This is why.

This is Zillow’s map of negative equity by county in Central California.  The more red, the more they bled.  You can look at the map by state, by county, and by zip code.  At the county level, we can see that the only Bay Area regions that aren’t about to terminate from failure to clot are Santa Clara, San Mateo, San Francisco and Marin Counties.  Santa Cruz County is looking a little pink around the neck (it’s 22% underwater) but it’s downright alabaster compared to the abattoir north and east of San Jose.  Here are the county by county numbers for 2012.

And here’s a live version for you to play with, although you can also head over to Zillow and see it in action wherever you want to examine.

We love real estate tools.  Maps are awesome.  Here’s a new one with the cute name Rich Blocks Poor Blocks that Burbed readers wahnny and Divasm both sent in this week when someone posted about it in Redfin Forums.  (No link, Redfin, until you resume trackbacks to our featured homes.  Neener neener.)

It’s a fairly good idea: take ACS income data for each official Census tract and show graphically how much they vary.  As they say on their main page, “See how much money people make in every neighborhood in every city in America.”  In theory you could use it to see how Special each part of the city is.  Here’s what it looks like when it’s working as the authors intended.

Each state uses its own scale, applying the color key to its own income range.  In the case of Illinois, above, the deep red, lowest income is under $23,120 and the deep green, highest income is over $106,503.  There appear to be 20 different segments in the color key, although we think there’s far too much green and not enough in the red, orange, and yellow. 

Since these are Google Map tools, you can zoom in and out to your heart’s delight, but you can only map one state at a time.As you can see in in the case of New Jersey, above, this tool isn’t that useful with metros that span multiple states.  Fortunately, that’s not an issue even in the furthest exurbs of the Bay Area.

No, the Bay area has different issues.  See what happens when we map the core RBA.

Too. Much. Dark. Green.

The California income scale ranges from $28,183.65 to $122,762.90.  We hope you’re beginning to see the problem: the top 5% income for all of California seems to apply to an awful lot of Census tracts in the RBA.  Or even places that are NOT in the RBA. Like this part of Santa Clara with the Oracle campus:

Contrast with an RBA tract we know is loaded: Los Altos Hills.

It’s the exact same shade of green, because the danged scale tops off far too early for the RBA.  According to this map, there is no difference between northeast Santa Clara and Los Altos Hills even though the latter’s median household income is 72% higher.

If a tract in the Triangle of Lost Equity can have median household income above 95% of California, Rich Blocks Poor Blocks in the Real Bay Area might as well be called Five Red Tracts of Suck Amidst A Sea of Deep Green Money.

Burbed readers are a fascinating bunch.  One of them has put together some Bay Area-specific buying calculators, and wants you, the Burbed readership, to have a look.  Since you’re all so hard to please and think everything out there sucks, this is your opportunity to ask the author to make it suck less.

Please welcome Burbed reader PKamp3 and the Don’t Quit Your Day Job blog, introducing lots of boring math, charts, and stats.  Some of you should just go back to sleep, while others should start a second pot of coffee and get ready to dig on in.

Here’s an article I wrote with 2 RBA calculators attached. I wrote it kind of in a Burbed mindframe: “who the hell can afford RBA prices”?

Here’s a preview:

2362 LAURA Ln, Mountain View, CA 94043
$634,950

I can tell you before you click the link… using my default assumptions:(20% DP, 4.5% Interest, 30 Year Mortgage, 31% front end DTI.  You can change everything there.)  43% of Bay Area Households have the income to make the payment.  That’s 746,463, in the RBA 4… since I count Alameda County.

Might be interesting… now that I wrote the code I’m having fun looking at listings and running the numbers.  Maybe you can help come up with better house-hunter ranks?  I don’t want to spoil it, but based on home prices the rank changes.

Given how willing PKamp3 seems to be in helping make this tool more useful, please play with it and complain at length in the comments below.  I’ve already groused about the inability to put a cash amount rather than a percentage amount in the down payment, and noted that Alameda County’s presence in the dataset pretty much poisons the well of “Inner Bay Area” buyers.  It might be “Inner” but it’s not particularly Real.

