How Much House Can We Afford in HCOL Area?

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

Post by KyleAAA »

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 large part of it is that coastal California is just a plain better place to live than the majority of the US.
KyleAAA
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Re: How Much House Can We Afford in HCOL Area?

Post by KyleAAA »

Tingting1013 wrote: Sat Sep 05, 2020 1:14 pm
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
Maybe that's it. I called around in early August and couldn't get anybody to quote me less than 3.5%. Since our rate is only slightly above that, it didn't make sense. I'd refinance at 2.59% in a second. $765k is under the conforming loan limit in California, so it wouldn't be a jumbo depending on where you live. In Seattle, it's $741k.
random_walker_77
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Re: How Much House Can We Afford in HCOL Area?

Post by random_walker_77 »

For the OP, who's not an engineer and who has concerns about staying employed, stretching to buy near 2M still seems pretty risky.

Another thought, given that their in-laws don't own, is to buy somewhere cheaper (but still in the bay area) and move their in-laws in with them or near them. Certain places, are desirable and all the power-couple engineering families want to move there for the amenities and high quality schools. That's what everyone wants, but not everyone can afford to live in Cupertino or Saratoga (or Palo Alto etc).

If you expand to include areas that might not have top tier schools, like East Palo Alto, or East San Jose, you can get a lot more house. For example, zillow shows a 5 bd/3ba 1800 ft^2 house in East San Jose for $1.15 or a 4bd/2ba 2000 ft^2 for $1.05. This is also an area where condos can be acquired for under 0.5
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willthrill81
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Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

KyleAAA wrote: Sat Sep 05, 2020 7:05 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 large part of it is that coastal California is just a plain better place to live than the majority of the US.
That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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willthrill81
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Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

visualguy wrote: Sat Sep 05, 2020 6:14 pm
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.)
I appreciate your in-depth explanation.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

willthrill81 wrote: Sat Sep 05, 2020 5:03 pm
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.
Because you get a level vibrancy, and meet more techies and VCs than most other places on the planet.

If you dream of founding a start up, the bay area is the place to be. I recommend watching Silicon Valley on HBO. It's an excellent comedy that had a lot of truth to it.
MostlyABogleHead
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Re: How Much House Can We Afford in HCOL Area?

Post by MostlyABogleHead »

unclescrooge wrote: Sat Sep 05, 2020 8:24 pm
willthrill81 wrote: Sat Sep 05, 2020 5:03 pm
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.
Because you get a level vibrancy, and meet more techies and VCs than most other places on the planet.

If you dream of founding a start up, the bay area is the place to be. I recommend watching Silicon Valley on HBO. It's an excellent comedy that had a lot of truth to it.
In addition to unclescrooge’s explanation, staying in Bay Area allows for career mobility. Typically folks move from one company to another getting more experience in the process that allows them to demand higher pay and position. Moving from one company to another will most likely involve taking a different exit on the two major highways in the Bay Area.

Once you lived here for a few years, you make many contacts among all top companies and that also helps with your mobility. Overall, it’s a win and for many the cost of housing (especially in two tech income households) is well worth these benefits.
jarjarM
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Re: How Much House Can We Afford in HCOL Area?

Post by jarjarM »

MostlyABogleHead wrote: Sat Sep 05, 2020 8:42 pm
unclescrooge wrote: Sat Sep 05, 2020 8:24 pm
willthrill81 wrote: Sat Sep 05, 2020 5:03 pm
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.
Because you get a level vibrancy, and meet more techies and VCs than most other places on the planet.

If you dream of founding a start up, the bay area is the place to be. I recommend watching Silicon Valley on HBO. It's an excellent comedy that had a lot of truth to it.
In addition to unclescrooge’s explanation, staying in Bay Area allows for career mobility. Typically folks move from one company to another getting more experience in the process that allows them to demand higher pay and position. Moving from one company to another will most likely involve taking a different exit on the two major highways in the Bay Area.

Once you lived here for a few years, you make many contacts among all top companies and that also helps with your mobility. Overall, it’s a win and for many the cost of housing (especially in two tech income households) is well worth these benefits.
This is very true. The abundance of large and well established tech companies, in combination with many aggressive growth small startups really allow for great employee mobility and negotiating power, something that’s not available outside of few other tech hubs. And it isn’t just dev, but also hardware, data scientists, TPM, and other disciplines. Just see how fast those recently Uber layoffs found comparable pays ( DW just hired a couple).

However, this does create a surreal environment/bubble in which lots of tech workers expect 10-20% annual TC growth (we seen it mention on this board many times but it’s way more prevalent over in blind) and anything less will be seen as a sign of disrespect. So there’s that too.
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Re: How Much House Can We Afford in HCOL Area?

Post by random_walker_77 »

jarjarM wrote: Sat Sep 05, 2020 9:14 pm
This is very true. The abundance of large and well established tech companies, in combination with many aggressive growth small startups really allow for great employee mobility and negotiating power, something that’s not available outside of few other tech hubs. And it isn’t just dev, but also hardware, data scientists, TPM, and other disciplines. Just see how fast those recently Uber layoffs found comparable pays ( DW just hired a couple).

However, this does create a surreal environment/bubble in which lots of tech workers expect 10-20% annual TC growth (we seen it mention on this board many times but it’s way more prevalent over in blind) and anything less will be seen as a sign of disrespect. So there’s that too.
The growth in TC (Total Compensation) has been eye opening over the last 20 years, and common sense tells you that this has to be fueling at least some part of the growth in housing prices. Outside money from foreign investors no doubt plays a part too. Now that many households are pulling in 600+K in TC, is it safe to say that this will hold steady at these levels for the next 30 years? Is it reasonable to assume that TC will continue growing faster than the rest of the control to help propel future gains in house prices?
softmax
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Re: How Much House Can We Afford in HCOL Area?

Post by softmax »

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.
Working in this industry doesn’t require in-person presence, but living around one of the tech hubs makes job switch significantly easier. Some people choose to live in a cheap area where their *current* employer allows, which is super nice (high pay low cost) until they get laid off.
ktd
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Re: How Much House Can We Afford in HCOL Area?

Post by ktd »

willthrill81 wrote: Sat Sep 05, 2020 8:17 pm
KyleAAA wrote: Sat Sep 05, 2020 7:05 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 large part of it is that coastal California is just a plain better place to live than the majority of the US.
That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.

Low income move out and high income move in.

https://www.sandiegouniontribune.com/op ... story.html
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

ktd wrote: Sat Sep 05, 2020 9:35 pm
willthrill81 wrote: Sat Sep 05, 2020 8:17 pm
KyleAAA wrote: Sat Sep 05, 2020 7:05 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 large part of it is that coastal California is just a plain better place to live than the majority of the US.
That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.

Low income move out and high income move in.

https://www.sandiegouniontribune.com/op ... story.html
Sad but true. I gave my cleaners a 25% raise in March, after a voluntary 5% raise in January. I'm worried who will clean my house if all low wage earners moves out of state.
ktd
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Re: How Much House Can We Afford in HCOL Area?

Post by ktd »

unclescrooge wrote: Sat Sep 05, 2020 9:41 pm
ktd wrote: Sat Sep 05, 2020 9:35 pm
willthrill81 wrote: Sat Sep 05, 2020 8:17 pm
KyleAAA wrote: Sat Sep 05, 2020 7:05 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 large part of it is that coastal California is just a plain better place to live than the majority of the US.
That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.

Low income move out and high income move in.

https://www.sandiegouniontribune.com/op ... story.html
Sad but true. I gave my cleaners a 25% raise in March, after a voluntary 5% raise in January. I'm worried who will clean my house if all low wage earners moves out of state.
Just like any high cost cities such as London, Osaka, Hong Kong, or Zurich, low income folks will have to get creative like roommates, sharing with other families, or much smaller space.
visualguy
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Re: How Much House Can We Afford in HCOL Area?

Post by visualguy »

ktd wrote: Sat Sep 05, 2020 9:50 pm Just like any high cost cities such as London, Osaka, Hong Kong, or Zurich, low income folks will have to get creative like roommates, sharing with other families, or much smaller space.
In the US, I think there are more options for these folks to do better by moving out of VHCOL areas, but not sure because many do still remain in VHCOL. There is some amount of low-income housing which I guess addresses some of the problem, but I don't know how much.

At any rate, this is probably the biggest downside of the housing situation in the Bay Area, and it does make life harder both for those who are low-income, and for those who need the services of such workers, which is pretty much everyone.
ktd
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Re: How Much House Can We Afford in HCOL Area?

Post by ktd »

visualguy wrote: Sat Sep 05, 2020 10:51 pm
ktd wrote: Sat Sep 05, 2020 9:50 pm Just like any high cost cities such as London, Osaka, Hong Kong, or Zurich, low income folks will have to get creative like roommates, sharing with other families, or much smaller space.
In the US, I think there are more options for these folks to do better by moving out of VHCOL areas, but not sure because many do still remain in VHCOL. There is some amount of low-income housing which I guess addresses some of the problem, but I don't know how much.

