June 25, 2008

San Francisco shedding lower and middle classes – thank goodness

Exodus of S.F.’s middle class

It’s urban flight flipped on its head: The number of low- and middle-income residents in San Francisco is shrinking as the wealthy population swells, a trend most experts attribute to the city’s exorbitant housing costs.

Many worry it’s increasingly turning San Francisco into an enclave of the rich, where nurses, firefighters, cops, teachers and other professionals aspiring toward homeownership or in need of cheaper rent can no longer afford to stay.

[snip]

From 2002 to 2006, the number of households making up to $49,000 per year dropped by 7.4 percent, those earning between $50,000 and $99,999 declined by 4.4 percent, and those bringing home between $100,000 and $149,999 fell by 3.9 percent, according to Census Bureau estimates. In polar opposition, the number of households making between $150,000 and $199,999 surged 52.2 percent and those earning more than $200,000 climbed 40.1 percent.

[snip]

Since 2002, the median price for all San Francisco home types has risen 113.5 percent to $790,000, according to DataQuick Information Systems. While the housing slump has dragged down values by more than a third in some parts of the region, it’s only nudged prices in the city down 5.4 percent from their peak.

A San Francisco household requires an annual income of $196,878 to afford a median-priced home in the city, according to a February report from the California Budget Project, a liberal research and advocacy group.

[snip]

Rents have also climbed rapidly. In the first quarter, San Francisco was, as always, the most expensive Bay Area city for renters, according to RealFacts of Novato. The average for all apartment types stood at $2,326 in the first quarter, up nearly 25 percent from 2002 and 14.4 percent from a year ago.

All I can say is “Thank Goodness”.

Once in a while, Burbed wakes up at night drenched in sweat because of a nightmare. The nightmare? That the San Francisco Bay Area is no longer special.

Thanks to this article, I can sleep soundly again.

It’s hard to believe that people would actually lament the fact that San Francisco, and by extension, Mountain View, Palo Alto, Cupertino, Menlo Park, and the rest of the Real Bay Area are fast catching up to Manhattan. If anything, we should also hope that one day we can exceed Manhattan and claim our rightful place on the unaffordabiltiy chart.

That said, this article has a clear gaffe – some firefighters and cops can definitely afford to live in the Bay Area. In much of the South Bay, these folks, along with Bus Drivers easily clear $100k a year. I don’t know much about SF cops – perhaps they don’t get paid as well? Perhaps they should try working in the South Bay instead…

At the end of the day, do you really want to live in a place where people can easily afford houses, and not have to pay for private school? What kind of values would that teach to your children? That life is easy? Is that really what you want?

Keep your eyes on the stars folks, the Bay Area is going to take back off again in 2009!

Comments (49) -- Posted by: burbed @ 4:24 am

49 Responses to “San Francisco shedding lower and middle classes – thank goodness”

  1. Hellboy Says:

    What are they talking about? Fire and Police staff can’t afford to live here? We have no problem here. The RBA fire and police staff make “Real Big Bank”! Wasn’t it Vallejo who was/is paying their staffs $200k a year. And that’s for a city that’s bankrupt! Just imagine what RBA essential service providers are making. Special is not even the word for RBA…

  2. bob Says:

    Well, you know what they say: California sets the national trend 10 years before the rest of the country catches up. If that’s the case, then I’m definitely getting the hell outta’ here before that happens because if the US is heading into a Bay Area style social order, then the country is going to suck.

  3. Name Says:

    From 2002 to 2006, the number of households making up to $49,000 per year dropped by 7.4 percent, those earning between $50,000 and $99,999 declined by 4.4 percent, and those bringing home between $100,000 and $149,999 fell by 3.9 percent, according to Census Bureau estimates. In polar opposition, the number of households making between $150,000 and $199,999 surged 52.2 percent and those earning more than $200,000 climbed 40.1 percent.

    So backing out from these numbers we can infer that about 90+% of the households make less than $150K, meaning they can’t afford homes above $450K – and that’s at the 90 percentile point. I wonder if home prices will drop? Hmmmm, tough question!

  4. Name Says:

    BTW, in case you’re wondering how I backed that out – it was with a Monte Carlo simulation assuming that the drop in households in the lower three brackets equals the gain in households in the upper two.

  5. Trader Joe Says:

    Or you could use a simple algebraic equation, but Monte Carlo sounds more special.

  6. WillowGlenner Says:

    Cities have a real love hate relationship with low income housing. There is this new area in San Jose called Martha Gardens which they are trying to make the arts district. I am actually looking there and very interested, anyway it needs to stay cheap for the artists and yet, just the fact that they are sanctioning this as the arts district means property is going up.