Some of the limitations are due to what’s available.  Some cities have been removed from the dataset.  I felt that the RBA should be limited to San Francisco, San Mateo, and Santa Clara counties, with the possible addition of Marin.  Alameda County?  That’s a fine joke someone is playing on us.  Once those losers are removed, then we can talk about limiting the universe some more.  I would assume San Francisco residents probably don’t want to buy this crapbox in Mountain View, but you never know.

Head on over to the calculator and let us know what you think of this tool and how useless it is it could be improved.  Plug in some other home values and assumptions and see how many buyers you’re up against.  So, what do you think?  Do you see a use for this?  Or are you going back to sleep?

From an anonymous Burbed reader:

I thought that this might be a fun tidbit for burbed, though it’s not Bay Area-specific.

Ginnie Mae kindly provides a "Buying vs Renting" calculator to help prospective purchasers determine whether buying or renting is a financially better decision.

http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?section=YPTH

I did think that it was kind of interesting that it defaulted to 10% down rather than the more-traditionally-recommended 20%, but that wasn’t what I was writing about.  While the calculator does provide a "Yearly Home Value Increase Rate", entering a negative value unfortunately returns the error "The value you entered must be a positive number."

It seems that Fannie Mae’s assumptions just haven’t held up all that well…

What it really is missing is a checkbox that says “Real Bay Area?” – ‘cuz if that checkbox is checked, it should automatically default to “BUY BUY BUY”.

Be sure to use this before you head out to your 15 open houses today! Thanks anonymous burbed reader!

It’s Labor Day! That means you should be laboring to ensure your company remains innovative and profitable (as measured by page views, eye balls, friends collected, downloads, etc).

To help celebrate, let’s look at some cost of living comparisons! You know… to see what you’re laboring for.

But first, we need to agree on what salary to choose for comparison. I’m going to pick $100,000 for an easy number to compare (though we know that most make generously more than that!)

Here we go!

Unfortunately, CNN’s calculator doesn’t have Real Bay Area as a destination (yet), so first we’ll have to decide between SF vs SJ:

Alright… we’re going to with SF as the comparison.

So let’s look locally first – what about other parts of this great state – California. Let’s look to Los Angeles:

Wow… it’s kind of a shocker that groceries are so much cheaper in SoCal! What’s up with that? They’re probably eating all junk food, not “Alice Waters approved only” food that everyone here in the Real Bay Area eats. (BTW, San Diego was even cheaper, so I decided to leave it out.)

Ok, let’s look at our arch nemesis – New York City! But wait, there’s a few possibilities, so we’ll look at all of them, including its Cupertino-wannabe-suburbs:

Alright! A pretty good showing! We haven’t quite licked Manhattan yet, but we’re making progress. And we’re definitely more important now that Wall Street is over and green tech is the new wave of the everyday-millionaire in the future. It’s great to see that we’ve beaten nearly all the places where people who work in Manhattan live (Queens is a draw – and look who lives there… just look at their King!). How can Goldman Sachs employees living in Nassau County possibly compete with the fine fine people that we have in San Jose? If we looked at the San Francisco, this would be a total home run except for Manhattan. Great work everyone!

Ok, now let’s look at some fake Silicon Valley contenders:

Now, you might be tempted to move to one of these pretenders, lured by their incredibly cheap cost of living.

Don’t fall for it!

Did you know that in most of these cities, brilliant engineers, the true saviors of the world, are paid only minimum wage? And that no only do they not get Aeron chairs, Dual Quad Proc machines with 30″ LCDs, but instead they have to use folding chairs and Commodore 64′s with tape drive and acoustic coupler modems. Seriously. As for sushi? Let’s just say you’d better get used to eating Chicken of the Sea. Santana Row? Fry’s? Nope. Better get used to doing all your shopping at Walmart Outlet, and Radio Shack Factory Store. Don’t even get me started on the weather – people die there because of the weather. Have you ever heard of people dying here in the Real Bay Area due to natural events (excluding earthquakes which never happen)? Why else do you think it is so cheap in these places? There’s no such thing as a free lunch!