At any rate, this is probably the biggest downside of the housing situation in the Bay Area, and it does make life harder both for those who are low-income, and for those who need the services of such workers, which is pretty much everyone.
Not sure why people picking on the bay area. It's expensive but also come with nice weather, good paying jobs and natural beauty. Many high cost cities outside or in the US have either or none.
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

unclescrooge wrote: Sat Sep 05, 2020 9:41 pm
ktd wrote: Sat Sep 05, 2020 9:35 pm
willthrill81 wrote: Sat Sep 05, 2020 8:17 pm
KyleAAA wrote: Sat Sep 05, 2020 7:05 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 large part of it is that coastal California is just a plain better place to live than the majority of the US.
That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.

Low income move out and high income move in.

https://www.sandiegouniontribune.com/op ... story.html
Sad but true. I gave my cleaners a 25% raise in March, after a voluntary 5% raise in January. I'm worried who will clean my house if all low wage earners moves out of state.
I'm learning how to clean my house. :)
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

hereverycentcounts wrote: Sun Sep 06, 2020 12:31 am
unclescrooge wrote: Sat Sep 05, 2020 9:41 pm
ktd wrote: Sat Sep 05, 2020 9:35 pm
willthrill81 wrote: Sat Sep 05, 2020 8:17 pm
KyleAAA wrote: Sat Sep 05, 2020 7:05 pm

A large part of it is that coastal California is just a plain better place to live than the majority of the US.
That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.

Low income move out and high income move in.

https://www.sandiegouniontribune.com/op ... story.html
Sad but true. I gave my cleaners a 25% raise in March, after a voluntary 5% raise in January. I'm worried who will clean my house if all low wage earners moves out of state.
I'm learning how to clean my house. :)
Wait until you have a bigger house, 2 kids and 2 dogs :mrgreen:
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

unclescrooge wrote: Sun Sep 06, 2020 1:07 am
hereverycentcounts wrote: Sun Sep 06, 2020 12:31 am
unclescrooge wrote: Sat Sep 05, 2020 9:41 pm
ktd wrote: Sat Sep 05, 2020 9:35 pm
willthrill81 wrote: Sat Sep 05, 2020 8:17 pm

That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.

Low income move out and high income move in.

https://www.sandiegouniontribune.com/op ... story.html
Sad but true. I gave my cleaners a 25% raise in March, after a voluntary 5% raise in January. I'm worried who will clean my house if all low wage earners moves out of state.
I'm learning how to clean my house. :)
Wait until you have a bigger house, 2 kids and 2 dogs :mrgreen:
I did say "learning." I have 800 sq feet and 1 kid and I'm not sure where my kitchen floor is at the moment. :)
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
visualguy
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Re: How Much House Can We Afford in HCOL Area?

Post by visualguy »

ktd wrote: Sat Sep 05, 2020 11:20 pm Not sure why people picking on the bay area. It's expensive but also come with nice weather, good paying jobs and natural beauty. Many high cost cities outside or in the US have either or none.
I don't know for sure, but I have a theory. I think the reason is that much of the Bay Area used to be not very expensive within the time frame of people's memory. For example, people remember the days when towns like Sunnyvale, Mountain View, and Cupertino (which are very expensive today) were middle class and even lower middle class in some areas. This makes it hard for many to think of these places like they're London, Hong Kong, or Manhattan. Because this was a relatively recent metamorphosis, people were more inclined to think of it as a bubble, or a temporary phenomenon which would pass and things would go back to the natural order of things which was still remembered. Gradually, this perception has been changing as people get older, and those memories fade. It's already not nearly as prevalent for people to think this way now as it was, say, 15-20 years ago.
ddurrett896
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Re: How Much House Can We Afford in HCOL Area?

Post by ddurrett896 »

$260k income with a $2M house seems excessive.

Free child care helps the budget. If that ended for whatever reason, could you afford child care and the $2M mortgage? I don’t think so.

If you or spouse couldn’t work anymore, could one of you pay the bills? No.

In your position I’d be hesitant to buy a $1M house, let alone a $2M. If you move forward with it, I’d offload that stock money and put it towards the house.

My fear would be: economic down turn, stocks work 50% they are today, house worth 50% what is it today and one of you loses a job.

What’s up with $4,000/year term policy? A 500K policy is less than $250/year.
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

visualguy wrote: Sun Sep 06, 2020 1:28 am
ktd wrote: Sat Sep 05, 2020 11:20 pm Not sure why people picking on the bay area. It's expensive but also come with nice weather, good paying jobs and natural beauty. Many high cost cities outside or in the US have either or none.
I don't know for sure, but I have a theory. I think the reason is that much of the Bay Area used to be not very expensive within the time frame of people's memory. For example, people remember the days when towns like Sunnyvale, Mountain View, and Cupertino (which are very expensive today) were middle class and even lower middle class in some areas. This makes it hard for many to think of these places like they're London, Hong Kong, or Manhattan. Because this was a relatively recent metamorphosis, people were more inclined to think of it as a bubble, or a temporary phenomenon which would pass and things would go back to the natural order of things which was still remembered. Gradually, this perception has been changing as people get older, and those memories fade. It's already not nearly as prevalent for people to think this way now as it was, say, 15-20 years ago.
I have lived in many cities and suburbs across the US. This is why I want to stay in the Bay Area...

- weather is great. Yes we have heat waves and fires, but so far they aren't that bad -- esp compared to the extreme weather in other parts of the country. I get seasonal depression and I am so much better off mentally in this area.

- it is truly amazing how you can drive 30 minutes and be in an entirely different climate. Even the trees are different. When I grew up on the east coast, you could drive 30 minutes in any direction and everything would look exactly the same. You could drive 5 hours and it would be pretty similar (though maybe the architecture would change.) In CA, I don't need to travel far to feel like I'm on vacation. I've lived here 15 years and I've only begun to explore.

- I enjoy that many of the suburbs are more urban and have downtowns, and there are many little downtowns within a quick drive or public transit ride away. Where I grew up, it was a drive to anything interesting, and a long train ride into the city to anything of cultural value. The Bay Area is a bit more vibrant, and because things are closer together, there's just more to do. Perhaps I'll bore of this eventually, but I still enjoy it 15 years in.

- there are A LOT of jobs. Even though there are tech companies throughout the country, most of the business-side jobs are here. Even though it is extremely expensive to live here, I am more confident here that I can find work than I would be in probably anywhere else in the US. With WFH this could change, but I am not convinced once COVID ends every company will be cool with forever WFH. I like that I don't feel locked into any one job or company here, even during an economic recession. I also like that there are opportunities to make a lot of money, even if that's far from guaranteed.

- As someone who is a democrat, I like that CA is a blue state, and one that seems to mostly align with my political viewpoints. CA is so liberal that it often makes me feel like a conservative (when I'm anything but) but I'd rather be lesser liberal than the people I interact with typically than more liberal. If that makes any sense...

- I just feel happy here. Things like driving on 280 or driving over the Golden Gate Bridge or seeing the bay peak through when driving in the hills make me giddy. I'm a very aesthetic person and ultimately the mix of the architecture and natural beauty here warms my heart day after day.

- CA public colleges are great compared to most of the country's public college system.

- I like being close to 3 major international airports with direct flights most anywhere in the world, or at least 2-stop flights.

What I don't like about the Bay Area

- what I like least about the Bay Area is that it's impossible for regular working class and middle class people to live here. I don't like that everyone is a techie, even though I work in tech. I don't like that people who work in restaurants or schools or as social workers can't afford to live here. I don't like that we have a growing homeless problem and no clear solution for this. I don't like that arts organizations are unable to afford to pay rent so the culture that makes this area so great is dying.

- I don't like that housing is so expensive. That if you lose your job you can be in big trouble. That it feels impossible to be successful here, even if anywhere else you'd be quite financially successful.

- I don't like that if you raise a family here, unless you're super wealthy and you can buy your kid's houses, your kids will not be able to afford to live here. There is never a guarantee your kids will stay near their parents when they're older, but it's nice for them to be able to if they want to.

- for the high taxes we pay, the public school system seems to be a mess. My kids are too young for me to have an opinion on that yet, but having grown up in a state with high taxes but a really good public school system, I'm disappointed in what I hear goes on in CA schools.

- I really don't like how the Bay Area is so damn segregated. It is disgusting that schools with majority white and asian kids rate highly and those with kids who are likely from families who do not speak English are lower rated. I very much dislike that the general attitude is buy a house in a lower cost district and then send your kids to private. I am very opposed to that but then I start worrying -- what if my kids will be at such a disadvantage because I send them to public school... after I spent $1.8M on a house... am I taking away my children's future because I'm sending them to a school that has a "low" rating? What kind of education will my kids get?