  7. San Mateo Home Sellers in Trouble Says:

    SF cops do get paid fairly well. My parents friends’ son just started as a SF policeman. He is getting paid more than 75k as starting salary I think. He’s about 26, so that’s on par with an engineer starting out. In a few years he will be making six figures, too.

  8. San Mateo Home Sellers in Trouble Says:

    See this site: http://www.sfgov.org/site/police_index.asp?id=27855

    “SALARY:

    The current annual entry-level salary for Police Officers is:

    $72,956 to $97,656

    That’s entry level salary, plus you get more money for knowing 2 languages.

  9. rick Says:

    Why can’t these people contempt with being a renter? Can’t afford $3000 rent for a $800k two bedroom? (My friend is renting one out for 2 families that are related)

    Move to EPA or Oakland or INE, that is where those making less than $200k and wanting their own house belongs.

  10. rick Says:

    Oh I forget, the RBA belongs to the $200k plus couple and those Prop 13 people. We should make it a crime to sell your house for less than you pay for, otherwise there goes the chance for you to receive the benefit of paying 10% of the taxes for your new neighbor 30 years from now.

  11. sonarrat Says:

    Around here you really -are- supposed to live in the ‘hood for a while, earn equity in that house the hard way (by paying down the mortgage!), then trade up to that nicer location close to work. Then later on trade up to a larger house or expand what you’ve got. If you start early enough, you can easily get to that point by your mid-30s. The RBA is a destination that many aspire to all over the world, can’t expect it to be handed to you on a silver platter. Palo Alto will come down some, but it will not become affordable overnight.

  12. Crossroads Says:

    how does the trading up thing work?

    let’s say you buy a 400k condo. the house you want is 700k. so the house is 75% more.

    in 5 years assuming 5% appreciation, the condo would sell for 510k and the house 893k. the condo is still 75% more.

    and it is not like you would have more equity since the first 5 years are mostly interest. and that’s assuming you didn’t get an IO loan.

  13. madhaus Says:

    Why are you using a Monte Carlo simulation to describe RBA demographics? Monte Carlo is in Europe, which is full of socialists. Besides, the proper term describing movement from the middle class to the upper or lower classes (creation of a two-tier social structure) is Brazilification. So you need to use a Rio simulation.

    Oh, look. REOs.

  14. madhaus Says:

    Crossroads, you don’t quite understand how this tradeup thing works. You buy a condo for $400K. You want to trade to a house that costs $700K now. You live in the condo for five years. The condo appreciates 5% a year to $510K, but the house is more special and appreciates to $1.2 mil. Now the house is 100% more than the condo. If you got a 30 year fixed mortgage at 6% with 10% down, you paid off about $25K in principal. So you now have $135K in equity instead of $40K.

    But to buy the $1.2m house, you will need to borrow $985K. I hope you are making more money now, because at 7% fixed, your payments will be $6553 a month. (Your condo payments are $2158.)

    The solution is to SELL the $510K condo, rent for five more years, and then buy the house when it’s worth $550K.

    I’m happy to have cleared that up for you.

  15. bob Says:

    Or- here’s a novel idea: Why not save the money instead? Just about anyone working in the tech industry can easily save well over 100k by renting and saving. If you figure a couple ( since we’ve already assumed that all tech people only marry other tech people) earning 200k a year, then it’d be easy to save 200k or more in 5 years. 200k down on a 700k house would mean you’d only have to shell out only $3,000 a month not including taxes. What a screamin’ deal! That like only 50% more than what I pay to rent my 4 bedroom house now.

  16. burbed Says:

    Congrats to Madhaus for creating math that’s worse than mine!

  17. sonarrat Says:

    If you buy that house in the ‘hood then you pay the same as renting an apartment in the RBA, but your money is earning you equity instead of lining someone else’s pockets. That’s the difference.

  18. bob Says:

    If you buy that house in the ‘hood then you pay the same as renting an apartment in the RBA, but your money is earning you equity instead of lining someone else’s pockets. That’s the difference.

    Whatchu’ Talkin’ about Willis? Even to this day, my rent is still about 1/3rd the cost of buying even the dumpiest dump in my hood, and the house I rent it actually quite nice. On top of that, I am saving more than any homes in the area could appreciate. Besides- if I’m “Lining the pockets” of the owner of the rental, I’d rather line his pockets and help him pay for his kid’s college rather than line the pockets of the Bank Of America so they can go out and screw more people.

