postings here everyday predicting the eminent crash of the stock market.
Someday they will be right, but it is folly to think one can predict it with any kind of precision. But, then again you seem to believe you have some special skills in predicting direction/timing of equity markets, perhaps that extends to jobs and real estate as well.
I'm not "calling for the collapse of high paying jobs and the real estate market." I'm just saying that those predicting that the last 20 years of growth will continue unabated for another 20 years seems sketchy to me.
Ok. Perhaps I misunderstood what you were saying.
The sentence I highlighted above and the subsequent paragraph seemed to be predicting just that?
That doesn't say anything about the collapse of high paying jobs or the real estate market.
Come on willthrill81. What did you mean when you said:
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
Why would a company pay $250k, including benefits and taxes, for one Bay area worker when they could have two workers living almost anywhere else at say $200k total?
That's not predicting that the high salaries in the Bay Area are doomed?
No, it isn't. It was an honest question, not a rhetorical one. The answer to that could call into question whether salaries in certain areas will be supported going forward, but it's hardly a prediction of any sort.
marcopolo wrote: Sat Sep 05, 2020 4:56 pmand then:
willthrill81 wrote: Fri Sep 04, 2020 1:55 pm
I wouldn't be concerned about a temporary reduction in real estate prices in the Bay area if I owned real estate there. I would be concerned about a permanent slide. It's happened before in many other places.
That's not predicting the housing market will follow a similar demise?
Someone being concerned about something is not the same thing at all as them predicting that that something will occur. I might be concerned about what would happen if my house burned down and so buy insurance even if I believe the likelihood of that occurring is tiny.
marcopolo wrote: Sat Sep 05, 2020 4:56 pmRegarding:
willthrill81 wrote: Sat Sep 05, 2020 4:37 pm Several others have said that Bay area salaries are pretty much in line with those of high tech jobs in other parts of the country. If so, then that brings into direct question why it makes financial sense for those in this line of work to voluntarily choose to live in an area where purportedly 'decent' homes are $2 million or more when the U.S. median priced home is 1/8 of that price.
Because people like to live in places they think are nice, and are willing to pay a premium for it.
We moved to Hawaii, quite expensive. Some refer to it as the "paradise" tax. I am not sure about it being paradise, that is overblown, but it does have many nice qualities that many feel are worth paying for. If everyone chose the cheapest place to live, cheapest car to drive, etc. the world would be a pretty boring place.
I get 100% of that. But I specifically asked why it would make financial sense to live in a VHCOL area if it is unnecessary for one's career.
“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
oldfort
Posts: 1739
Joined: Mon Mar 02, 2020 8:45 pm

Re: How Much House Can We Afford in HCOL Area?

Post by oldfort »

willthrill81 wrote: Sat Sep 05, 2020 4:54 pm
oldfort wrote: Sat Sep 05, 2020 4:52 pm
willthrill81 wrote: Sat Sep 05, 2020 4:37 pm Several others have said that Bay area salaries are pretty much in line with those of high tech jobs in other parts of the country. If so, then that brings into direct question why it makes financial sense for those in this line of work to voluntarily choose to live in an area where purportedly 'decent' homes are $2 million or more when the U.S. median priced home is 1/8 of that price.
A lot of the other tech hubs, while not as extreme as SV, can have high priced real estate: New York, Boston, Redmond, Seattle, Bellevue, Washington DC, and Los Angeles to name a few. $250k isn't going to get you a 'decent' home in any of those places.
So you are saying that working in this industry requires an in-person presence and cannot be done adequately fully online? I don't work in tech, so I genuinely don't know.