- traffic gets worse by the year. Our public transit isn't that great. We are one of the top hubs of innovation in the world. We can do better.
Last edited by hereverycentcounts on Sun Sep 06, 2020 2:24 am, edited 2 times in total.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
visualguy
Posts: 2090
Joined: Thu Jan 30, 2014 1:32 am

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

Post by visualguy »

hereverycentcounts - you pretty much nailed it in your last post.
HopeToGolf
Posts: 348
Joined: Fri Dec 24, 2010 4:04 pm

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

Post by HopeToGolf »

I don’t know if this has been brought up but instead of thinking about your RSUs as income, think of them as a windfall.

If you really want to buy a $2 million home, save up enough in RSUs and put up a huge down payment. I did not follow all your numbers but cash out $1.5 million in RSUs (which might be like $0.8 million post-tax after vesting) and put the $800K into the house. Your then have a mortgage on the rest.

You then need to figure out if you can maintain a $2 million house and $1.2 million mortgage on your base and bonus and possibly equity.

I do not know if it is the best idea but if the home is that important to you, it is one way to approach the problem. Trade stock/RSU wealth for real estate. Not my thing but maybe it works for you. I just don’t have the skill or comfort in betting on real estate. I now live in a VHCOL area with a crazy real estate market and refuse to play the game at the moment.

FWIW, we tried to view stock/option grants as padding our savings, helping to potentially FIRE, provide a buffer just in case the Corporate Grim Reaper comes after us rather than for basic living expenses. As a result we LBYM and could have more and better stuff and a lifestyle but we didn’t want to need the equity to pay for regular expenses. YMMV.

Given that you are in tech in CA and presumably with a big name company that regularly makes these massive grants to people like you, maybe you can more reliably count on the money. It is also not clear to me if your grants are huge or if the grants were like $200K but became $800K because of the stock price rising after the grant. Those are two different situations.

In summary, be conservative about your recurring income and back into a mortgage size that you are comfortable with and home that you can maintain. Take that number and add whatever RSU/equity proceeds you want to part with and trade for real estate and add it to your “comfortable” mortgage amount and it gives you the total amount you can spend on a home....likely $1.5-$2 million if I had to guess.
boomer_techie
Posts: 423
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Re: How Much House Can We Afford in HCOL Area?

Post by boomer_techie »

hereverycentcounts wrote: Thu Sep 03, 2020 7:34 pm What happens if we stay in the Bay Area when we retire? That is our plan. We want to stay here forever.
What do you consider "staying in the Bay Area" for retirement? Which of the following qualify: A cabin on the Russian River. An ocean view house in Half Moon Bay. A small ranch outside Gilroy. A Craftsman style home in downtown Davis. Or do you need to be in the Santa Clara Valley?
stoptothink
Posts: 8378
Joined: Fri Dec 31, 2010 9:53 am

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

Post by stoptothink »

willthrill81 wrote: Sat Sep 05, 2020 8:17 pm
KyleAAA wrote: Sat Sep 05, 2020 7:05 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 large part of it is that coastal California is just a plain better place to live than the majority of the US.
That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.
I'm from "coastal California". I was the first to leave 16yrs ago (for school), now my parents, my in-laws, and 7 of our 9 (wife and I) siblings have left California. The only remaining are my younger brother in the Bay Area and a sister in LA and both told me in the last few weeks that they can no longer take it and are looking for strategies to get out before their kids start school in '21. Almost all of my cousins and childhood friends have moved out of state as well in the last decade, and my neighborhood (in Utah) is littered with families who left California. There isn't a single California native in my circle that would even consider moving back. It would get this thread shut down to discuss it in more detail, but IMO some of the same (non-weather) reasons why some say "it is just a plan better place to live than the majority of the US" are exactly why others are doing whatever they can to get out.
delamer
Posts: 10552
Joined: Tue Feb 08, 2011 6:13 pm

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

Post by delamer »

ktd wrote: Sat Sep 05, 2020 11:20 pm
visualguy wrote: Sat Sep 05, 2020 10:51 pm
ktd wrote: Sat Sep 05, 2020 9:50 pm Just like any high cost cities such as London, Osaka, Hong Kong, or Zurich, low income folks will have to get creative like roommates, sharing with other families, or much smaller space.
In the US, I think there are more options for these folks to do better by moving out of VHCOL areas, but not sure because many do still remain in VHCOL. There is some amount of low-income housing which I guess addresses some of the problem, but I don't know how much.

At any rate, this is probably the biggest downside of the housing situation in the Bay Area, and it does make life harder both for those who are low-income, and for those who need the services of such workers, which is pretty much everyone.
Not sure why people picking on the bay area. It's expensive but also come with nice weather, good paying jobs and natural beauty. Many high cost cities outside or in the US have either or none.
Speaking as someone who likes to visit the area but has no desire to live there, it’s simply that the costs outweigh the benefits.

And there are other expensive places in the US that I feel the same way about.
av111
Posts: 106
Joined: Mon Jan 26, 2015 1:27 pm

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

Post by av111 »

OP

In today's mortgage market, 1.5 m loan costs about 5.8k in principal and interest. Add about 2.5k for taxes and insurance on a 2m home. Total PITI costs are close to 8.3k or 100k annual

What is the AGI on your 2018 and 2019 tax returns?

I saw in a recent post that your income was 260k. Is that right?

40% of 260k annual income is 104k

So you can get approved for the loan if there are no other loans or fixed monthly expenses and credit scores are high

What is the total amount paid in taxes paid on your returns?

I expect that for an income of 260k, total fed and ca taxes including SS and Medicare are below 70k

If true, this leaves about 90k every year for non housing expenses and investments after income taxes are paid.

Most people are going to agree that 7.5k a month disposable income is quite adequate for non housing expenses

Look at your current non housing expenses and double them. Say about 3k since daycare is not an expense for you

One concern is that if main income is challenged in a soft employment market, you will need some way to pay 136k per year to stay afloat. So plan to have 2 years expenses in emergency funds as soon as possible. Avoid life style creep until financial situation becomes more robust. So Porsche, new kitchen or that backyard redesign should be put off for some time 😊
AV111
visualguy
Posts: 2090
Joined: Thu Jan 30, 2014 1:32 am

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

Post by visualguy »

stoptothink wrote: Sun Sep 06, 2020 8:46 am
willthrill81 wrote: Sat Sep 05, 2020 8:17 pm
KyleAAA wrote: Sat Sep 05, 2020 7:05 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 large part of it is that coastal California is just a plain better place to live than the majority of the US.
That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.
I'm from "coastal California". I was the first to leave 16yrs ago (for school), now my parents, my in-laws, and 7 of our 9 (wife and I) siblings have left California. The only remaining are my younger brother in the Bay Area and a sister in LA and both told me in the last few weeks that they can no longer take it and are looking for strategies to get out before their kids start school in '21. Almost all of my cousins and childhood friends have moved out of state as well in the last decade, and my neighborhood (in Utah) is littered with families who left California. There isn't a single California native in my circle that would even consider moving back. It would get this thread shut down to discuss it in more detail, but IMO some of the same (non-weather) reasons why some say "it is just a plan better place to live than the majority of the US" are exactly why others are doing whatever they can to get out.
Right, but as shown in the article quoted before, the people moving into CA are higher-income than those moving out, so the overall effect is that house prices there go up, not down.
Topic Author
hereverycentcounts
Posts: 107
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 »

stoptothink wrote: Sun Sep 06, 2020 8:46 am
willthrill81 wrote: Sat Sep 05, 2020 8:17 pm
KyleAAA wrote: Sat Sep 05, 2020 7:05 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 large part of it is that coastal California is just a plain better place to live than the majority of the US.
That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.
I'm from "coastal California". I was the first to leave 16yrs ago (for school), now my parents, my in-laws, and 7 of our 9 (wife and I) siblings have left California. The only remaining are my younger brother in the Bay Area and a sister in LA and both told me in the last few weeks that they can no longer take it and are looking for strategies to get out before their kids start school in '21. Almost all of my cousins and childhood friends have moved out of state as well in the last decade, and my neighborhood (in Utah) is littered with families who left California. There isn't a single California native in my circle that would even consider moving back. It would get this thread shut down to discuss it in more detail, but IMO some of the same (non-weather) reasons why some say "it is just a plan better place to live than the majority of the US" are exactly why others are doing whatever they can to get out.
At this point if my husband said -- let's move -- I'd be game. Love it here for so many reasons but it's just ridiculous for us to stay here, ESPECIALLY because he doesn't work in tech. If he wants to get a tech job so we can have a 2 tech income household then I'd say it's worth staying here but he still thinks it's ok to not earn more and be set on staying in this area. He wants his father to live with us to help with the mortgage but I keep telling him that's temporary and could be gone any minute if his dad needs LTC.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
Topic Author
hereverycentcounts
Posts: 107
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 »

av111 wrote: Sun Sep 06, 2020 9:46 am OP

In today's mortgage market, 1.5 m loan costs about 5.8k in principal and interest. Add about 2.5k for taxes and insurance on a 2m home. Total PITI costs are close to 8.3k or 100k annual

What is the AGI on your 2018 and 2019 tax returns?

