December 17, 2009

how do people afford homes in california

It’s search engine Thursday here!

Recently someone found this site by searching for: how do people afford homes in california

Unfortunately this site is Bay Area focused, so there won’t be as many answers for those who are in SoCal (who are inevitably celebs, agents, subprime mortgage ceo’s, etc).

Here in the Bay Area, the answers are easy:

  1. Hard work. Let’s face it, owning a home should not be a cakewalk. Therefore, working 60-80 hours a week seems reasonable.
  2. Entrepreneurship: The Bay Area is famous for its entrepreneurial spirit. So go, buy a house! Rent out 2 bedrooms! Rent out the garage! Rent out the driveway! Do all of the above!
  3. Cutting things out of your life. Like vacations! After all, you’re living in the Bay Area – why do you need to go on vacation? We’ve got (cold) beaches, great (outlet) shopping. We’ve got a Great WMall! We’ve got Chinese, Korean, and Indian food. Nope no reason to leave.
  4. Leverage. Buying in the Real Bay Area is a sure bet. It’s like investing in tech stocks, mbs, tulips, gold! It’ll never go down. So go ahead, borrow borrow borrow! The more you burrow into debt, the richer you will be!
  5. Pick the right parents. Pick the right year to be born. Duh!

Readers, how do you afford your homes in California?

Comments (39) -- Posted by: burbed @ 5:42 am

39 Responses to “how do people afford homes in california”

  1. Joe Says:

    6. Fraud. Lie about your income and sign up for an Alt-A Option Arm loan of $800k with your $70k income.

  2. nomadic Says:

    Is it fraud when you’re too stupid to realize you can’t afford it, and you believe the agents (real estate and mortgage) when they say you can?

  3. bob Says:

    I’ve recently talked to a few people at holiday parties and the inevitable topic of houses comes up- a topic I desperately try to steer away from in “Real life”. The stories are the same. Somehow, under some kind of miracle they found a house that was barely- just barely within a range of price they could afford and by incredible luck somehow just barely squeaked into it. These are people who tend to make good incomes too and are buying in what are often outskirt or “Up and coming” areas.

    Thus people do buy here obviously, but I gather most are just barely able to make the payments. Something seems kind of screwy if people making really good incomes can just barely get into a starter home. Its a whole different world out here that many Californians have somehow accepted as normal.

  4. BuyersAreIdiots Says:

    “6. Fraud. Lie about your income and sign up for an Alt-A Option Arm loan of $800k with your $70k income.”

    Let me add one:

    7. Stanford, Harvard, MIT education. Along with a preamble at Palo Alto High School. Remember, real estate in the Bay Area is for the ‘elites’. Especially Real Bay area. So anyone without the right scholastic accolades in his/her pocket need not apply. :-)

  5. nomadic Says:

    Somehow, under some kind of miracle they found a house that was barely- just barely within a range of price they could afford and by incredible luck somehow just barely squeaked into it.

    That reminds me of the story my mom told me of the first house she and my dad bought before I was born. They were so worried whether they could afford it, and they were a single income family with a baby! They were even lucky enough to get most of the (20%) down payment as a gift from my grandparents. The cost? Under $15,000 around 1960. I’m sure it was ~3x salary, so within the rule of thumb.

    The point isn’t to point out inflation, but to explain that even in lower-cost areas (eras :-) ) new home buyers always feel poor and worry (at least a little) about whether they made a good decision. Some get burned, but in normal times most do not.

  6. mike Says:

    First post I could find on burbed:
    http://www.burbed.com/2006/02/04/
    0 comments.

  7. SmilingCat Says:

    Sheer luck. Live in a 60-year-old POS camper you’d have to PAY anyone else to live in. Help around the place and serve as a helpful, watchful, and ruthless watchdog.

    Other ways are to win the Section 8 lottery, get involved in the hurting but still relatively vibrant illegal economy, or find some place to live “stealth” such as squatting or setting up a camp in the woods.

  8. CB Says:

    I moved out of SJ. Sometimes that’s really all you have to do.

  9. bob Says:

    In my opinion, anyone who buys a home and takes risks in doing so isn’t thinking the decision over wisely. Nobody in my family bought anything unless they could easily do so. That meant most rented for years on end before making the purchase. Sure- lots of people do it anyway since its a common theme in America, and none so more than in places like the Bay Area. I think most home buyers also do so because once they start poppin’ out the kids or get married, societal pressures convinces them buying a home will automatically bring security to themselves and their children. In the case of a large chunk of home purchases in the BA, I’d say the opposite is ironically true.

  10. nomadic Says:

    In my opinion, anyone who buys a home and takes risks in doing so isn’t thinking the decision over wisely.

    Crossing the street is a risk. Live a little. Sheesh.

    Do you put your retirement money in CDs too?