  19. sonarrat Says:

    So that’s why people aren’t buying in Oakland. I get it. Well, let me know when you’ve got enough to get into Priced Out Foreverland. I’ll see you there.

  20. bob Says:

    So that’s why people aren’t buying in Oakland. I get it. Well, let me know when you’ve got enough to get into Priced Out Foreverland. I’ll see you there.

    Oh… I get it. So I must be wrong because I messed up your equation because it only worked if you buy in the pricey parts of the BA , but not in other parts, like Oakland, Alameda, Berkeley, Walnut Creek, Pleasanton, Hayward, and so on. Rent versus buy is still very heavily weighted in renting’s favor.

    And you little catty remark about “Foreverland”, well I don’t take that as an insult since I imagine that I’ll be signifigantly better off than the avg BA person, slaving away on their crappy little bungalows. b-b-b-but you’ll have equity! Equity won’t matter to me when I’m on a 30 acre ranch, able to piss wherever I please, and drink large quantities of beer, and have ample space to do whatever. I might think of the Bay Area from time to time in a merely joking manner though.

  21. nomadic Says:

    bob, you missed out on the fun of the bubble years. Here’s a true story for you: a house bought in Sunnyvale for $760k in 2003 sold 24 months later for $1.1M. Mortgage equal to rent for a nice (new) apartment. Equals more than $250k NET profit.

    Too bad it was really a fluke, but renters missed out on it. My point is that there is no single “correct” answer for all people in all neighborhoods.

  22. sg Says:

    > Around here you really -are- supposed to live in the ‘hood for a while, earn equity in that house the hard way (by paying down the mortgage!),

    This model is falling apart. Prices are dropping at a much faster rate in the hood.

  23. madhaus Says:

    If you buy that house in the ‘hood then you pay the same as renting an apartment in the RBA, but your money is earning you equity instead of lining someone else’s pockets. That’s the difference.

    Um sonarrat, right now, prices are negatively appreciating. Your money isn’t earning you equity, your house is burning your equity.

    burbed, what’s wrong with my math? I figure when the house drops to 1999 levels, the condo seller can buy it.

  24. burbed Says:

    I think crossroads was asking about trading up on a more hypothetical, generalized basis.

  25. madhaus Says:

    but burbed, mrbogue said he loved the slapstick and snark. Guess I can’t please everybody.

  26. sonarrat Says:

    “Um sonarrat, right now, prices are negatively appreciating. Your money isn’t earning you equity, your house is burning your equity.”

    I didn’t buy in 2006. I’m just buying now. I figure at worst – since I’m getting a great little house at the price of a fixer in a much worse neighborhood – I’ll wind up about 10-15% ahead after ten years. By that time, the Alt-A resets will have corrected the high end and I’ll be able to trade up to one of those new condos I drive by on El Camino & Millbrae Ave every day.

  27. bob Says:

    So lemme’ get this straight: you’re gonna buy a house, and later buy a condo? That seems like the converse of what most people do. Again, it seems to make way more sense to me to just simply do some old-fashioned money savings versus second-guessing what the housing market is going to do.

    Whys such a huge rush to get into a falling market? Are those homes going to disappear?

  28. madhaus Says:

    Did you buy yet?

    If you’re planning on staying on 10+ years, no problem. Just don’t lose your job or have anyone in your family get seriously ill.

    Care to share which area you’re buying in?

    Seriously, as to the tradeup thing, in theory I could trade up to a “better” address by selling my Sunnyvale shack for a mil and getting more debt. The question is whether it makes sense to borrow $500-600K to do that. We’d both have to work to make those payments, too.

    Right now our mortage payments are a bit under $2200. That’s a ten year loan, btw. I did the math on whether it made sense to sell, rent, then buy in 5 years, but we’d pay at least another thousand a month in rent to do that. Plus taxes on the home sale if we don’t buy within 2 years. It’s cheaper (and easier, because we’re lazy) to stay where we are even though I expect to lose about $300K in equity. I figure I can afford to trade up more easily when all the prices go down but I still have the same savings outside of real estate.

    Hey, we timed the market right once — cashed out of tech in August, 2000. Everyone who kept their options thought we were flippin’ geniuses a couple of months later.

  29. sonarrat Says:

    I’m sick of apartments. I have a piano, and play it often, so I have to live on the ground floor. Can’t afford to rent in a newer building, so it’s squeek thump squeek all the time. Can’t afford anywhere on the peninsula not in the airport flightpath, either. I pay under $1100 but new tenants are paying $1300, and I have no rent control to cover my ass if they decide to raise it on me. Oh and did I mention the building had a fire because of someone smoking, which displaced me and everyone else in the building for 5 months?! Renting sucks.