I saw in a recent post that your income was 260k. Is that right?

40% of 260k annual income is 104k

So you can get approved for the loan if there are no other loans or fixed monthly expenses and credit scores are high

What is the total amount paid in taxes paid on your returns?

I expect that for an income of 260k, total fed and ca taxes including SS and Medicare are below 70k

If true, this leaves about 90k every year for non housing expenses and investments after income taxes are paid.

Most people are going to agree that 7.5k a month disposable income is quite adequate for non housing expenses

Look at your current non housing expenses and double them. Say about 3k since daycare is not an expense for you

One concern is that if main income is challenged in a soft employment market, you will need some way to pay 136k per year to stay afloat. So plan to have 2 years expenses in emergency funds as soon as possible. Avoid life style creep until financial situation becomes more robust. So Porsche, new kitchen or that backyard redesign should be put off for some time 😊
Thanks! Some historical data:

2016 AGI: $260,999
2017 AGI: $206,665
2018 AGI: $303,876
2019 AGI: $498,940

2020 and 2021 should be higher. 2022 I will assume will go back down to earlier AGI. [2017 I was laid off and didn't work for 4 months that year.]

Our $2M montage approval from a few major banks does not include RSU but I think it does include my bonus.

Don't need a porsche, but we'd like to buy a mini van and at some point replace my husband's prius. We'll prob buy used.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
BlackcatCA
Posts: 197
Joined: Sat Jan 20, 2018 2:55 pm

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

Post by BlackcatCA »

hereverycentcounts wrote: Sun Sep 06, 2020 12:00 pm
At this point if my husband said -- let's move -- I'd be game. Love it here for so many reasons but it's just ridiculous for us to stay here, ESPECIALLY because he doesn't work in tech. If he wants to get a tech job so we can have a 2 tech income household then I'd say it's worth staying here but he still thinks it's ok to not earn more and be set on staying in this area. He wants his father to live with us to help with the mortgage but I keep telling him that's temporary and could be gone any minute if his dad needs LTC.
OP, as I noted several pages ago, your husband needs to step up and increase his income, so that you both together can afford the new living condition you want. What is he contributing? Why does he not want to increase income? Why is it all on your income/RSUs?
There are many threads in this forum where people have side gigs while taking care of children at home. Tech is not the only jobs out there. Besides your work situation, all the other “needs” are his: does not like heat, need to be close to his parents, FIL moving in etc. If one of your IL needs LTC, does his income cover that? Does his income cover childcare and potential LTC for his parents?
Topic Author
hereverycentcounts
Posts: 107
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 »

BlackcatCA wrote: Sun Sep 06, 2020 12:17 pm
hereverycentcounts wrote: Sun Sep 06, 2020 12:00 pm
At this point if my husband said -- let's move -- I'd be game. Love it here for so many reasons but it's just ridiculous for us to stay here, ESPECIALLY because he doesn't work in tech. If he wants to get a tech job so we can have a 2 tech income household then I'd say it's worth staying here but he still thinks it's ok to not earn more and be set on staying in this area. He wants his father to live with us to help with the mortgage but I keep telling him that's temporary and could be gone any minute if his dad needs LTC.
OP, as I noted several pages ago, your husband needs to step up and increase his income, so that you both together can afford the new living condition you want. What is he contributing? Why does he not want to increase income? Why is it all on your income/RSUs?
There are many threads in this forum where people have side gigs while taking care of children at home. Tech is not the only jobs out there. Besides your work situation, all the other “needs” are his: does not like heat, need to be close to his parents, FIL moving in etc. If one of your IL needs LTC, does his income cover that? Does his income cover childcare and potential LTC for his parents?
Lots of questions there. Will try to answer. But I do have to say that many of our Bay Area couple friends are one income households. Both of our best friend couples have a guy that works (is an engineer) and a woman who doesn't or who has a small business that is barely breaking even, in the case of one of them (she works her ass off and is building a business -- but it's the type that doesn't seem super scalable though she could prove me wrong one day.) Anyway, the examples we have in our close friend circle are basically one income households. And they own houses.

My husband has never been the career type. It's funny to me because he graduated from a top public school and is so smart and could do so much in any career he chose. Yet, he is very introverted and resistant to change--he started working for a non-profit in a junior role many years ago now (his first FT job) and instead of applying to roles outside, they offered him a flexible work from home contract where he could do what he was basically doing as side project (fixing their computers/printers, updating their website with basic HTML code, doing random design tasks, etc etc etc.) Because he is an introvert with social anxiety, this was a good deal. I always expected him to eventually get other clients, but it was still his full time job, albeit a flexible one without benefits because it was 1099. They gave him decent raises each year when he didn't ask, and he's up to almost 6 figures now. Funny thing is in the same period I was let go numerous times due to my mental health issues and have increased my income substantially after finding a new job each time. He used to be worried I wouldn't be able to find work, but he's pretty astounded by my career and earning history.

He didn't have the best examples of his parents. His father graduated from a prestigious public institution and spent his life working in minimum wage jobs (occasionally jobs that would provide a pension, but he never stayed long enough to get a pension.) Thus, his father (who was never married) is living off a very small amount of social security and a family mortgage payment to him for his parent's home that they bought him out of. I'm not sure what his plan is after that runs out... he'll be 90 and have not enough in income to live. Maybe he expects to be dead or on medicaid by then. I don't now. Unfortunately I don't have a close relationship with his parents to ask such as question. Though, I think, if the expectation is that his father is moving in with us I have the right to ask such a question. Anytime I bring up anything like -- what if your dad needs LTC -- an aide -- etc etc -- my husband shuts down. I get it's hard for him to think about that (my own father went through a very traumatic few years with cancer) but we need to talk about this if we're going to rely on him for part of the mortgage payment... even short term.

My husband's mother, on the other hand, is fairly ok. Again unmarried/never married. My husband is her only kid. She has never spent a dime in her life (she lives in Bay Area but lives in her childhood home owned by her 96-year old widowed mother.) She is 66 and still works. I'm sure she doesn't make much as she does some kind of admin work in the medical field, but she has saved a lot in cash over the years from not spending. Unfortunately she didn't invest any of the money, so what could be a very significant amount is now barely enough to purchase a small home in the Bay Area. She'll have a pension and SS so she should be ok on taxes and any other basic expenses going forward. LTC is a concern I have for her, but I think she'll likely have enough to pay for any LTC needs by self insuring, especially if she buys a Bay Area home soon.

My husband initially wanted us to buy a home with his mother and after some thought (it would certainly help us be able to afford something much better) I decided against that - for a number of reasons. I didn't want to mix my money up with his mother's money, as that could get messy. His father, if he lives with us, will basically be paying us rent - so I feel more comfortable with that, then any of the money going into a downpayment and getting mixed up.

I have to say, right now it is a pretty good setup for my husband to be able to watch our kids part time (well now FT due to coronavirus) and make an extra $95k 1099 per year. If he were to take on any other clients, it would be really hard for him to watch our kids. For a while he talked about going back to school to teach, but he'd make even less than (though he'd have a pension eventually) and we'd have to figure out childcare.

He seems open to the idea of getting a FT w/ benefits type job in a few years when our kids are in school. He feels like he has no skills/abilities and doesn't know how to get a job. I tell him that's funny because I have no skills/abilities and I am going to make $600k this year. :)

I really wish my husband would respect my concern over all of this. To his credit, I've been ALL over the place with what I've said we should do... I went through a phase of let's spend $2M on a house and get the max loan because rates are so low right now and Bay Area real estate will keep going up and I can keep getting RSU... and then I realized that this is a horrible idea and we should probably keep renting our $2500 a month (nice) 1br for as long as possible.

