According to the California Association of Realtors and their First Time Buyer Housing Affordability Index, 23% of San Francisco households can currently afford to purchase a home priced at 85% of the local median. Their assumptions: $693,840 purchase price, 10% down, 5.69% financing (ARM), monthly payment of $4,420 (including taxes and insurance), and a household income of $132,550.

That’s up from 18% affordability a year ago, up from 16% the year before that, and up from 9% prior to C.A.R. redefining how their index is calculated.

As you might recall, it was two years ago that C.A.R. changed their 24-year-old index to reflect a down payment of 10% (down from 20%), a monthly payment of no more than 40% of a household’s income (up from 30%), and a short-term adjustable rate mortgage (versus long-term fixed). The rational at the time:

In the more than two decades since the CALIFORNIA ASSOCIATION OF REALTORS® first conceived the HAI, the mortgage finance landscape has changed dramatically. The range of mortgage products available to buyers as well as underwriting criteria has changed.

C.A.R. developed the new index measuring affordability for first-time home buyers to better reflect the realities of today’s real estate market.

Now about the new new realities and underwriting criteria two years later (today)…

Entry-level housing affordability increases 50 percent [C.A.R.]
Affordability Is Up! (But Not Really) [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by mediated

    That’s all fine and well except that the new debt to income guidelines (38%?) make 10% nearly impossible if buying in SF. For all us non-VPs that is.

  2. Posted by Trip

    I’m not even going to get into the obvious unfounded nature of the assumptions, especially the 10% down. Claiming a family can afford a $4420 monthly payment on a $132,000 annual income is absurd. Unless that family is expecting huge increases in income, that is far too expensive for that income level. It’s a recipe for financial disaster.

  3. Posted by rr AKA the original Ryan

    Trip-
    While I agree that debt to income ratios have gotten a little extreme these days, I don’t agree that $132k is too low for a $4420 payment. $132k is $11k a month, net. Mortgage interest deduction will get them ~$50k income off of taxes, so they probably pay, say. $2k a month in taxes.
    That leaves them around $4600 a month. Living on $4600 a month is less than what most people live on before taxes and mortgage, and is most certainly doable within San Francisco. Granted, you could burn through that easily if you decided to live the 2-BMW san francisco lifestyle, but that would be a choice, not a necessity.

  4. Posted by badlydrawnbear

    so someone better at this is free to run the numbers but my quick calc is 132k/12 = 11000 monthly gross take .6 of that (for state, federal, SS, health care, and retirement savings) and you get 6600.
    4420/6600 = 67% of monthly net income going to housing.
    And that’s before you try and save a rainy day fund for medical emergency, or service other debt such as car payments loans or credit card debt, and don’t forget about maintenance and upkeep of the home.
    Forget about vacations or going out to eat or the movies it’s the house or nothing I guess.

  5. Posted by bord_man

    Totally with Trip on this one.
    I find it hard to believe that 23% of households in SF can afford to buy a place. No doubt there is a lot of $ here, but still…

  6. Posted by location

    rr and bdb are paying very different taxes in their scenarios. Which one is correct?

  7. Posted by REpornaddict

    Yeah I think affordability is an interesting one.
    I know the more conservative quote things like you should never have a mortgage of more then 3x income etc.
    But I think the higher above the median you earn the higher your multiple can be. There are certain fixed or fixed-ish expenses that we all have regardless of income – bills, healthcare, we all need a weeks grocery shopping (although the more you earn the more you spend, I dont think its linear).
    Plus I think 132k is very much the bottom end of home buyers income in SF. I know the median in SF is lower than this – but the median isnt buying houses with our rental %.

  8. Posted by badlydrawnbear

    Mine is certainly missing the mortgage deduction but I did try and include the health care and retirement savings (401k).
    I assumed 10% on retirement savings and the other taxes, SS, and health care make up approx 30%.
    Please feel free to adjust for the mortgage deduction because I certainly don’t feel my numbers are definitive, just a quick back of the envelope scenario.

  9. Posted by view lover

    That leaves $2,180 for everything else, but you also get to deduct the interest and taxes. That gets you back a pretty good tax refund. It’s still not enough to drive around in a BMW but you get to own a home.
    Rents are creeping and for a nice property you still have to pay $2,500+, so it’s expensive any way you slice it.

  10. Posted by anon

    Most people buying houses for the first time are younger and their earning potential increases dramatically. Doubling of HH income in 5 years is not difficult for people who are motivated. And sh**…..I know more than a few 20-something renters who spend $500 a weekend on food and nightclubs and then complain they can’t afford to buy a house…too funny.

  11. Posted by Foolio

    “But I think the higher above the median you earn the higher your multiple can be.”
    Since the income tax is progressive, this is probably incorrect.

  12. Posted by SausalitoRes

    And don’t forget property taxes, insurance, and maintenance (or HOA fees). AMT hits pretty low these days…certain to be an issue with anyone who would qualify to buy a home in San Francisco and would affect the deductibility of property taxes.
    Also, isn’t the interest deduction limited to the first $1 million of mortgage debt?
    I don’t know how “normal” people can afford mortgages larger than $1 million with only partial deductibility of the interest and non-deduction of property taxes.