  11. nomadic Says:

    Cool find, mike! Check this out:

    http://www.redfin.com/CA/Redwood-City/96-Buckingham-Ave-94063/home/820323

    It sold for the 2006 asking price in 2008! (With interim sales 3/06 for $585k and 8/07 for $400k. The 2007 sale followed a foreclosure. Even the 2008 sale looks odd because it was purchased by the San Mateo County Service League, which implies it is a halfway house for parolees or drug rehab patients.)

  12. bob Says:

    Using the crossing the street paradigm isn’t a good comparison. I eat food because I have to. There’s a necessary risk I take in doing so. I could choke. Nobody HAS to buy a house, and especially not if their finances are ill-prepared to do so. That’s why I absolutely loathe reading or hearing sob stories of families or people losing a home they bought with the skin of their teeth. Any number of people I know who have bought fit that description. It’s really not that complicated. Save up for a home, and if you’ve decided that wherever its located is worth the price and you have sufficient funds and a secure job, then buy it then. If you do so without those above prerequisites, then that’s your fault if you screw up and lose it.

  13. DreamT Says:

    Hating and loathing is bad for your complexion.

  14. R Says:

    “These are people who tend to make good incomes too and are buying in what are often outskirt or “Up and coming” areas.

    Thus people do buy here obviously, but I gather most are just barely able to make the payments. Something seems kind of screwy if people making really good incomes can just barely get into a starter home. Its a whole different world out here that many Californians have somehow accepted as normal.”

    Yep, which tells you which way prices are going to go for the foreseeable future.

  15. bob Says:

    “Hating and loathing is bad for your complexion.”

    Cmon’ DreamT, surely you can think of a better insult. That one seemed half-hearted.

  16. BuyersAreIdiots Says:

    What’s interesting is if you look at the timeline of the current housing downturn and recent ‘upturn’, you can draw some pretty striking parallels between this and the Japanese asset bubble.

    If I remember the stats correctly, the Japanese asset bubble peaked in 1989. The Nikkei and housing began to deflate at that point. However, in 1992, there was a mini-boom that occurred where a marginal housing rebound seemed to be underway. Needless to say, in hindsight, this was little more than a dead cat bounce. And the drop continued for another 10 years or so.

    So if housing peaked in 2006, and here we are in 2009 watching a modest uptick occur, that 3 year gap is surprisingly similar to the dead cat bounce of Japan.

    But then again, it was two very different bubbles. I am sure the RBA will maintain its immunity somehow. :)

  17. DreamT Says:

    Cheer up Bob, you’re being teased’, not insulted’. I thought the skin on the teeth was very cute.

    BAI – A significant difference with Japan is immigration policy: much greater incentive for foreigners to purchase houses here, even when still on visa. Another significant difference: the dollar’s baggage is significantly greater than the yen’s was. Still another significant difference: Japan’s cultural reluctance to financially clean up and let fail, early on. Roads can seem parallel on some of their segments, but they still may end up in different places especially if they’re in different countries to start with.

  18. bob Says:

    Japan’s biggest problem is that they have a huge old person population. That and their government has the same problem the US does in that they also have numerous expensive social programs- many that are setup for retirees, that over time with the growth of the older population cripples their ability to grow economically. It doesn’t help that Japan has one of the highest life expectancies in the world.

    We’re soon to likely suffer the same fate. The present value of social security shortfalls is around $6.5 Trillion dollars. In addition, the current value of Medicare shortfalls is approaching $32.3 trillion. The value of the combined liabilities from these two programs is more than the entire GDP output of the US.

    When you add in another $11 trillion in outstanding debt ( per 2008 estimates), Federal employee and veteren health care and retirement obligations: $4.7 Trillion, as well as the current net debt held by SS and Medicare, you get something like $48 Trillion dollars in total liabilities, and this is going to all hit the fan just as soon as those boomers start retiring en mass.

    So when Obama casually mentions that Medicare will eventually bankrupt the country, he’s grossly misrepresenting the true seriousness of the situation. Unless serious changes are made in the way that we administer our healtcare, medicare, and social security, we will in fact go bankrupt, and possibly be placed in a long-term position like that of Japan. Only much worse.

  19. nomadic Says:

    I thought the skin on the teeth was very cute.

    English idiom:
    http://www.idiomsite.com/skinofyour.htm

    This saying means to barely escape from a harrowing situation. It comes from Job 19:20, where God inflicts all sorts of terrible things on one of those who love him. Poor Job had all his animals stolen, his children die, his house collapse and his body covered with sores. Job has this to say; “My bone cleaveth to my skin and to my flesh, and I am escaped with the skin of my teeth.”

  20. nomadic Says:

    Japan’s biggest problem is that they have a huge old person population.

    Have you seen LOGAN’S RUN, bob? Old sci-fi movie. hehe.