And I just looked, and the U.S. median home price is currently $320k, more than I remembered it being.
COVID is throwing all the old rules out the window. I'm the wrong person to ask, but my impression is most tech jobs pre-COVID required at least some time spent at a physical site, not WFH 100% of the time anywhere in the world with an internet connection.
User avatar
willthrill81
Posts: 20911
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

oldfort wrote: Sat Sep 05, 2020 5:03 pm
willthrill81 wrote: Sat Sep 05, 2020 4:54 pm
oldfort wrote: Sat Sep 05, 2020 4:52 pm
willthrill81 wrote: Sat Sep 05, 2020 4:37 pm Several others have said that Bay area salaries are pretty much in line with those of high tech jobs in other parts of the country. If so, then that brings into direct question why it makes financial sense for those in this line of work to voluntarily choose to live in an area where purportedly 'decent' homes are $2 million or more when the U.S. median priced home is 1/8 of that price.
A lot of the other tech hubs, while not as extreme as SV, can have high priced real estate: New York, Boston, Redmond, Seattle, Bellevue, Washington DC, and Los Angeles to name a few. $250k isn't going to get you a 'decent' home in any of those places.
So you are saying that working in this industry requires an in-person presence and cannot be done adequately fully online? I don't work in tech, so I genuinely don't know.

And I just looked, and the U.S. median home price is currently $320k, more than I remembered it being.
COVID is throwing all the old rules out the window. I'm the wrong person to ask, but my impression is most tech jobs pre-COVID required at least some time spent at a physical site, not WFH 100% of the time anywhere in the world with an internet connection.
Instances like Facebook allowing about half of its employees to purportedly WFH forever and other tech giants like Apple, Twitter, and Microsoft making similar moves make me question the necessity of in-person work at such firms. If tech jobs can indeed be done via WFH, and real estate prices in places like Bay area have been driven at least in part by workers in such firms previously being required to live there, I cannot help but wonder if Bay area prices are destined to outpace inflation forever as some appear to believe. Where is the flaw in my logic chain?
“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
softmax
Posts: 151
Joined: Tue Feb 04, 2020 1:27 am

Re: How Much House Can We Afford in HCOL Area?

Post by softmax »

Your NW looks good so you can probably retire early. It likely will be a lean FIRE in the Bay Area though.

2M does seem to be a stretch goal for your income. Personally I think ~$600k TC is a prerequisite for that. Even if you can afford it, you won’t be able to maximize all your retirement accounts, which is essential for FIRE.
visualguy
Posts: 2083
Joined: Thu Jan 30, 2014 1:32 am

Re: How Much House Can We Afford in HCOL Area?

Post by visualguy »

willthrill81 wrote: Sat Sep 05, 2020 5:08 pm Instances like Facebook allowing about half of its employees to purportedly WFH forever and other tech giants like Apple, Twitter, and Microsoft making similar moves make me question the necessity of in-person work at such firms. If tech jobs can indeed be done via WFH, and real estate prices in places like Bay area have been driven at least in part by workers in such firms previously being required to live there, I cannot help but wonder if Bay area prices are destined to outpace inflation forever as some appear to believe. Where is the flaw in my logic chain?
The flaw is in your expectation that enough people of means will choose to live somewhere else to make a dent in the huge supply/demand imbalance of housing in the Bay Area. Based on past experience, there is no reason to expect that. Not enough people at the relevant levels of wealth/income want to make this choice. We have past experience even without the rise of WFH. Many companies have had offices in other parts of the country and the world for many years now.

For example, my company allows engineers to work from many locations in the US as well as India, China, Canada, Israel, the UK, the Czech Republic, and a few other countries. We've had R&D offices in those locations for years... Members of our team in the Bay Area have been free to move to those locations, but only a minuscule number choose to do that. For example, anyone in my group is welcome to move from the Bay Area to our locations in Colorado or Texas where housing is much less expensive. There are almost no takers - I know of two over the last few years out of a couple hundred people in the group. Our remote offices mostly keep consisting of people from those areas. You could say that this is affecting Bay Area real estate prices as well because they aren't moving to the Bay Area, but the supply/demand imbalance in the Bay Area is already so out of whack that not having even more people arrive than are already arriving doesn't make a difference unless they are even wealthier than the ones already competing for homes.

One area in the US that has siphoned off some of the more accomplished techies who might otherwise live in the Bay Area is the Seattle area, but look at what happened to house prices there, and even the emergence of this alternative hasn't been able to put much of a damper on Bay Area housing prices.

Even with all this focus on engineers, and they are certainly of relevance, you have to realize that there are other highly-paid professionals, investors, business owners, and others of means who are able and willing to pay a lot to live in the Bay Area due to its various well-known attractive characteristics (natural, cultural, educational, financial, etc.)
Post Reply