  13. Posted by badlydrawnbear

    @ viewlover
    yes $2,180 a month to service other debt (car, credit card, student loans), pay for groceries, save for a rainy day, pay out of pocket medical expenses, other transportation costs (muni, gas, ferry etc) pay for maintenance and upkeep of the home, and pay for other incidentals like clothing.
    Even if you are DINK’s 2k left over for all other expenses can go pretty fast.
    anon, has a very good point, if you assume a fixed rate mortgage but CAR’s own affordability index assumes an ARM. Considering that current mortgage interest rates are at historic lows the idea that your monthly payment is going to go up as your income goes up should be considered.
    Finally, a young 20 something couple will likely see their incomes rise significantly but are also likely to want to have kids and start a family which is going to increase their other expenses as well.

  14. Posted by Well...

    The issue still is what you get for that money. If you are a typical SF couple with say $150k in household income (not unrealistic) and a kid on the way, then your cost of entry shoots up unless you get lucky and find something ok way out on the West side. It’s a great time for people to move out of SF and find something in the East Bay. That’s where the bargains are. But I have no idea how hard it is to get a mortgage these days — probably difficult as Banks are cutting way back on mortgage lending from what I’m told.

  15. Posted by ex SF-er

    Doubling of HH income in 5 years is not difficult for people who are motivated.
    I agree with this if the income starts out at a low “starter income”. but doubling starter incomes isn’t going to buy you a house in SF.
    I’d guess that most of the younger people who consider buying (as opposed to renting) in SF START at around $100k… and it is difficult to double that IMO. (it can be done, but it is difficult)
    as example: I made around $185k or so once I started practicing. It would be VERY DIFFICULT for me to “just double” it to $370k.
    A lot of my researchers started at $30k as post docs, and then their first jobs around $80k maybe. Doubling to $160k would be unlikely for most of them. (some can do it, most can’t)
    I’d guess that in most fields it would be uncommon to DOUBLE salary quickly (unless we’re talking doubling from very low levels again, and that won’t buy you a home in SF)…
    now my other half will double (and treble, quadruple, quintuple, etc) their income over the first few years… but that’s an anomaly IMO. And you don’t use outliers to justify median home prices IMO. instead, I’d use the median incomes for people in the buying pool (that 30% or whatever).
    how many people on this blog had high starting salaries and then doubled them? (I’m not talking going from 30-60k… I’m talking from 130-260k)

  16. Posted by sparky

    @Well, It’s not way out on the west side. It’s the south part of town. The house they are talking about in this post $694K is mostly in D10 and D3 (210 of the 240 SFH on the market).
    P.S. for most SF employees health is covered by the employer. If you have a big house to income you can claim more deductions on your w-2 and get it in your paycheck and not at tax return. And in this equasion your property tax and interest will be all of your fed and state taxes due.

  17. Posted by rr AKA the original Ryan

    my numbers did not take into account retirement savings, but I was assuming people in a household making $132k a year probably had good health care coverage through their employer(s).
    Of course my numbers also ignore housing maintenance, which is probably about cancels that out, so I’d say go with badlydrawnbear’s numbers over mine.
    Though, I think people buying a house should not have a significant credit card payment, as you’re better off renting and paying that down to zero before getting a mortgage (better credit rating, lower debt to income, etc). If they do, it’s going to count against the debt to income level anyway, so you can reduce the monthly payment they qualify for by the amount they are paying other debt. Basically, the linked article’s model is assuming NO other debt besides mortgage.

  18. Posted by badlydrawnbear

    sparky, obviously there are some employers who do still do 100% employer paid health insurance but that is increasingly rare. Most individuals I know pay at least a portion of their health insurance.
    Also, there could be additional benefits paid with pre tax income like Life or Disability insurance which would be especially prudent for homeowners.
    All I was trying to do was put a little “real world” context (that there are a lot of little expenses not included that add up quickly) around CAR’s seemingly “ideal world” affordability calcs

  19. Posted by REpormaddict

    Yeah good point re the income tax Foolio.
    But the higher the income tax the higher the mortgate tax deduction, also.

  20. Posted by smarty

    $4420 monthly payment on a $132,000 is crazy and unrealistic. My household income is more than this, and we pay 25% less a month and can barely swing that. And no, we don’t drive 2 BMW’s – in fact we walk to work to save on transportation costs.
    Maybe one could swing it if they go straight home each day after work and sit in the dark at their home eating roman noodles every night.

  21. Posted by sparky

    bdb,
    Everyone who works in SF @ a company of 10 employees gets there health paid. So, that’s not everyone but a lot.

  22. Posted by ex SF-er

    “But I think the higher above the median you earn the higher your multiple can be.”
    Since the income tax is progressive, this is probably incorrect.
    Actually, I agree with the first comment, within reason. The problem is that SF/CA real estate has thrown away all “reason”.
    If you make $40k/year, fixed costs (food, gas, groceries, etc) make up a sizeable chunk of your take home pay. so you have little left over for housing.
    If you make $400k/year, your fixed costs are much less. Sure, taxation is higher, but you still have a lot more nut at the end of the month with which to pay a mortgage.
    That said, I cringe when I hear how “easy” it is to make $130k/year and spend $700k on housing. yes it can be done… but make sure you have an antacid handy.
    That amount spent on housing really crowds out a lot of other necessary things, most importantly adequate retirement and emergency savings. and if you require 2 incomes to do that then you are at risk if one should lose their job.
    I know I am financially conservative, but I’d really have to question making so little and spending so much on housing. I believe they call it House-poor
    I really like the “old” rules of 3x income and 28% gross/33% net. far more comfortable IMO.
    and yes, I know that it is very difficult to buy in SF using those ratios. it’s also very difficult to climb Mt. Everest. sometimes we’re not meant to do things that are overly difficult.