    And the reason why the condo will be a trade up, eventually, is because it’s brand new and built to a million-dollar standard. But that’s a long ways off, a lot can happen in ten years.

  30. sonarrat Says:

    Madhaus, I’m buying in the Laurel district of Oakland.

  31. madhaus aka keyboard konquistador Says:

    Dang, I miss my piano. I’ve been loaning it to a series of friends. Got to say, a 61-key keyboard is not the same thing, although at least I can use headphones.

    Kid you not, sonarrat, I know someone with a Steinway grand in her small apartment. Not much else in her living room. Her kids don’t have too many toys, either.

    I want a grand piano and have been putting it off until we get a bigger house… which may not happen until our kids move out. Maybe that’s why I’ve been playing with guitars lately, they’re smaller.

  32. sonarrat Says:

    I have a Schimmel upright, and a Kurzweil digital for the times when I can’t make noise. Won’t be able to keep a grand in the house either, but the high-end German verticals are so good that I shouldn’t need to trade up anytime soon.

  33. madhaus Says:

    I don’t know much about that part (like where it is). I know Rockridge and Lake Merritt, and the area near Berkeley seemed okay (I had friends who rented there who were Berkeley grad students). Good luck with your purchase.

  34. madhaus Says:

    I’m sure your Schimmel beats my Baldwin 8 ways from Sunday. I grew up playing a marvelous Sohmer and my folks refused to send it to me. I needed a piano and bought what I could afford at the time.

    We’re pretty kid-centric at our house so the piano left in favor of the fishtank since we had 2 keyboards (a Korg and a cheapy portable Yamaha). Besides the piano kept the kids awake.

    This is the reason I keep calling my place a shack, it only has one living room, no dining room, no family room. If we had more rooms, I could have the danged piano. You got kids yet? They change your life, like what you can have in the living room. :)

  35. sonarrat Says:

    No kids and never will due to the nature of the relationship if you know what I mean. We’ll never outgrow the house, but we will of course want more space.

    Laurel is around MacArthur between 35th and High Street, next door to Dimond.

  36. bob Says:

    I’m somewhat familiar with that area. It’s in and around Fruitvale territory. If you’re not familiar with the area, I would highly recommend at least renting for 6 months. The area is hit-and-miss as far as crime goes. I probably wouldn’t recommend walking around Fruitvale at night. I’ve lived across from Fruitvale in Alameda for 5 years. The differences between it and Alameda are night and day.My Wife’s car got broken into at the Fruitvale station. Twice.

    Actually, rent in Alameda is very reasonable. We rent an entire 4 bedroom house with a yard for $1,600. There’s zero crime and enough space between homes to play Piano. I know because the neighbor does.

    I’m not saying don’t buy, but it sounds like you’re not familiar with where you’re buying. Not trying to scare you, but just making sure you know exactly what type of neighborhood you’re projecting to buy in.

  37. sonarrat Says:

    I know the area all right. I’m expecting petty crimes, as there are car thefts in the area, but that can happen anywhere. At least violent crime is rare, it quiets down after dark, and it’s the same ZIP code as a bunch of expensive houses in the hills so insurance rates are low.

  38. bob Says:

    Well… All I’m saying is that kind of knowing an area versus living there are two different things. That doesn’t mean that you can’t slum it either. My Aunt lives in Memphis in a not so great area. Her car has gotten stolen 5 times and her house broken into once. But she got used to it and for her, it isn’t a big deal.

    Personally, I don’t like weird, even slightly shady, sketchy areas at all. I don’t even like driving up and down High street in Oakland during the day let alone at night. I definitely get that feeling in and around the area you’re mentioning.

    I just can’t help but wonder what the urgency is to “have” to buy in a questionable area when in reality, you can still rent for far less in a nicer area and still play your piano.

    But… that’s just me. There’s quite a few Hipsters in Oakland these days, doing the whole slummin’ thing. So I guess it works for some. Go for it and tell us how it goes.

  39. sonarrat Says:

    If I really wanted to slum it, I could slum it basically for free.. get a $75,000 downpayment assistance loan from Oakland, buy a crapbox over by 98th Avenue for $70,000, and pocket the difference. But that would scare me to death.

  40. bob Says:

    Yes, I’ve heard of the 75k assistance program. You can only get it if you make 60k per household per year or less. I’d probably not recommend buying a house anywhere in the BA with that kind of income anyway, so the program is sort of useless in my opinion.