  21. cardinal2007 Says:

    I like how the castle from the first post was featured 3 years in a row:

    http://www.burbed.com/2008/05/06/a-house-is-a-mans-castle-just-add-a-moat-in-redwood-city/

    http://www.burbed.com/2007/02/04/1-year-of-burbed-lets-follow-up-on-96-buckingham-ave-redwood-city-ca-94063/

    Interesting sales history too.

  22. SV Shopper Says:

    The real question is how do people find a house to buy in this area. Anyone making 100K with a 20% down payment can borrow 700K with no problem. With that kind of buying power, the problem is supply vs demand.

  23. nomadic Says:

    SV Shopper, your agent sucks.

  24. Herve Estater Says:

    > bob Says: Japan’s biggest problem is [… number … number … number … number … number …]

    I did not even bother to read that one.

  25. Pralay Says:

    Anyone making 100K with a 20% down payment can borrow 700K with no problem.
    —-

    Well, even a strawberry picker with $2500 monthly household income can borrow $720K with no problem. We know the rest of the story.

  26. Pralay Says:

    SV Shopper, your agent sucks.
    —–

    She does suck big time, but at least she is professional realtor with Coldwell Banker”.

  27. R Says:

    “The real question is how do people find a house to buy in this area. Anyone making 100K with a 20% down payment can borrow 700K with no problem. With that kind of buying power, the problem is supply vs demand.”

    Anybody making 100k might have been able to qualify for a 700k mortgage during the boom but not any more. And even if a lender was dumb enough to make that loan (good luck finding one), who on earth right now would take on a 700k mortgage making 100k a year. That is insane and I don’t think you’ll find many left that are that stupid, except for realtors “advising” their clients that now is the time to buy.

    A 700k mortgage at 5.25 percent is $3870 according to bankrate. If you add maintenance expenses and other incidentals and for simplicity assume the mortgage deduction covers your property tax bill, you’re looking at a monthly payment of over 4k.

    If you make 100k, you probably take home 5500 a month or so. Thus, you’re housing nut is approaching 75% of take home pay.

    Or, you could rent the same place for $2,500 and keep the 150k downpayment you would have had to piss away for the privilege of home “ownership.”

  28. Real Estater Says:

    I would say the issue is not so much affordability as it is entitlement. There are plenty of affordable homes. I’ve pointed it out to Pralay multiple times he can own a home in a number of areas such as San Jose, Santa Clara, parts of Sunnyvale, and East Bay. But where do you hear him talk about all the time? Palo Alto, or Palo Alto 94301.

  29. Pralay Says:

    But where do you hear him talk about all the time? Palo Alto, or Palo Alto 94301.
    —-

    How could we not talk about prestigious zipcode and “certain qualifications to be there” in a RBA blog? We must! We also love to talk about prestigious home in prestigious zipcode/city. They are so prestigious and popular that people see those homes in YouTube from all over the world (e.g. video 1 and video 2). It’s hard not to talk about prestigious zipcode, isn’t it?

  30. Real Estater Says:

    Pralay,

    The “Prestigious” thing is all in your head. Not once did any of those links referred to the word. You’re obsessed about a place you can’t get into.

  31. anon Says:

    You’re an idiot, re.

  32. anon Says:

    don’t ever forget that.

  33. R Says:

    “There are plenty of affordable homes. I’ve pointed it out to Pralay multiple times he can own a home in a number of areas such as San Jose, Santa Clara, parts of Sunnyvale, and East Bay”

    There are? In those areas rents are still approximately half a mortgage payment, which means those areas are overpriced and thus not affordable as well.

  34. anon Says:

    “affordability” has nothing to do with whether it is a good decision to buy a house. For the past few years, homes have been at record “affordability” – meaning minimal down payments and minimal monthly payments. Does that mean that homes have been a good buy for many people? No, it doesn’t. One need only ask the thousands of people who have lost hundreds of thousands of their own (and the bank’s) money.

    Let’s put things another way: Even if homes are “affordable” by historical standards, one is still an idiot to buy in this environment.

  35. Pralay Says:

    The “Prestigious” thing is all in your head. Not once did any of those links referred to the word.
    —–

    Sorry, I used wrong word. How about “well-respected”?

  36. anon Says:

    Nobody respects trash – no matter where it lives…

  37. Pralay Says:

    I heard from a reliable source that if a trash lives in 94301, it gets respect in workplace because of “certain qualifications to live there”. :)

  38. R Says:

    You are absolutely correct anon, just trying to dumb it down for RE by pointing out that even buying in the places RE says are affordable makes no sense.

  39. Pralay Says:

    Let’s read his two year old comment.

    Prices held solid in SF, San Mateo, and Santa Clara. Who cares about the other places!

    Saying “plenty of home affordable in Santa Clara” is realtorish way of tacitly admitting that price has come down and continues to do so.


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