I do think if we can make buying and living with his father work, that may be the best situation. I would not want to include the $2k a month from his father in any affordability calculations, but that extra amount could go to things like my kid's college fund or fixing anything that breaks that maybe isn't a "must immediately fix but we should fix one day" in the house. I still question what happens after 14 years and his father only has SS. His father IS watching our kids part time, so it's fair to say we owe him and I would want to repay him for helping us out (though it's clear he enjoys it and loves being round his grandkids!) Yet I don't know in 14 years if he is struggling to move around the house and take care of basic daily tasks, if we can really repay him by keeping him in the house -- but he wouldn't be able to afford anything else unless he qualifies for nursing home and medicaid at that point. :/

Of course we don't know what will happen in 14 years. There are many "what ifs?" I like to always play out worst what if scenario and plan for that. My husband seems to refuse to discuss any of these scenarios. I don't understand it. It puts a ton of pressure on me to continue earning a lot. I very well might. But there is absolutely no guarantee. And I feel quite alone in all of this, which isn't the best feeling. I feel shitty interacting with my realtor and being so wishy washy. I feel shitty thinking about staying in my $2500 a month rental and my husband driving 2 hours a day (1 hour RT 2x a day) to get his father to watch our son the months after our new baby is born... and shitty when my husband tells me we can't hire a nanny instead because if we do it's super high risk and then we couldn't see his parents at all (and he does't want to risk exposing our kids, esp newborn, to COVID) even though I actually agree with that. I feel shitty thinking about renting a $5500 a month house closer to his parents that isn't really nicer than our $2500 a month apartment except it has more rooms and a yard, and spending $3000 extra a month that we could be putting to my kid's college fund or a bigger downpayment. I feel shitty thinking about moving a little further out and renting something with his dad, and his dad giving up his really good deal in his current 55+ apartment that hasn't raised rent in years, and being further from my MIL and my job, should I have to go back at any point to the office. So yea I just feel generally shitty right now. :)

Anyway, does that answer your questions? :) Hah.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
Topic Author
hereverycentcounts
Posts: 107
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 »

boomer_techie wrote: Sun Sep 06, 2020 7:26 am
hereverycentcounts wrote: Thu Sep 03, 2020 7:34 pm What happens if we stay in the Bay Area when we retire? That is our plan. We want to stay here forever.
What do you consider "staying in the Bay Area" for retirement? Which of the following qualify: A cabin on the Russian River. An ocean view house in Half Moon Bay. A small ranch outside Gilroy. A Craftsman style home in downtown Davis. Or do you need to be in the Santa Clara Valley?
The plan would be to buy a stay in house on the peninsula.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
av111
Posts: 106
Joined: Mon Jan 26, 2015 1:27 pm

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

Post by av111 »

hereverycentcounts wrote: Sun Sep 06, 2020 12:03 pm
av111 wrote: Sun Sep 06, 2020 9:46 am OP

In today's mortgage market, 1.5 m loan costs about 5.8k in principal and interest. Add about 2.5k for taxes and insurance on a 2m home. Total PITI costs are close to 8.3k or 100k annual

What is the AGI on your 2018 and 2019 tax returns?

I saw in a recent post that your income was 260k. Is that right?

40% of 260k annual income is 104k

So you can get approved for the loan if there are no other loans or fixed monthly expenses and credit scores are high

What is the total amount paid in taxes paid on your returns?

I expect that for an income of 260k, total fed and ca taxes including SS and Medicare are below 70k

If true, this leaves about 90k every year for non housing expenses and investments after income taxes are paid.

Most people are going to agree that 7.5k a month disposable income is quite adequate for non housing expenses

Look at your current non housing expenses and double them. Say about 3k since daycare is not an expense for you

One concern is that if main income is challenged in a soft employment market, you will need some way to pay 136k per year to stay afloat. So plan to have 2 years expenses in emergency funds as soon as possible. Avoid life style creep until financial situation becomes more robust. So Porsche, new kitchen or that backyard redesign should be put off for some time 😊
Thanks! Some historical data:

2016 AGI: $260,999
2017 AGI: $206,665
2018 AGI: $303,876
2019 AGI: $498,940

2020 and 2021 should be higher. 2022 I will assume will go back down to earlier AGI. [2017 I was laid off and didn't work for 4 months that year.]

Our $2M montage approval from a few major banks does not include RSU but I think it does include my bonus.

Don't need a porsche, but we'd like to buy a mini van and at some point replace my husband's prius. We'll prob buy used.
Perfect. If you also have numbers for the total taxes paid and non housing expenses total from last year, you can get a very good idea about the disposable income. In my opinion that number is the most important one for this decision
AV111
Topic Author
hereverycentcounts
Posts: 107
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 »

av111 wrote: Sun Sep 06, 2020 12:54 pm
hereverycentcounts wrote: Sun Sep 06, 2020 12:03 pm
av111 wrote: Sun Sep 06, 2020 9:46 am OP

In today's mortgage market, 1.5 m loan costs about 5.8k in principal and interest. Add about 2.5k for taxes and insurance on a 2m home. Total PITI costs are close to 8.3k or 100k annual

What is the AGI on your 2018 and 2019 tax returns?

I saw in a recent post that your income was 260k. Is that right?

40% of 260k annual income is 104k

So you can get approved for the loan if there are no other loans or fixed monthly expenses and credit scores are high

What is the total amount paid in taxes paid on your returns?

I expect that for an income of 260k, total fed and ca taxes including SS and Medicare are below 70k

If true, this leaves about 90k every year for non housing expenses and investments after income taxes are paid.

Most people are going to agree that 7.5k a month disposable income is quite adequate for non housing expenses

Look at your current non housing expenses and double them. Say about 3k since daycare is not an expense for you

One concern is that if main income is challenged in a soft employment market, you will need some way to pay 136k per year to stay afloat. So plan to have 2 years expenses in emergency funds as soon as possible. Avoid life style creep until financial situation becomes more robust. So Porsche, new kitchen or that backyard redesign should be put off for some time 😊
Thanks! Some historical data:

2016 AGI: $260,999
2017 AGI: $206,665
2018 AGI: $303,876
2019 AGI: $498,940

2020 and 2021 should be higher. 2022 I will assume will go back down to earlier AGI. [2017 I was laid off and didn't work for 4 months that year.]

Our $2M montage approval from a few major banks does not include RSU but I think it does include my bonus.

Don't need a porsche, but we'd like to buy a mini van and at some point replace my husband's prius. We'll prob buy used.
Perfect. If you also have numbers for the total taxes paid and non housing expenses total from last year, you can get a very good idea about the disposable income. In my opinion that number is the most important one for this decision
Total taxes paid 2019:

- federal $131k (effective tax rate 27.6%)
- CA $46k (effective tax 8.1%)

Total expenses 2019 approx $101k (monthly $8400 + savings)
Not including any housing that's $5400 a month...

Housing: $36k
Shopping: $20k (*we can spend less on shopping, I just buy crap I don't need at this point because we don't have a house to put the money into.)
Food & Dining: $20k
Travel: $5k
Auto & Transport: $5k
Bills (Phone etc): $3k
Entertainment: $2k
Health: $2k
Gifts: $2k
Insurance: $4k
Personal Care: $2k

Yea we spend too much on food and shopping, I know, I know.
Last edited by hereverycentcounts on Sun Sep 06, 2020 1:33 pm, edited 1 time in total.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
KyleAAA
Posts: 8598
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

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

Post by KyleAAA »

willthrill81 wrote: Sat Sep 05, 2020 8:17 pm
KyleAAA wrote: Sat Sep 05, 2020 7:05 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 large part of it is that coastal California is just a plain better place to live than the majority of the US.
That's obviously a matter of opinion. California's growth rate has slowed to nearly zero in the last few years. We live close to Coeur d'Alene, ID, and I'd estimate that at least a third of the city's population is comprised of ex-Californians.
Sure, but if pretty much everybody has the same opinion, I'm not sure what use stating that accomplishes. Many, many people think it's worth the price. Some don't. That 1/3 of the people in Coeur d'Alene came from California doesn't imply California isn't a better place to live for most people.
keanoz
Posts: 98
Joined: Sun Oct 02, 2016 1:27 am
Location: Sunnyvale, CA

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

Post by keanoz »

I guess I am in the minority, but I think you guys could swing the 2M house. However, I think something of the range of 1.5M would be much more suitable. I think the best would be to buy this 1.5M house, save and eventually move to a nicer house.
jarjarM
Posts: 276
Joined: Mon Jul 16, 2018 1:21 pm

