What's a reasonable price for a Bay Area home?
Burbed reader Brendan posed this question in a post earlier today.
“In the Bay Area, we’re in a unique bubble … we’re not really seeing prices go down” — Burbed.com: Your Silicon Valley Home and Mortgage Insanity Blog
What do people think? will a nice home ever be able to be had in the Bay Area for 400k?
To answer this, we should look at the numbers.
First, let’s look at median income. In Cupertino, that’s $123,320 for a family.
Unfortunately if you’re looking to buy a house, you’re not competing with all the people who make up that median income statistic. There’s a lot of Pre-Prop 13 people still in Cupertino. You know, people who were born at the right time, and bought a place before 1978 – so they only paid $75,000 and only pay $1000 in property tax a year. They’re done paying off their mortgage and they might be retired, or be paid poorly and refi to help pay bills.
As a result, that median income statistic is skewed lower – which means that the actual median income is higher. Remember, you’re not competing against the low end of the income scale to buy a place.
It turns out that 11% of Cupertino is 65 or older (slightly higher that the California average) and there’s a 4.8% poverty rate. So, using some fuzzy math, let’s say that the median income is actually 15% higher: $141,818
That seems about right too. A typical software developer gets paid at least $75k right? So two of those would be $150k. And remember, these are the people you’re competing against to buy a place.
Using this calculator, it turns out that a family making this much money can afford at least a $631,574 house using a standard mortgage (with a $100k downpay – not unrealistic either).
And that number assumes that the family is willing to spend 33% on housing payment! As we know, since the Bay Area is so perfect, you don’t need to go on vacation or anything, so you can actually spend more than that. And, I think we all know that people are more than willing to spend more – especially for a place that has a great (for California, not nationally) school district like Cupertino.
So there you go. My claim: a reasonable price for a South Bay Area home in a good school district is $6xx,xxx.
What do people think?
March 10th, 2007 at 1:49 pm
My husband and I just relocated to the bay area from LA for a career move. We have to buy a house in the east bay because my husbands office is in Walnut Creek and I will be working in SF. First off, I am not thrilled living in the east bay…it is boring and not very attractive, plus my commute is going to be over an hour each way. My commute in LA was 30 min. We had to sell our home as to be able to afford our temporary rental in SF,while not paying our mortgage at the same time. Now we are looking to buy here, and I received listings from a broker today for a 1700 sqft ugly home in Lafayette for 995k, which for the idiots who have drunk the housing price “Kool Aid” up here might be considered a “steal” Well here is the letter I wrote the realtor regarding the listing:
Hi Gerry,
I wouldn’t feel comfortable paying more than 900k for either of these homes with a sweet spot being 875k. These homes remind me of very bland neighborhoods in “anywhere usa”. They really lack curb appeal or charm, even with the “luxury upgrade” of granite in the kitchen. Additionally, upon my research, the sellers of this home purchased it less than 2 years ago for 700k. How is it possible that they should earn 300k in that short period of time?
I also believe the market is going to take a gradual nose dive, and I don’t want to lose my down payment when these homes are adjusted for reality. I would rather wait until the fall to see what happens, than be the sucker who over pays for a home like this, lose all my equity when the value goes down, and spend the next 10 years of my life digging myself out of the mess so some greedy person can make an extra 100-150k.
I truly feel sorry for anyone who buys a 1700 sqft home for these prices in this over inflated area. I am beginning to think this is why everyone in supposedly “upper middle class” neighborhoods in the east bay area drive old cars, dress in tacky, cheap looking clothing, don’t wear make up, get their hair done, or work out, go to political protests on the weekend instead of taking vacations, because they cant afford to have anything else, after overspending for their suburban shack.
No Thanks. I prefer to have a life.
~Susan
I think if more buyers take my attitude with the realtors trying to sell them over priced homes, we might see prices adjust much quicker. I am so tempted to rent for a year, and put the equity from my home sale in LA into a t-bill or CD which would earn 5-10%, and wait to see what happens.
March 11th, 2007 at 3:35 pm
I’m glad I sparked a burbed post! Anyway I see your ‘fuzzy math’ and I believe it is true.
The only way I can ever think that prices will get real is if there is some horrible downturn in one (or a few) of the key industries that are here. If India or China truly take over tech then we can see prices take a huge dive. Also there is a possibility that when people’s ARMs start breaking that may drive the payments up so high that everyone has to sell or foreclose.
I must admit I’ll probably fall into the category of tech guy and wife who will pay 650 some odd thousand for a crappy 3 bedroom house. I’m a Bay Area native, and I live here long before it was so special. I don’t plan on moving so I suspect if I buy a house now I would definitely hang on to it for at least 5 maybe ten years. And real estate ALWAYS goes UP HERE!!! Another REALTOR told me that yesterday!
March 11th, 2007 at 6:08 pm
Only one problem. Looked at realtor.com and there are THREE, count ‘em *three* listings in the $600-650k range in Cupertino and two are 2BR condos in the 1100SF range.
Is that all a 6 figure, 2 income household can afford in Cupertino?
I don’t think you really believe those prices are reasonable, but wanted to elicit outraged responses.
March 11th, 2007 at 6:19 pm
Here’s to hoping that better properties start ending up in the $600-650k range.
March 12th, 2007 at 7:54 am
Over the weekend, Kron4 News has one of their “real estate specials”, where a smug couple and realtwhore were commenting on how hot the market is, with having to make bids on the home they bought and paying more than the purchase price.
I’m sure these three idiots will regret the day they allowed themselves to be filmed spewing such BS. The most classic: the “car interior” shot of the bitchy wife talking to the camara: “Gosh, if it’s going to be such a great time to buy, why not hit the market now, before the Spring rush”.
Brilliant.
The local news reports are simply advertisements for stunned realtwhores.
March 12th, 2007 at 4:36 pm
So I was looking at some homes in the $500-600k range in a San Jose neighborhood on Zillow.. and I saw a few homes with a sale history that looked like:
May 2005 – $545,000
Jan 2007 – $212,000
Feb 2007 – $510,000
Can anyone explain the anomalous Jan 2007 figure? Is that a foreclosure price at auction or something? Or is that a Zillow mistake? Or…?
March 12th, 2007 at 5:01 pm
The only explanation has to be a foreclosure. I found another house like that also.