  23. Posted by Mark

    If we grant the dubious possibility of obtaining a 10% down loan at 5+% (I’m looking right now, incidentally, and my broker hasn’t given me an option anywhere near this), and if we grant that this leaves adequate money for a decent lifestyle, there is still the matter of how many SF families have the $70K+ waiting in their bank accounts to drop on a house. It takes a lot of diligent saving to come up with this amount of cash at the $130K income level, even assuming people are ignoring their 401(k)s/IRAs.

  24. Posted by sparky

    In the numbers above. The $4420 includes taxes, insurance, etc. The months mortgage would be $3600. That’s with 10% down, which isn’t going to get a loan anyway (20%min. I would think)

  25. Posted by pica1986

    “Everyone who works in SF @ a company of 10 employees gets there health paid. So, that’s not everyone but a lot.”
    I don’t know what industry you’re in but that is simply not true. You can buy into employer based insurance, but that does not mean that they necessarily cover 100% of the cost. I’m in tech and haven’t had 100% employer paid health care since 2002. Granted health care for one person only deducted about $100- $120/month out of my pre-tax income, but it’s enough to have an impact if you are on a tight budget.

  26. Posted by Satchel

    I saw a lot of (incorrect) comments above regarding how much tax “savings” there are in the case outlined by CAR: $132K income, $690K house, $4420 monthly payment, 5.69% rate, 10% down. So I decided to do a quick scenario analysis.
    I assumed a married couple (joint filer), with no dependents. At $132K income, the tax savings are $1,030 per month. That’s it. Once again, the idea that one can deflate a house payment by a marginal tax rate is wrong, wrong, wrong. Especially wrong at the relatively low income level of $132K (relative to $46K of deductible interest and prop tax).
    If you add two dependents, the savings goes down a little, to $1,023/month. (This is because kids act as “built-in” tax deductions for most filers.)
    I assumed a “clean” return. To the extent that the filers have other deductions – which is almost a certainty given the availability of 401(k) and/or IRA deductions, HSAs, etc. – the tax “savings” go DOWN.
    For a single filer, the savings are on the order of $1,450 per month.
    I hope that helps the discussion. I’d be happy to give any details – the templates are in turbo tax. Of course, don’t trust random anonymous bloggers, talk with your green eyeshade guy, etc., etc.

  27. Posted by ex SF-er

    “Everyone who works in SF @ a company of 10 employees gets there health paid. So, that’s not everyone but a lot.”
    not to mention the people who have been changed from ‘employees’ to ‘contractors’.
    a lot of companies country-wide are chaning to a contractor-style system so they can avoid paying for benefits.

  28. Posted by sparky

    Yes you can go to a contractor style pay in some cases. And country-wide is a totally different story. SF law says 10+ employees and you pay for their health insurance.

  29. Posted by Lance

    First of all, I agree that it would be difficult for a couple earning $130K to afford a $690K home. It’s doable, but it would mean a lot of sacrifices that might not be worth it IMHO. With that said, BDB left out the interest and property tax deductions from his calculation. On a couple in that income bracket on that home, you’d be looking at around $1200 in tax savings. Using back end ratios seems like a much better gauge for affordability to me, and in this example (assuming no other debt), that ratio would still be over 50%…which seems too high.
    As for doubling income, I agree that it’s possible for young educated couples. For example, I know a lot of people in my company who’ve doubled their income from $70K to $140K in 5-7 years. Again, I wouldn’t really bank on that though. Finally – as for the discussions around the tax deductibility on $1M homes and doubling an income from $160 to $320, that’s irrelevant to a discussion on buying a FIRST home. I don’t think there is any question that MOST people earning $160K should be able to afford a home in SF if they want — either as a couple or by themselves.

  30. Posted by anon

    sparky, it’s 20 employees, not 10. Managers and supervisors earning more than $76,000 are completely exempt and entitled to nothing. And even those employees that are not exempt are only entitled to about $1.20/hour in health coverage, far from complete. This is a non-issue with respect to the discussion on this thread.

  31. Posted by NoeValleyJim

    Are you including State income tax in that calculation Satchel?
    These numbers look very familiar to me because
    this was almost exactly our scenario when we first bought our place, but we bought a two unit building, so we had rental income helping out. That was $1500/mo, plus we rented a room out in our flat for another $800/mo. This allowed us to max out our 401k and put aside something for savings.
    We stopped going out and did cheap or free things on the weekends, but it never felt pinched. After a few raises, it has been easy. We did have to hold off having the first kid.
    I am making something like 5X what I started at when I first graduated in 93 and got my first job working for the UC, but I guess I am one of those “low income” people you are talking about. I think most Engineer types double their starting income, but not too many doctors and lawyers.

  32. Posted by Animo

    The prospective buyer in this scenario ($132K/inc., $690K/pp, etc., mortgage w/in conforming loan limit)will not qualify for a conventional loan.

  33. Posted by ex SF-er

    one last point then a question.
    the point:
    the above assumptions don’t seem to include HOA. HOA can be quite a lot on a lot of these units! (400-800/mo).
    ===
    The honest question:
    is there anybody out there who makes around $130k/year (single or combined) who owns a house with a mortgage around $4400/month (PITI) before their deductions?
    anybody want to give us an understanding of how tight or not-tight it is? do you feel you have lots of wiggle room? or do you feel house poor? do you feel like it’s easy to swing your payments, or is it a stretch?
    because I think there are a lot of people who make $80k/year who assume that $130k/year is “richer” than it is, and a lot of us nervous-nellies who make way more than $130k/year who can’t fathom spending $4400/mo on a mortgage. I personally never made $130k/year household income so it’s conjecture for me how poor I’d feel at that income level.