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

Post by jarjarM »

hereverycentcounts wrote: Sun Sep 06, 2020 12:51 pm
boomer_techie wrote: Sun Sep 06, 2020 7:26 am
hereverycentcounts wrote: Thu Sep 03, 2020 7:34 pm What happens if we stay in the Bay Area when we retire? That is our plan. We want to stay here forever.
What do you consider "staying in the Bay Area" for retirement? Which of the following qualify: A cabin on the Russian River. An ocean view house in Half Moon Bay. A small ranch outside Gilroy. A Craftsman style home in downtown Davis. Or do you need to be in the Santa Clara Valley?
The plan would be to buy a stay in house on the peninsula.
I have several relatives retired in the peninsula with only social security and a few hundred thousands. Of course they own their house outright and due to prop 13, only pay a few thousands for prop tax a year. You don’t need that much money if your house is paid.
Topic Author
hereverycentcounts
Posts: 107
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 »

jarjarM wrote: Sun Sep 06, 2020 1:41 pm
hereverycentcounts wrote: Sun Sep 06, 2020 12:51 pm
boomer_techie wrote: Sun Sep 06, 2020 7:26 am
hereverycentcounts wrote: Thu Sep 03, 2020 7:34 pm What happens if we stay in the Bay Area when we retire? That is our plan. We want to stay here forever.
What do you consider "staying in the Bay Area" for retirement? Which of the following qualify: A cabin on the Russian River. An ocean view house in Half Moon Bay. A small ranch outside Gilroy. A Craftsman style home in downtown Davis. Or do you need to be in the Santa Clara Valley?
The plan would be to buy a stay in house on the peninsula.
I have several relatives retired in the peninsula with only social security and a few hundred thousands. Of course they own their house outright and due to prop 13, only pay a few thousands for prop tax a year. You don’t need that much money if your house is paid.
Exactly. And that's why buying our forever home *now* vs buying something crappy and moving in 10 years doesn't make sense. Would rather lock in property tax now and then when mortgage is paid off have cheaper tax rate. I guess non CA people don't understand that.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
Topic Author
hereverycentcounts
Posts: 107
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 »

keanoz wrote: Sun Sep 06, 2020 1:33 pm I guess I am in the minority, but I think you guys could swing the 2M house. However, I think something of the range of 1.5M would be much more suitable. I think the best would be to buy this 1.5M house, save and eventually move to a nicer house.
Thanks. As per earlier comment, in CA we have prop 13 that ties the tax owed on the house to the value on time of purchase plus minor inflation. So when home is paid off in 30 years, tax rates will be lower if we buy more now vs buy starter and move up. This does require us to buy our forever home now.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
Tingting1013
Posts: 440
Joined: Mon Aug 24, 2020 5:44 pm

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

Post by Tingting1013 »

hereverycentcounts wrote: Sun Sep 06, 2020 1:44 pm
keanoz wrote: Sun Sep 06, 2020 1:33 pm I guess I am in the minority, but I think you guys could swing the 2M house. However, I think something of the range of 1.5M would be much more suitable. I think the best would be to buy this 1.5M house, save and eventually move to a nicer house.
Thanks. As per earlier comment, in CA we have prop 13 that ties the tax owed on the house to the value on time of purchase plus minor inflation. So when home is paid off in 30 years, tax rates will be lower if we buy more now vs buy starter and move up. This does require us to buy our forever home now.
Once you are 55 you can transfer your property tax base to a replacement property that has the same or lower market value as the old property.

Look up Prop 60 and Prop 90
babystep
Posts: 244
Joined: Tue Apr 09, 2019 9:44 am

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

Post by babystep »

hereverycentcounts wrote: Sun Sep 06, 2020 1:17 pm
av111 wrote: Sun Sep 06, 2020 12:54 pm
hereverycentcounts wrote: Sun Sep 06, 2020 12:03 pm
av111 wrote: Sun Sep 06, 2020 9:46 am OP

In today's mortgage market, 1.5 m loan costs about 5.8k in principal and interest. Add about 2.5k for taxes and insurance on a 2m home. Total PITI costs are close to 8.3k or 100k annual

What is the AGI on your 2018 and 2019 tax returns?

I saw in a recent post that your income was 260k. Is that right?

40% of 260k annual income is 104k

So you can get approved for the loan if there are no other loans or fixed monthly expenses and credit scores are high

What is the total amount paid in taxes paid on your returns?

I expect that for an income of 260k, total fed and ca taxes including SS and Medicare are below 70k

If true, this leaves about 90k every year for non housing expenses and investments after income taxes are paid.

Most people are going to agree that 7.5k a month disposable income is quite adequate for non housing expenses

Look at your current non housing expenses and double them. Say about 3k since daycare is not an expense for you

One concern is that if main income is challenged in a soft employment market, you will need some way to pay 136k per year to stay afloat. So plan to have 2 years expenses in emergency funds as soon as possible. Avoid life style creep until financial situation becomes more robust. So Porsche, new kitchen or that backyard redesign should be put off for some time 😊
Thanks! Some historical data:

2016 AGI: $260,999
2017 AGI: $206,665
2018 AGI: $303,876
2019 AGI: $498,940

2020 and 2021 should be higher. 2022 I will assume will go back down to earlier AGI. [2017 I was laid off and didn't work for 4 months that year.]

Our $2M montage approval from a few major banks does not include RSU but I think it does include my bonus.

Don't need a porsche, but we'd like to buy a mini van and at some point replace my husband's prius. We'll prob buy used.
Perfect. If you also have numbers for the total taxes paid and non housing expenses total from last year, you can get a very good idea about the disposable income. In my opinion that number is the most important one for this decision
Total taxes paid 2019:

- federal $131k (effective tax rate 27.6%)
- CA $46k (effective tax 8.1%)

Total expenses 2019 approx $101k (monthly $8400 + savings)
Not including any housing that's $5400 a month...

Housing: $36k
Shopping: $20k (*we can spend less on shopping, I just buy crap I don't need at this point because we don't have a house to put the money into.)
Food & Dining: $20k
Travel: $5k
Auto & Transport: $5k
Bills (Phone etc): $3k
Entertainment: $2k
Health: $2k
Gifts: $2k
Insurance: $4k
Personal Care: $2k

Yea we spend too much on food and shopping, I know, I know.
It should be pretty easy to calculate how much house one can afford.
The current monthly after-tax saving + rental payment = monthly cash available to buy the home.
What are these three numbers for you?
Go to any property on realtor.com, Trulia, etc. put your down-payment amount and see how much is the monthly payment. They even include the property taxes etc.
I would exclude minor tail-wind of tax savings from the equation to be more conservative.

If there is a significant drop in RSU income from 2022 then make a good/conservative assumption about what your after-tax saving rate will be in 2022 to calculate the above affordability. 400k after-tax RSU of 2021 gives a big buffer. Also, almost 1M in after-tax is a big safety net.

You have about 300k cash + 1M after-tax + 200k 2020 RSU + 400k 2021RSU = 1.9M

You also have about 500k in IRA + Roth.

I would be probably in the minority but looks to me that you can afford it.
av111
Posts: 106
Joined: Mon Jan 26, 2015 1:27 pm

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

Post by av111 »

hereverycentcounts wrote: Sun Sep 06, 2020 1:17 pm
av111 wrote: Sun Sep 06, 2020 12:54 pm
hereverycentcounts wrote: Sun Sep 06, 2020 12:03 pm
av111 wrote: Sun Sep 06, 2020 9:46 am OP

In today's mortgage market, 1.5 m loan costs about 5.8k in principal and interest. Add about 2.5k for taxes and insurance on a 2m home. Total PITI costs are close to 8.3k or 100k annual

What is the AGI on your 2018 and 2019 tax returns?

I saw in a recent post that your income was 260k. Is that right?

40% of 260k annual income is 104k

So you can get approved for the loan if there are no other loans or fixed monthly expenses and credit scores are high

What is the total amount paid in taxes paid on your returns?

I expect that for an income of 260k, total fed and ca taxes including SS and Medicare are below 70k

If true, this leaves about 90k every year for non housing expenses and investments after income taxes are paid.

Most people are going to agree that 7.5k a month disposable income is quite adequate for non housing expenses

Look at your current non housing expenses and double them. Say about 3k since daycare is not an expense for you

One concern is that if main income is challenged in a soft employment market, you will need some way to pay 136k per year to stay afloat. So plan to have 2 years expenses in emergency funds as soon as possible. Avoid life style creep until financial situation becomes more robust. So Porsche, new kitchen or that backyard redesign should be put off for some time 😊
Thanks! Some historical data:

2016 AGI: $260,999
2017 AGI: $206,665
2018 AGI: $303,876
2019 AGI: $498,940

2020 and 2021 should be higher. 2022 I will assume will go back down to earlier AGI. [2017 I was laid off and didn't work for 4 months that year.]

Our $2M montage approval from a few major banks does not include RSU but I think it does include my bonus.

Don't need a porsche, but we'd like to buy a mini van and at some point replace my husband's prius. We'll prob buy used.
Perfect. If you also have numbers for the total taxes paid and non housing expenses total from last year, you can get a very good idea about the disposable income. In my opinion that number is the most important one for this decision
Total taxes paid 2019:

- federal $131k (effective tax rate 27.6%)
- CA $46k (effective tax 8.1%)

Total expenses 2019 approx $101k (monthly $8400 + savings)
Not including any housing that's $5400 a month...