I hope you enjoyed and appreciated this thorough analysis of what it is like to live in other places. Enjoy your labor day!

So yesterday we learned that if you lived in Washington DC, that your grocery bill for a BBQ this Memorial Day weekend would be almost 11% less compared to here.

But then again, our better means that our groceries will taste even better when they’re eaten!

For fun, let’s take a look at what $700k (the current median price in Santa Clara) buys you in DC!

REALTOR.com: Find a Home – Listing Detail
$699,000
4 Bed, 3.5 Bath
0.1 Acres

MLS ID# DC6367924
$699,000
4 Bed, 3.5 Bath, 0.1 Acres
Wonderful 4 level Colonial on a corner lot in popular 16th Street Heights. This cozy home has great living and entertaining spaces on the main level with a formal living room with fireplace and french doors to a sun porch, spacious dining room, and a study. Other features include: 2 master bedroom suites, a skylit attic, recreation room and attached garage. Enjoy a lovely fenced yard with patio and terraced rear–all very private and tranquil. Conveniently located-just steps from Rock Creek park and minutes to the subway and new Columbia Heights retail.

Single Family Property, Subdivision: 16TH STREET HEIGHTS, County: WASHINGTON, Approximately 0.1 acre(s), Lot is 4508 sq. ft., Year Built: 1941, Four or more stories, Central air conditioning, Basement, Fireplace(s), Dining room, Den, Hardwood floors

Wow, that’s a pretty nice looking house!

And just for more fun, according to this cost of living calculator, if you make $100,000 in San Jose (practically the starting salary these days) and you moved to DC:

Equivalent income in the city you’re moving to: $90,032.08.
You may take a 9.97% decrease and still maintain your standard of living

So your groceries would be cheaper, your house would be nicer, and your general cost of living would be lower.

But ask yourself: Do they have El Camino Real there? Do they have Fry’s? Do they have 280 or 101 there?

Accept no substitutions – accept only perfection: The Bay Area.

I noticed this ad on Craiglist:

$1850 ***HOME***2 Bed / 1 Bath + Bonus Room w/Full Bath***HOME****
Great home on a beautiful 4000 square foot lot. Exceptional details of this home include:

2 Bedrooms, 1 Bath, recent remodeled kitchen, large secured back and front yard. Attached garage converted to studio (unwarranted) perfect for additional bedroom or home office. Large yard has water well available. Plenty of storage and large tool 15 x 12 tool shed. New Paint, and Carpeting. Kitchen appliances, window coverings and washer and dryer included.

·Two bedrooms and one bath.
·Additional unwarranted bathroom in garage, great for office or additional living quarters.
·Spacious kitchen plenty of newer cabinets, and counter tops.
·Large level back yard landscaped with garden area.
·This property includes a one car attached.
·Large and secured front and back yard.
·Recent work done to the home includes interior paint and carpeting.
·Conveniently located within walking distance to shopping center and freeway access.
·Extra storage throughout the home including large 15 X 12 tool shed
·All appliances included.

If you click the link, you’ll see that the house is none other than the one featured in early April on this blog:

What’s the 5th most affordable home in Redwood City like?

This is how I described it then:

Unfortunately, I was never able to enter the home. Why? Because I couldn’t find a parking spot!

Yep – on the day I was there, every inch of the street had been taken up by either a pickup truck, an industrial truck with landscaping equipment, a trailer, or an commercial van. Heck, I could barely find the house with all those tall vehicles on the street.

This is just a hunch, but I suspect that it hasn’t improved dramatically as of late.

But for fun, let’s do the math… according to this calculator, a 30 year mortgage w/10% down would run you $3442 a month. Or, if you got an Interest Only loan, it would be $2195 a month.

Hm… this calculator says that you will not break even after 30 years!