  34. Posted by ex SF-er

    ooops: HOA’s are probably more like $250-600/mo for a $700k condo…

  35. Posted by Lance

    Satchel,
    I agree with you on not trusting some of the calcs you see on blogs, but I think you are excluding the state tax deduction. If you add that in, you should get very close to my $1200 number I believe.

  36. Posted by James

    $4400 a month for whatever you can buy at $694K in SF with an ARM.
    Though I make the prerequisite income, this is not affordable – or worthwhile – to me. Or my family.
    Frankly, I hope there’s more falling to do.

  37. Posted by Satchel

    NVJ,
    I definitely am including state tax benefits. I am just guessing that the difference in the numbers I come up with versus your experience might have to do with “bracket creep”. The marginal brackets have gone higher over the years, which has the effect of lowering the value of tax deductions when comparing nominal income today versus nominal income pre-bracket creep.
    Also, if you originally bought your place before 2003/4, you are probably thinking of the old rates. The Bush tax cuts were a huge boost to many of what we consider “middle class” although the wealthier did *even better*!
    Not sure if you were referring to me, but I didn’t mean to imply that $130K is low. That’s a nice salary anywhere except on Wall Street/hedge funds (my experience) where $130K is less than the typical receptionist gets at one of the top hedge funds for instance (and that was in the mid-1990s – god knows what they are being paid today!). I just mant that $130K is VERY LOW considering $46K of deductible tax and interest payments. I mean, that’s almost 35% of gross income being siphoned off right into the pockets of the banks and state taxing authorities! And – for $690K we are talkin about a pretty modest house in an average neighborhood (say, Sunnyside, or far outer Sunset). No wonder the banks/Fed and states love credit inflation-driven bubbles!

  38. Posted by ex SF-er

    sorry NVJ, I don’t think I’m wording myself correctly.
    I am responding to someone who talked about how easy it would be to buy in SF because dedicated people can simply double their income after buying, making the payments affordable.
    We’ve already discussed that it probably takes about $130k/year salary to buy a shack in SF, so I’m speaking more about doubling that. (since it is unlikely many people are going to buy a SF home while making $40k/year, then double that to $80k/year and easily afford the payments… or even start at making $60k/year then double and easily afford payments at $120k/year).
    I just don’t think it’s that easy to double your salary from the point where you first start BUYING SF Real Estate. In my experience, most people BUY real estate in SF once they are a little more into their fields… and once they’re that far along it’s much harder to ‘simply’ double the salary again.
    I know that many people can easily double their first salaries right out of college… but usually that doubling won’t get you into the buying ladder in SF. For instance, I’ve increased my post-med school salary by 8x… but that first salary barely paid for food, much less buying a house. I wasn’t in a position to BUY SF real estate until a little later… and by that time it was much more difficult to double again.
    same with my engineer and biotech and CS friends… their starting salaries won’t get them on the ladder to buy… by the time they can afford to buy in SF they’re partway through their career and they’ve moved up a little… and then they are able to buy… but by that time it is very difficult to double the salary again…
    i’m not sure if I’ve made things clearer or less clear. sigh.

  39. Posted by SFwatcher

    CAR is a marketing entity. They are trying to convince people that they can afford homes with exotic mortgages, so that their business will run smooth. Thats it..
    They might as well bring up negative-option-ARM with 0 down payment. Ofcourse adding quote “The range of mortgage products available to buyers as well as underwriting criteria has changed”…..
    Now everyone can afford 1 million $ homes… Hooray…
    This is ridiculous even after all the financial troubles we are going through right now….

  40. Posted by Satchel

    Lance,
    I’d welcome checking my number in case I have made a mistake, but I don’t think I have.
    I used 2007 rates. Married, no dependents, $132K gross income (all W-2), no other income, no other deductions except for the house (a “clean” return).
    Without the house, I get $21,473 in Fed tax liability; and $7,045 in CA tax. Total of $28,518. Note that this return would use a standard deduction of $10,700 for federal purposes.
    With the house, I used a 30-year amortizing loan – which is the only one that gets close to the CAR’s $4.4K monthly payment @5.69%. Deductible 1st year interest here is $35,321 (note this will go down in subsequent years), and prop tax is (@1.14%) $7.910. Under these assumptions, Fed tax becomes $12,466 and state tax becomes $3,692, for a total of $16,158. Note that these filers “lose” the benefit of the standard deduction, opting for the larger $46K itemized one.
    So, it’s pretty easy to see that the monthly “savings” are about $1,030 (difference between total tax burden w/house versus w/o).
    Are you doing your analysis on any program? If I’m thinking about this the wrong way, I would love to hear from people.

  41. Posted by ex SF-er

    Satchel:
    I think he’s talking about me using the word “low”.
    I will clarify that.
    I don’t think $130k/year is low. On the contrary, $130k/year is in the top quintile in America, so it is anything BUT low. in fact, I believe someone posted data from the Chronicle that the top 5%-10% of San Franciscans have a median (or average?) income of around $200k. (rough estimate)
    So I get irked when people claim that everybody in SF is “rich” and makes $200-500k/year… because they don’t. People OVERESTIMATE how much others make in SF, IMO.
    but I do think $130k/year is low to be spending $700k for a house. insane actually. but I am very financially conservative.
    ==
    and also: I’ve stated that I’ve never made $130k/year, and that is true… but it doesn’t mean I have a silver spoon or something. I grew up with nothing in the hood (‘loin projects) so I know what poor is.
    But I started making $14/year for many years in the 1990’s living in San Francisco. Then I made around $32k/year as a resident. Then I jumped to $92k/year for a year. Then $185-220k/year shortly after that. so I never lived at the 130k/year level…

  42. Posted by fluj

    Yeah, 649K or less is a tall order.