Housing: $36k
Shopping: $20k (*we can spend less on shopping, I just buy crap I don't need at this point because we don't have a house to put the money into.)
Food & Dining: $20k
Travel: $5k
Auto & Transport: $5k
Bills (Phone etc): $3k
Entertainment: $2k
Health: $2k
Gifts: $2k
Insurance: $4k
Personal Care: $2k

Yea we spend too much on food and shopping, I know, I know.
So you had about 320k left after taxes in 2019 and you spent about 70k in non housing expenses

With these numbers, you can easily spend 100k on the house. That will leave 150k for other projects

But this is a calculator for 500k AGI. Since you expect income to baseline at 260k, do this analysis for 2018 when income was 300k. Tax situation is skewed for 500k as you pay about 50% in taxes for the highest level, even higher % for your husband because he is 1099 and pays 15% SE taxes on top
AV111
hightower
Posts: 792
Joined: Mon Dec 12, 2016 2:28 am

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

Post by hightower »

hereverycentcounts wrote: Wed Sep 02, 2020 8:18 pm Hello! I've been on kind of an informal FIRE journey since my early 20s. Of the networth info below, only about $100k of that is my husband's and the rest is my savings. :) We live pretty cheaply for this area ($2500/month for a 1 bedroom apartment with our toddler) but I'm pregnant and have saved "enough" and think I'm ready to buy a house.

The problem is that I don't want to buy a "starter home" because that means spending $1.5M on something horrible, or $1.2M on something with a really horrible commute. Right now we can get about 2.7% 30 year fixed w/ 20% down, so something tells me that's a good deal for our "forever home," even if it's... like... $2M. Ok, so I'm posting here to get some sense shook into me because I grew up in an area where you can get a compound for $2M. Here... not so much. (And before you recommend moving - we are not leaving the area. Have lots of family here and plan to stay for the long haul.)


***Alt option is to rent a $5000-$6000 a month home (we need to move closer to in laws for free childcare/help and they don't drive.)
Can we stay in $2500/mo 1br -- not really. In laws won't be able to get to us. I'm due with baby #2 in January. Will be very hard without them.



Our data below:


(I've been tracking my networth for 15 years now, so you can get a sense for growth over time - does not include husband's savings https://www.networthshare.com/user/hereverycentcounts )

Her Income - $170 base + 20% bonus + RSU (Historical income/offers OTE in last 7 years $150k-$190k -- want to go part time in a few years so want to plan for no more than $170k income for next 30 years even though I may make more)

His Income - $90k 1099, no deductions (has had same client for past 10 years, relatively stable) and he also is a PT SAHD

TOTAL INCOME: $260k (+ bonus)

Debts/Ongoing
- Term Life $4000/yr
- Prob will buy a minivan soon. Always drove used cars paid in cash. Might buy new this time because... kids, safety, fear.

Savings/Retirement

Cash: $293k
Stocks/Bonds: $989.5k (owned, pre cap gains)
IRA: $386.2k (pre tax)
Roth: $139k
529: $79.3k (for 2 kids thus far, age 0 and 2, planning on 1 more kid)

Potential Upside
2020 RSU & ESPP, after tax value ~$200k
2021 RSU & ESPP, after tax value ~$400k
***plan to put all new vest into 529 plan and backdoor Roth, then basic diversified investments

What can we afford?

Based on standard recommendations (28% of gross income not including bonus) we can afford about $6000 a month in PITI, or a $1,400,000 home. However, the homes we like (that aren't luxurious by any stretch of the imagination) are about $1.8M-$2.0M.

On one hand, I feel like I've hit the jackpot with company stock. On the other, this is temporary, and I probably will go back to lower earnings soon and for the foreseeable future. Also stock that isn't vested and in hadn't is still very TBD -- but looking more likely since the bulk of it is vesting in next 14 months. Still, I don't want to buy more than we can afford!

Thanks for your thoughts!!! Can I buy a $2M (or $1.8M-$1.9M house?)
I love these kind of posts! Thanks for sharing adequate information.
The short answer...no way in hell would I ever consider buying a 2 million dollar house on a 270k salary. The "standard recommendations" for housing are made by banks and real estate people who have a vested interest in selling you expensive homes. Many financially minded people on forums like this, will tell you a different (better) recommendation based on preventing you from buying too much house. You've done well with saving and investing, but that doesn't mean you should way over spend on housing. To be perfectly honest, I don't think you should consider anything bigger than a 540k mortgage (2X you annual salary). That means the price of the house could be in the $650-700k range before the 20% down payment. It always seems like people in VHCOL areas seem to think there's a different set of financial rules for them because of the extreme prices they face. There's not. If you sign up for a mortgage that is more than 2X your annual income, you risk becoming house poor and will greatly reduce your potential to grow your net worth in the future. It doesn't matter where you live for that to remain true.

If you can't find a suitable home AND stick to the 2X rule, you should either continue to rent or move to a cheaper location (if work allows).

I do feel for people who want to own a home, but live in such a ridiculously expensive city. But, IMO you must resist the urge to buy into such a crazy, over priced market.
Topic Author
hereverycentcounts
Posts: 107
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 »

Thanks I just figured this out...

$28.7k income ($345k)
$4.7k pre tax savings
$9.4k taxes + health stuff
$10.6k Roth/529/ESPP savings

REMAINING: $3.9k

Expenses: $6k

REMAINING: -$2099

Housing: $6.7k ($1.7M house)

REMAINING: -$8.8k over or $106k over per year. Yikes!

So we'd need to increase income by $151k to afford this house, or $500k annual income.

The problem is right now with RSU we are hitting $500k, but the after vest it's unlikely I'll even get to $345k.

I need to reduce expenses dramatically and probably reduce savings though I don't want to reduce savings esp now that I have access to an after tax account at work and my husband needs to catch up with 401k contributions.

=======================

The better model is this though...

$22k income ($285k)
$3.2k pre tax savings
$7.5k taxes + health stuff
$5.9 Roth/529/ESPP savings

REMAINING: $5.5k

Expenses: $3k

REMAINING: $2300

Housing: $2500 (stay in 1 bedroom apartment!!!)

REMAINING: break even, give or take, reduce or increase savings with any additional income
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
hightower
Posts: 792
Joined: Mon Dec 12, 2016 2:28 am

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

Post by hightower »

hereverycentcounts wrote: Wed Sep 02, 2020 9:49 pm
fareastwarriors wrote: Wed Sep 02, 2020 9:44 pm Keep renting for a few years.
Grow income.
Save even more.
Good luck.
How much do I have to save to be able to afford a house?

What if housing prices keep going up 7% per year? Is it wrong to think that we will be forever priced out?

My husband's income is not going to increase and I don't see mine going up that much...
1. 20% of the price of the home is a safe, conservative number.
2. That rate of housing price increases is unsustainable and due for a correction in my opinion. If that does continue, no one but billionaires will be able to afford to live there and suddenly cheaper areas of the country will become more desirable. In other words, just because it's expensive now and seems to be getting more expensive doesn't mean you NEED to jump in on it. It's already unaffordable for your income level. Debt is risky and spending all your hard earned savings on an over priced home is risky too.
3. All the more reason to make sure you don't over spend. Have you ever owned a home? Homes are much more expensive than the mortgage and taxes. The PITI is the MINIMUM you will need to pay each month. Depending on many factors, you may end up needing to pay much more than that in repairs, upkeep, etc. That is why people above have commented that spending so much on a home at your income level seems frightening.
Topic Author
hereverycentcounts
Posts: 107
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 »

hightower wrote: Sun Sep 06, 2020 3:06 pm
hereverycentcounts wrote: Wed Sep 02, 2020 8:18 pm Hello! I've been on kind of an informal FIRE journey since my early 20s. Of the networth info below, only about $100k of that is my husband's and the rest is my savings. :) We live pretty cheaply for this area ($2500/month for a 1 bedroom apartment with our toddler) but I'm pregnant and have saved "enough" and think I'm ready to buy a house.

The problem is that I don't want to buy a "starter home" because that means spending $1.5M on something horrible, or $1.2M on something with a really horrible commute. Right now we can get about 2.7% 30 year fixed w/ 20% down, so something tells me that's a good deal for our "forever home," even if it's... like... $2M. Ok, so I'm posting here to get some sense shook into me because I grew up in an area where you can get a compound for $2M. Here... not so much. (And before you recommend moving - we are not leaving the area. Have lots of family here and plan to stay for the long haul.)


***Alt option is to rent a $5000-$6000 a month home (we need to move closer to in laws for free childcare/help and they don't drive.)
Can we stay in $2500/mo 1br -- not really. In laws won't be able to get to us. I'm due with baby #2 in January. Will be very hard without them.



Our data below:


(I've been tracking my networth for 15 years now, so you can get a sense for growth over time - does not include husband's savings https://www.networthshare.com/user/hereverycentcounts )

Her Income - $170 base + 20% bonus + RSU (Historical income/offers OTE in last 7 years $150k-$190k -- want to go part time in a few years so want to plan for no more than $170k income for next 30 years even though I may make more)

His Income - $90k 1099, no deductions (has had same client for past 10 years, relatively stable) and he also is a PT SAHD

TOTAL INCOME: $260k (+ bonus)

Debts/Ongoing
- Term Life $4000/yr
- Prob will buy a minivan soon. Always drove used cars paid in cash. Might buy new this time because... kids, safety, fear.