    Anyhow- I reiterate that I’d probably rent in that area for a bit. Perhaps a month-to-month lease. Then see how you like it, or where specifically you would want to buy. Oakland is like my Aunt’s city where one street is crap, the one next to it is ok. Its hard to tell unless you’ve been there awhile. I have friends who live in West Oakland. The area is awful, but their street is ok.

  41. sonarrat Says:

    I make under 60k. In fact I am using that loan. It’s great because payments are deferred for 30 years, and the interest rate is only 3%. I’m taking a gamble, but I’m still young, and I’ve already got a Roth IRA going so it’s not like this is my ‘golden bullet.’ Just an enforced savings plan and a way to write my own rules. I can’t even hang art on the wall let alone redecorate to my own taste..

  42. madhaus Says:

    sonarrat have you already chosen the place you intend to buy, or just the neighborhood?

    I think you can put up with a lot more as far as petty crime if there are no kids in the picture. If they’re there then you suddenly turn into that parody Renter4 gave us with the Volvo buyer. Are you sure this is safe? Really safe? I’ll spend anything to be safe.

  43. bob Says:

    I hate to be nasty and blunt, but under 60k and buying a house doesn’t make sense even if it was in Atlanta. Me and my Wife make considerably more then that and we wouldn’t consider buying anything here because even with what we make, it would be a stretch financially.I’ve made as little as 30k a year for the first few years I was here. So I definitely know how to stretch the dough on stupid stuff like turning old cottage cheese containers into tupperware. (Actually, I still do that)

    Good for you for getting a Roth IRA. Now that’s a fantastic idea. Plunk the money into savings and retirement plans. Once all this housing garbage blows away, you’ll have enough for a nice down payment plus that 75k loan. Then you’ll be sitting pretty.

    Anyhow, good luck with whatever you do.Sorry for being bossy. Just my opinion.I hope it works out for you.

  44. sonarrat Says:

    “sonarrat have you already chosen the place you intend to buy, or just the neighborhood?

    I think you can put up with a lot more as far as petty crime if there are no kids in the picture. If they’re there then you suddenly turn into that parody Renter4 gave us with the Volvo buyer. Are you sure this is safe? Really safe? I’ll spend anything to be safe.”

    Picked out the house already, got the inspections back yesterday and got the ratified contract today. Actually my mortgage, insurance, and taxes all together will come to less than $1,000.. pest report came back at about $6,000.. roof needs $500 worth of resealing. Not bad for a house that cost the bank -at least- $110,000 in losses.

  45. WillowGlenner Says:

    Hey- I know the fruitvale area, and I think its a pretty nice place! Last I saw it was gentrifying. The ingredients you need for gentrification are there… pretty nice terrain backing up to some hills there and some very nice California bungalow charming homes. Fruitvale is probably a pretty good investment sonorrat!

  46. WillowGlenner Says:

    I’m really intrigued… sonorrat, what was the final purchase price of your house vs what loss the bank is taking- if they are taking 110K in losses and your payment is only $1K they must have lost 50%?

    You know people don’t realize how great of a time this is to buy a low end property because in a “regular” real estate correction you don’t get banks as sellers who will literally sell a house at market price eventually, even if it takes them months to do it. What happened in the early 90s was a lot of houses went off the market- people were not compelled to sell like these banks are.

  47. sonarrat Says:

    Price I’m paying is $200K, last sale was $300K in 2005. Add in a 6% commission to the agents, the utilities and property taxes the bank had to pay for, and they’re taking a huge bath for me. Analysts are saying prices will fall 20-30% by the time all is said and done. I got a 33% discount.

  48. WillowGlenner Says:

    sounds like a deal sonorrat. But 200K is still more than 1K per month, no? How much did you put down? Did you offer what the bank finally listed at or significantly below? My last house (which is the only foreclosure I have ever purchased) I had to offer list (a little over actually) because it was priced well. But I have heard another approach is to take an REO has been sitting around for months and ignore the bank’s 20K per month price reductions and just go in with 60% of list and see what they do.

    There is an area around me called Martha gardens that I am looking at for 300K houses also. This is the right way to do it! In your case you can’t lose because you are living there too.

  49. sonarrat Says:

    I had to bid $1k over list because there were multiple offers. (Imagine that!) First mortgage is $119k thanks to the Oakland assistance loan, and I’m putting $7k down. The tentative plan is to make two payments a month instead of one to accelerate the process, then at some point refinance to pay off the Oakland loan so I can rent it out and buy a new primary property.


Leave a Reply

Please be nice. No name calling, no personal attacks, no racist stuff, no baiting, etc. Let's be nice to each other in the true Bay Area spirit! (Comments may be edited/removed without notice.)