  43. Posted by Lance

    Satchel – I think the difference that I’m assuming that this person would pay state taxes on that $132K in income (which is deductible), so you would not use the standard deduction under either scenario. If you factor that in, we’d be very similar in our calculations. BTW, I also used Turbo Tax after your earlier email, and I still get around $1200 doing it this way. This is partially based on assumptions though, so let me know if I have any that are off.

  44. Posted by badlydrawnbear

    Is CAR assuming that these are first time buyers using some FHA program that gets them lower rates or downpayment assistance?
    because, after reading all the comments, I would say the answer to SocketSite’s questions “San Francisco Affordability: Is C.A.R.’s New Reality Already Old?” is Yes, CAR’s “new” reality is already old.

  45. Posted by sparky

    satchel,
    Why would you ( in your calculation) use standard deduction when the mortgage interest and taxes paid are in schedule A?

  46. Posted by anon

    I suppose you COULD buy a 700K place on 132K, but I know for me, with a HHI of 200K, with a 700K place with 20% down, it’s just doable. I WOULD not want to stretch for that, no matter the banks say.

  47. Posted by S&S

    “$693,840 purchase price, 10% down, 5.69% financing (ARM), monthly payment of $4,420 (including taxes and insurance), and a household income of $132,550.”
    Did CAR pull these numbers out of thin air? Or did they actually talk to any lenders that would actually approve this loan? In this market, I doubt any bank would write this loan. And, if there is one, I’d sure like to know who it is.

  48. Posted by Satchel

    sparky,
    The standard deduction is only used in the “no house” scenario. That is because the CA tax due on wage income is less than the standard deduction provided by the feds on the 1040 (I’m using a married return here, so the standard deduction is $10.7K, while the dedcutible CA income tax is only $7.045K).
    I hope that helps.

  49. Posted by NoeValleyJim

    Yes, those tax numbers look about right to me Satchel. So this leaves you with $3200/month to live on (post tax), which is definitely doable but tight. You probably have to forgo any 401k contributions for a few years and hope that neither of you gets laid off.
    x-SF-er, I agree that even for a couple making 65k each (for a total of 130k) it is a stretch to double your income quickly, though it will eventually do so by inflation, if nothing else. I see what you mean now about doubling your income and I agree. It is pretty easy to double your income coming out of college, but most home buyers in SF are further along in their careers than that and at a point where it is harder to double their income. A 4% raise each year will do it in 18 years though.

  50. Posted by Satchel

    Lance,
    “I think the difference that I’m assuming that this person would pay state taxes on that $132K in income (which is deductible), so you would not use the standard deduction under either scenario.”
    I double checked and even went to the CA FTB website. CA income tax on $132K gross is $7,045. So CA income tax is not high enough by itself to push the married filer into an itemized position (because the standard deduction is greater than the CA income tax).
    I’m surprised your turbo tax is spitting this out. There must be an input error somewhere. There is a standard deduction for marrieds in CA of $7K, so this knocks taxable income from $132K to $124K. The tax table then spits out $7.2K tax liability, but there is a small exemption credit available that knocks it down to $7.045K.
    Let me know if that makes sense.

  51. Posted by majr

    Is there a way to figure out what dollars in 1948 are in today’s value? A family member bought her SF home for $7000 in 1948. How much would that be today with inflation? She did it as a single woman with kids on a seamstress’s salary. Things sure have changed here is SF. No way this would happen today. What exactly caused SF to go from almost anyone could afford a home to the above figure which is way too generous at 23%? I know time changes things, but this seems so out of whack with what happened in the rest of the non-major metro areas of the United States. Thanks.

  52. Posted by marketwatcher

    Just because something is theoretically possible doesn’t mean someone should do it. Homes can be financial black holes. $hit happens. Roofs need to be replaced. Windows broken. Dishwashers break down.
    With renting, a buyer swaps a higher level of uncertainty for something that is reasonably certain. People often don’t take that into consideration.
    And how many times have we heard of friends that lose their jobs – and struggle for months to find a new one? Factor in six months of living expenses in the bank? Is that conservative enough?

  53. Posted by Foolio

    @ex-SFer:
    Sure, if you use examples like $40k and $400k it is obviously easier to buy a house with $400k. However, I understood the comment to be focused more at the margins. That is, for every dollar you make above $130k or so, you can spend a little more of that dollar on housing. However, with marginal tax increases that occur right around that point and deduction phase-outs that kick in, I think it’s probably wrong to say that you should ease your multiple too much at these income levels.
    @REPA: True, you get slight bit of additional taxes back from the interest deductions, but I do not think it’s a big enough number to make a difference at this level, and, in any case, it is probably offset by the loss/phase-out of other deductions.
    Frankly, for tax purposes, there’s an argument that the worst income level to be at is between $130-$200k, for couples. You don’t make enough to feel wealthy, get creamed on the marginal rates, and lose many of the deductions available to the “middle-class.”