There’s just one mistake though: they forgot that Redwood City is special, that the equipment to detect illegal gun fire is working, and they’re not making any more Redwood City.

I bet you’ll break even after just 2 years. What do you think?

In a post yesterday, Burbed reader Henry claimed I did a disservice to my readers by not quoting enough of the WSJ article that everyone’s buzzing about:

“Why Your Home Isn’t the Investment You Think It Is – WSJ.com” — Burbed.com: Your Silicon Valley Home and Mortgage Insanity Blog
Please stop spinning and answer the question: Why did you ignore the parts of the WSJ article that directly contradict your hypothesis about Bay Area housing prices? Were you so desperate for information to confirm your theory that you didn’t read the whole article? Didn’t you think any one else read it?

Fair enough – anything to inform the readers. Here’s the passage the Henry cited:

Q: Those numbers don’t seem realistic for where I live. You can’t buy a house here for that kind of money.

A: To be sure, not everyone did so badly as the national average. OFHEO’s Home Price Index calculator puts the average 30-year appreciation for a house in the ever-pricey San Francisco metropolitan area at 1,125%, compared with the national average of just 481% (http://www.ofheo.gov/HPI.asp). So if you bought that $50,000 house in San Francisco in 1977, it would be worth about $613,000 today and, assuming much the same costs of ownership, you’d make a true profit of $219,000.

You would have done well in other coastal metro regions, too. The comparable house would be worth about $593,000 in Los Angeles (up 1,085%), $549,000 in New York (998%) and $432,000 in Washington (763%).

But some other big cities didn’t fare as well. You’d be in the red in Chicago, where home values rose 463% and the house would be worth $282,000. Your house would be valued at only about $176,000 (252%) in Dallas and just $147,000 in Houston (193%).

I thought I wouldn’t have to post this because it’s obvious – Bay Area real estate always goes up – because it’s special. Like they said in the experts cited by the Merc the other day, if prices go down, it’ll only take 10 years for them to go back up.

So here’s Burbed.com’s prediction for the year 2019 based on all of this…

Yep, that’s right… by 2019, Bay Area homes will be 3241% more of their 1977 prices. The $50,000 home in SF in 1977, which is now $613,000 will have no choice but to be $1.62 million in 2019 based on the historical trend of about 8.7% annual appreciation. (Remember, past performance is indicative of future results.)

Furthermore, the median household income in SF today is $73,180 – putting a house price/income ratio of 8x. Assuming 4% raises every year, the median income will grow to be$117,163 in 2019 – making the house price/income ratio 14x.

In the end, that’s a good thing – the less affordable a place is, the more desirable it is and the more special it is. Everyone wins!

Thanks for the feedback!

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?

Available Rental Properties
1540 Ben Roe Drive
x-Street: Park Hills/Fremont
Rent: $2800 Deposit $30003 Bedroom, 1.5 Bath House, Living Room, Family Room, Fireplace, Kitchen with Gas Range, Dishwasher (Refrigerator, Washer and Dryer are present but not warranted), 2 Car Garage, Large Yard – Great for Entertaining with Gardener, Cupertino Schools.
Terms: Year Lease
No smoking, No pets, Available now

Hm… let’s see – according to Zillow this house is valued at $1,201,541. So let’s see – assuming you put down a 10% downpayment, my mortgage calculator says:

• $6,658 a month with a 30 year fixed
• $5,805 a month with an ARM
• $4,505 a month for an IO ARM

Hm… so let’s see… let’s say you decided to pay $1,705 more than rent to get an IO ARM. What would you get for $4505?

1. Guaranteed 7% appreciation. (That’s what the famous Gary Watts said about the OC – and we all know that the Los Altos is more special than the OC)
2. The ability to say you own a home, even though after 30 years you won’t.
3. The abiltiy to change the house anyway you wany, even though you’re short $1705 a month.
4. The ability to do your own maintenance – which is cost and time free.

Sounds like a great deal!!

So don’t throw your money away by renting – offer to buy this house today!