Savings/Retirement

Cash: $293k
Stocks/Bonds: $989.5k (owned, pre cap gains)
IRA: $386.2k (pre tax)
Roth: $139k
529: $79.3k (for 2 kids thus far, age 0 and 2, planning on 1 more kid)

Potential Upside
2020 RSU & ESPP, after tax value ~$200k
2021 RSU & ESPP, after tax value ~$400k
***plan to put all new vest into 529 plan and backdoor Roth, then basic diversified investments

What can we afford?

Based on standard recommendations (28% of gross income not including bonus) we can afford about $6000 a month in PITI, or a $1,400,000 home. However, the homes we like (that aren't luxurious by any stretch of the imagination) are about $1.8M-$2.0M.

On one hand, I feel like I've hit the jackpot with company stock. On the other, this is temporary, and I probably will go back to lower earnings soon and for the foreseeable future. Also stock that isn't vested and in hadn't is still very TBD -- but looking more likely since the bulk of it is vesting in next 14 months. Still, I don't want to buy more than we can afford!

Thanks for your thoughts!!! Can I buy a $2M (or $1.8M-$1.9M house?)
I love these kind of posts! Thanks for sharing adequate information.
The short answer...no way in hell would I ever consider buying a 2 million dollar house on a 270k salary. The "standard recommendations" for housing are made by banks and real estate people who have a vested interest in selling you expensive homes. Many financially minded people on forums like this, will tell you a different (better) recommendation based on preventing you from buying too much house. You've done well with saving and investing, but that doesn't mean you should way over spend on housing. To be perfectly honest, I don't think you should consider anything bigger than a 540k mortgage (2X you annual salary). That means the price of the house could be in the $650-700k range before the 20% down payment. It always seems like people in VHCOL areas seem to think there's a different set of financial rules for them because of the extreme prices they face. There's not. If you sign up for a mortgage that is more than 2X your annual income, you risk becoming house poor and will greatly reduce your potential to grow your net worth in the future. It doesn't matter where you live for that to remain true.

If you can't find a suitable home AND stick to the 2X rule, you should either continue to rent or move to a cheaper location (if work allows).

I do feel for people who want to own a home, but live in such a ridiculously expensive city. But, IMO you must resist the urge to buy into such a crazy, over priced market.
You are right. And I'm leaning away from buying right now. We aren't going to move out of this area though (we do plan to retire here) so now I'm trying to figure out how to afford to be forever renters here. We really can't stay in our 1br apartment -- we either move further away to get similar rent and pay $2000/mo+ in childcare, or we move closer to my in laws for free childcare (at least temporarily) and pay at least $2k more in rent. Either way, we're spending at least $4500/month in rent or rent+childcare, prob closer to $5.5k. With my husband refusing to increase his income, I'm just not sure what to do other than focus on figuring out how to keep increasing my own income. I don't know if this is possible. I'm having a few very good "hit the lotto" years with my RSUs, but that is going to end next year.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
hightower
Posts: 792
Joined: Mon Dec 12, 2016 2:28 am

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

Post by hightower »

hereverycentcounts wrote: Wed Sep 02, 2020 10:04 pm
random_walker_77 wrote: Wed Sep 02, 2020 9:48 pm
It sounds like the best thing for us to do is rent, even if that rent is $6000 a month. Still better than buying. Prob will be forever renters. It makes me sad (quite frankly depressed) but I get it. It's not like I "deserve" to own a house for my family any more than the next person. It just is hard to see my income at $600k and still not be able to afford a house. But it is what it is.
You can afford a home. Just not in such a crazy area. What you need to decide is if home ownership is important enough for you to stick around that area. Is your job at all mobile? Could you get a similar job any where else in the country? Even if you had to take a lower paying job, home ownership else where could be a breeze for you. For 500k you could buy a really nice place, cash, without a mortgage in a MCOL area of the country.
It's probably hard to see outside of the housing bubble you live in, but believe me when I say that the rest of the country thinks it's absolutely insane what people are paying for housing in California and NYC. Spend some time on Realtor.com looking at listings in other cities you might like to live. You might be shocked at what you could afford in other places.
I can empathize though if you have family in your current area. It's tough to leave family when you have kids.

The thing that's crazy though is that for folks like you who have relatively great income anywhere else in the country are being priced out of the market quickly. That's why I don't think it's sustainable. You said in your last post that you want to retire there. Honestly, retirement is going to be tough if prices go up much further. Have you calculated how much you'd need to save in order to afford rental in 20-30 years if it keeps going up? It may seem not worth it to stay there long term after looking at it from that perspective. I mean, if you love what you do and want to keep doing it for the next 20-30 years, you'll probably be ok, but what if your job becomes obsolete or you're not needed anymore?
There's a lot of big picture stuff to consider when living somewhere like that.
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hereverycentcounts
Posts: 107
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 »

hightower wrote: Sun Sep 06, 2020 3:28 pm
hereverycentcounts wrote: Wed Sep 02, 2020 10:04 pm
random_walker_77 wrote: Wed Sep 02, 2020 9:48 pm
It sounds like the best thing for us to do is rent, even if that rent is $6000 a month. Still better than buying. Prob will be forever renters. It makes me sad (quite frankly depressed) but I get it. It's not like I "deserve" to own a house for my family any more than the next person. It just is hard to see my income at $600k and still not be able to afford a house. But it is what it is.
You can afford a home. Just not in such a crazy area. What you need to decide is if home ownership is important enough for you to stick around that area. Is your job at all mobile? Could you get a similar job any where else in the country? Even if you had to take a lower paying job, home ownership else where could be a breeze for you. For 500k you could buy a really nice place, cash, without a mortgage in a MCOL area of the country.
It's probably hard to see outside of the housing bubble you live in, but believe me when I say that the rest of the country thinks it's absolutely insane what people are paying for housing in California and NYC. Spend some time on Realtor.com looking at listings in other cities you might like to live. You might be shocked at what you could afford in other places.
I can empathize though if you have family in your current area. It's tough to leave family when you have kids.

The thing that's crazy though is that for folks like you who have relatively great income anywhere else in the country are being priced out of the market quickly. That's why I don't think it's sustainable. You said in your last post that you want to retire there. Honestly, retirement is going to be tough if prices go up much further. Have you calculated how much you'd need to save in order to afford rental in 20-30 years if it keeps going up? It may seem not worth it to stay there long term after looking at it from that perspective. I mean, if you love what you do and want to keep doing it for the next 20-30 years, you'll probably be ok, but what if your job becomes obsolete or you're not needed anymore?
There's a lot of big picture stuff to consider when living somewhere like that.
I know, I know. It's all a mess and there's no good answer. My husband won't move. He won't make more money. My job at the moment is WFH but they want us back in the office when we can go back. I'm committed through March 2022 when all of my main stock grant will vest. After that I'm a free agent. I can get us to move by applying to a job in Seattle and getting something that would enable us to move and pay for housing and make it so my husband doesn't have to work. I would need to make enough money in that market to make the move possible. And he'd want our in laws to move with us and live with us then, so I'd have to compromise on that as well - buy something in Seattle and make sure his parents can both live there. He is pretty adamant about not moving anywhere else in the country. I'm not sure what to do.

When we retire if our kids move away, we'll prob want to move closer to them. Who knows what life will be like then. Rents are going to be so high here I will never be able to retire. But I doubt I'll be very employable when I'm 60+. So... FML?
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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vitaflo
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Re: How Much House Can We Afford in HCOL Area?

Post by vitaflo »

hereverycentcounts wrote: Sun Sep 06, 2020 1:42 pm
jarjarM wrote: Sun Sep 06, 2020 1:41 pm I have several relatives retired in the peninsula with only social security and a few hundred thousands. Of course they own their house outright and due to prop 13, only pay a few thousands for prop tax a year. You don’t need that much money if your house is paid.
Exactly. And that's why buying our forever home *now* vs buying something crappy and moving in 10 years doesn't make sense. Would rather lock in property tax now and then when mortgage is paid off have cheaper tax rate. I guess non CA people don't understand that.
I always cringe a little when people talk about "forever homes". I get the want, especially with the tax situation in CA, but in reality things change over time. The bay area today is quite different than it was in the 90's, and it'll be very different another 20 years from now when all your kids are out of the house. Cities don't stay the same, they change. Sometimes for the better, sometimes for the worse, but it's not going to be the same area when you retire.

The fact you live close to your in-laws is great now, but there's no guarantee that any of your kids will want to stick around once they move out of the house. And many retirees like seeing (and taking care of) grand kids.

It's good you're looking at your finances and asking the questions, but you have a lot of wants. An expensive house, the ability to go part time in the future, and to FIRE. You simply can't have it all, you need to make choices. IMO, of those 3 you need to pick one. You can't have them all, at least not in you current situation.
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