  54. Posted by Rillion

    “The honest question:
    is there anybody out there who makes around $130k/year (single or combined) who owns a house with a mortgage around $4400/month (PITI) before their deductions?”
    I’m probably closer to those numbers then most. When I bought my place (a cheap, for SF, condo) last year, my partner and I had a combined 110k/year and our inital monthly costs were $3,400 (interest only on 1st & 2nd, Taxes, and HOA + insurance).
    Now after a year and half our combined income is 125k/year and our minimum monthly costs are $3,250 (our 2nd has gone down by about $200 per month while our HOA has gone up by $50).
    Even with these figures we have been able to send an average of $600 a month to money heaven (as Satchel would term it) by paying down our 2nd (HELOC). We also still contribute about 10% of our pre-tax salary to various savings (401k’s, HSA’s, IRA’s). We have no other debt (used stock options to pay off the car loan and pay my parents for the tax hit they took for giving us some of their IRA money to help with our downpayment) and have managed to keep paying off the entire balance of our credit cards each month so as not to have any additional debt besides the mortgage & HELOC.
    Of course, based on today’s underwriting standards we could not get the loans that we used to buy the place last year. That is why I continue to pay down the HELOC (which has been frozen), I want to have paid it off entirely soon after my 1st mortgage resets in about four years. That way if the rates resets up I’ll be able to afford it (right now if it reset it would actually dropped based on LIBOR and the margin).

  55. Posted by Michael

    It’s amazing that you have a professional organization representing all realtors that’s so completely clueless about finances and the mortgage market.
    As others have already written, it doesn’t matter if these are responsible ratios or not, no bank will lend using these numbers in today’s market.
    Pathetic.

  56. Posted by Satchel

    “What exactly caused SF to go from almost anyone could afford a home to the above figure which is way too generous at 23%?”
    Mostly governmental distortions, and distortions created by the Federal Reserve System instituted in 1913. After all, bankers need to eat, too! The best way for bankers to get rich is through inflation of asset values. The USG loves it as well, as it allows increased taxation without anyone knowing it, especially on capital “gains” (why is there no index to inflation?).
    Goods of course should get cheaper as human productivity improves. Housing is a form of good. When some of the oldest structures in SF were being built in the late 19th century, something like 60-80% of the American population was engaged in food production. Think of how much cheaper food has become today (in real terms)! We only need less than 3% of the population to produce (too much) food. That productivity miracle freed up a huge swath of the population to prusue other things. The smartest and most devious went into banking.
    Here’s a fun quote from a former bigshot at the Bank of England, delivered in the 1920s (in Austin, Texas of all places), Josiah Stamp:
    “Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money.”
    Who knows if the quote is apocryphal or not. It’s undoubtedly true.
    Just a little light reading!

  57. Posted by ex SF-er

    “A 4% raise each year will do it in 18 years though.”
    wow, 18 years is a lot of ramen! :)
    I agree, COLA adjustments do make things easier over time, and this was part of the reason why it made sense to “stretch” for a home a few decades ago. The problem is that the idea of “stretching” has really changed. our parents would fall down dead if someone suggested they buy a house at 5-6x annual salary in the 1980’s.
    I also am wary because we are assuming a 4% COLA each year. with global wage arbitrage will we be able to get it? I’m biased because in my field (doctor) the answer is: certainly not. I’m continually paid less for more work. but that is obviously field-dependent, and I’m not sure what the trends in COLA are for jobs in general in the bay area.
    that said: to give you 1 example that disproves all my theories: me. we bought our first house with a household income of around $160k, knowing that once we were done with all training and got our first “real jobs” our income would ramp up substantially. so I am proof that there are people who can buy and then later ramp up their incomes… but I think that our case is an exception, and not the general trend. and even so, we bought at 2x income knowing we’d grow into the mortgage, not 6-8x income! (currently our mortgage is 0.75x annual income)

  58. Posted by Satchel

    majr,
    “Is there a way to figure out what dollars in 1948 are in today’s value? A family member bought her SF home for $7000 in 1948.”
    Sorry, I got a little OT there. Here’s what you are looking for, straight from the horse’s [mouth]:
    http://woodrow.mpls.frb.fed.us/Research/data/us/calc/

  59. Posted by ex SF-er

    Rillion:
    thanks for the example.
    Do you think you could swing the extra $400/month payment as per the example?
    (you’re paying $3400/mo plus the extra 600/mo for the HELOC bringing you to $4000/mo… slightly less than the $4400/mo example).
    so to me it sounds as though someone could swing it, but it would be a little tight.
    very instructive, again thanks Rillion.

  60. Posted by majr

    Thanks Satchel. Good link and good information. FYI, that brings the $7K up to $62.5K. The house is supposedly worth 12 times the inflated amount today. I think that is pretty amazing.

  61. Posted by michiko

    Another question for you Rillion. Since you’re paying IO, won’t you also have a balloon of principal to repay in 4 years on the 1st? That’s a cost that IO tends to gloss.

  62. Posted by sparky

    But, in the example $4400 is the mortgage plus taxes, etc. The mortgage would be $3600.

  63. Posted by DavidQ

    I find the comments about ‘free health care for employees at businesses with 10 (or 20) workers’ very mysterious. I’ve worked in SF for a large law firm and UCSF, and I paid my premiums every month. HR was at pains to point out I’m not paying the whole nut, but Sparky’s claim that “for most SF employees health is covered by the employer” isn’t true.

  64. Posted by Willow

    Michiko – Most interest only loan products do not require a ballon payment if you are paying the full interest amount or more on a monthly basis. Your mortgage will however reset with a new payment amount once the fixed period is over. That recalculation will include both interest and principle for the remainder of the loan term. For some people who are able to only afford the interest payment, and don’t have cash reserves will shortly become diliquent, as is happening right across the country. However, if used appropriately and marketed to the right type of customer I/O loans can be a very cost effective means for financing a home.

  65. Posted by Satchel

    “It’s amazing that you have a professional organization representing all realtors that’s so completely clueless about finances and the mortgage market.”
    NAR and CAR are not clueless. They’re just fraudsters. They know that these loans are not available, and they know that 5.69% is not attainable. They in fact know their assumptions are absurd. They don’t care.
    As organizations, they are just hoping people pick up the “affordability has gone UP!” meme, which will dovetail nicely with the “now is a great time to buy”/”housing has bottomed”/”real estate is always a great investment” that their junior fraudsters (the NAR and CAR members – i.e, your Realtor (TM)) will be pushing.

  66. Posted by sparky

    DavidQ,
    I think anon cleared that up already. I thought it was 10, and it’s 20. And if you make over $76K your excluded. I think I got the 10 from the 2 week sick pay.

  67. Posted by Lance

    “Let me know if that makes sense.”
    Satchel, it does make sense. If I had read your original post, I would have caught it earlier also, so my apologies. I was incorrectly assuming that state taxes would be equal to the standard deduction without ever looking up the actual amount. Using the correct amounts, I get almost exactly to your number (i.e. – around a $1030 tax deduction).

  68. Posted by michiko

    willow, I know the rationale for using IO loans. My contention though is that once the IO mortgage resets, the deferred principal has to be paid back over a shorter time period, for example, 25 years rather than 30 on a 5 year loan, thus increasing a typical monthly payment. I shouldn’t have used the word balloon.
    Perhaps the increase is not that significant. My point is that it’s still a cost but somewhat hidden.

  69. Posted by badlydrawnbear

    Here’s a question.
    If Fannie and Freddie get nationalized this Friday, what effect will it have on CAR’s affordability stats?

  70. Posted by unearthly

    @michiko
    Back of the envelope says the monthly will rise about $1000 assuming the interest rate stays the same. This is for a $600k 5/1 I/O mortgage at 5.25% with an I/O period of 5-years. If the interest rate resets higher during recast then the payments can go up from there.

  71. Posted by Jake

    ex-SFer,
    I think my partner and I are somewhat in this range: we bought an 850k place with 20% down and have a (fixed) loan balance at 6.675 (about a 670k loan balance if I recall correctly) and our annual income is about 165k (so more expensive place but marginally higher income). We have no other debt beyond the mortgage, use zipcar instead of owning a car (about twice a month is all we need and we get to rent the parking space out at 400 a month which almost covers the HOA) and save about 15% of our income. Since purchasing the place, we do go out to eat less frequently (2-3 times a week) and at cheaper places and our vacations have become less exotic including more visits to family and friends but it’s been an easy adjustment.

  72. Posted by ex SF-er

    Thanks Rillion and thanks Jake.
    so it appears that us nervous nellies are too nervous, and that $130-160k/year can afford a $700-800k home, with perhaps just a little concessions.
    besides, reducing eating out and not having a car is good for the old waistline!!!!

  73. Posted by michiko

    $1000 a month is significant. I/O loans do play into an out of sight, out of mind mentality. Maybe really sophisticated borrowers can use them wisely, I couldn’t.

  74. Posted by Max2

    I am renting and (like most people) believe I am typical of the majority here in SF. Regardless of whether that is the case, I would very much like your opinion based upon the following data (which is very unlikely to change) of whether to:
    a. Buy in SF. If so, what is the maximum purchase price you would advise, and where would you advise I look? If it goes beyond the “old” rules of 3x income and 28% gross/33% net, please advise with greater level of detail on i,e how to continue to save for retirement, pay bills during an inflationary period, etc.
    or
    b. Continue to rent, for ~1.5 years, and return to a far more affordable part of the country.
    Cash available for down payment: 150,000
    Cash savings: 30,000
    Credit score: Excellent
    Annual Gross Salary: $153,000
    Annual Net: $104,834
    Expected salary increase year-to-year: 15% to 20%
    Retirement savings (available within 20 years): 50% of what will be required
    Industry: Biotech
    Stability in Company/Industry: High
    Monthly rent: $3,000
    W-4 details
    Number of dependents (other than spouse or self) to claim on tax return: 2
    Number of eligible children for $1000 per child tax credit: 2
    Do I have at least $1,500 child or dependent care expenses for which I plan to claim a credit? Yes
    Can I claim anyone else as a dependent? No
    Do I plan to itemize or claim adjustments to income and reduce your withholding? No
    For 2007, did I have a right to a refund of ALL federal income tax withheld because I had NO tax liability? No
    Will my 2008 income include more than $300 of unearned income (interests, dividends, etc.)? Yes, approximately $3000.00
    Total number of W-4 dependents I will claim: 4
    Many thanks,
    Max2

  75. Posted by view lover

    badly drawn, I don’t understand your comment. Sure $2,180 a month left over is not rich, but is the hypothetical buyer better off renting at $2,500? Does that cover all costs and expenses and savings? Can the income earner at $132K live comfortably renting at $2,500 or more but is killed at $4,400 a month before deductions? Or are they likely to have to live in a studio in the Tenderloin at $1,200 in order to cover life’s expenses. Where is the balance to have a decent income and a decent place to live?
    I hear all this whining about how it can’t be done or should’nt be done. I agree it’s difficult. But what are the alternatives? Prices don’t come down because of an analysis that suggests you can’t cover all of your other expenses comfortably.
    The reality is that if you want to buy a house in SF and in many other places, most people have to make sacrifices, not my opinion, just a fact of life in SF. And if you want to live in SF you have to PAY one way or the other, renting is not always cheaper or a better alternative.
    That’s all I’m saying. And yes, I don’t feel I can afford a car, but I do own a house, two actually.
    It’s not for everyone, but it is what it is and it costs what it costs.
    One other thing. You can claim up to 10 deductions without the IRS asking any questions. With a mortgage interest you still get money back, and your paychecks will be larger to help with the payments.

  76. Posted by sanfrantim

    “Yes,” some parts of SF definitely have become more affordable, but, “No,” other parts have become less affordable, where prices remain high while credit has become more costly.

  77. Posted by unearthly

    IMO the ‘out of sight, out of mind mentality’ is going bite a lot of the medium/high end over the next few years. Move that loan from $600k to $1M and suddenly the I/O recast payment jumps $1600/month. I won’t even go into Option ARM land…

  78. Posted by fluj

    Move that loan from $600k to $1M
    Huh?

  79. Posted by The Milkshake of Despair

    Max2 : My advice is :
    c. Continue to rent and monitor real estate market, buy when prices stabilize
    In other words, the decision/timing to buy are based on evidence of the prospects of near-term appreciation. You don’t want to buy in a depreciating market for many reasons. Even if a property is affordable you should not buy it if you think the price will go down. If you had the chance to buy a house for $200K, well within your ability to afford, but thought the same house would sell for $150K next year, would you buy it because it was affordable ?
    Affordability is a different issue and I think that the reason that it is so heavily discussed here is that the perception and realities of affordability has an influence on the RE market and can distort values.

  80. Posted by Michael

    “prices remain high while credit has become more costly”
    So which is it, the next big wave of resetting ARMs won’t have any affect on the market in San Francisco because rates have fallen or it will because rates have gone up? You can’t have it both ways and I’ll take higher rates, lower “affordability” and lower prices as a result every time.
    The scare tactic of “higher rates” should only frighten the uninformed.

  81. Posted by fluj

    So basically you are telling him to time the market, Milkshake?
    Instead I advise that you sit down with a qualified financial planner or consultant. If your company has an affiliation with one, start there. Hopefully that will be free or at least cheap. Look at your own life plans. How long do you wish to stay in San Francisco — that’s a very pertinent question. If the planner suggests moving forward on a purchase I would be happy to interview with you to try to become your realtor.

  82. Posted by Satchel

    Max2,
    That’s cool that you’ve given so much detail. I’d love to take a crack at a response.
    But we need more (sorry…) details.
    1. Is 15-20% increase in salary truly likely? That means that in 10 years you expect to be earning $600K to $925K. Does that sound right? (believe me, NOTHING surprises me anymore. In 1997 I was tasked at my hedge fund with “mentoring” a 24 year old junior trader who everyone felt sorry for because his boss had “washed out” and he was “orphaned” at our shop after only being there 6 months. In 1997, he earned $105K. In 1998, he made approx $600K. In 1999, $3.5M. I left the fund that year, but he later appeared in a trade publication in 2001 or so, with a take home of $25M that year. So, anything is possible.)
    2. What is your living/rent situation now? What are you renting for $3K, and are you happy where you are? SFH, or apartment/condo? What would you buy, and where?
    3. Do you have kids that might fall prey to the SFUSD? Will you go private school if they don’t get into the two or three (at most) reasonable elementary schools (Clarendon, West Portal School and – maybe – the Dianne Feinstein school; some might also include Sloat in there, but I wouldn’)?
    4. I’m not sure what you mean by 50% retirement savings already available. How much $$? How many years til retirement? If you’re under 35 or so, I’d forget about social security – it won’t be there – and my that time health care will be price controlled and rationed and old people will be sh*t out of luck. Review what happened to pensioners in Russia post-1991.
    5. How much do you love SF? I like it here because it’s relatively cheap for me in view of the amenities offered, but if I wasn’t semi-retired and had to actually accumulate money here, I’d probably split.
    I’d be happy to offer advice and I am sure others would too.

  83. Posted by badlydrawnbear

    @ view lover
    My comment is that the CAR affordability calcs don’t reflect the real world, either the current state of the mortgage market or many potential first time buyers true out of pocket expenses, and are a little too much “happy sunshine” (10% down instead of the previous 20%, the use of ARMs instead of the previous Fixed Rate Mortgages).
    The CAR’s calcs still reflect bubble thinking, that buyers can take bigger risks and stretch further then they think because if they get into any kind of trouble (divorce, medical emergency, layofff) that the apperciation and “everyone wants to live here” factor will save your ass.
    If you think it’s all very realistic, great.
    I would be more cautious and include things like the need to save for retirement and a rainy day fund before I went and spent 60 some percent of my net income on housing.
    It’s just a difference in perspective and risk assessment, no biggie.

  84. Posted by unearthly

    @fluj
    Calculate the payment jump given the same terms on a $1M loan and the result is an increase of $1600 per month. That’s not an uncommon loan amount for a SOMA condo (Infinity or ORH) or an entry-level house in Upper Noe.

  85. Posted by fluj

    I can’t entertain that scenario. I don’t think it’s applicable because it does not make sense in this lending environment, for one thing. It’s twenty percent down for jumbos and a fixed rate right now, or the highway. And if you are predicting where I/O payments will jump to exactly — well sorry but you don’t know that, nor do I.

  86. Posted by sparky

    so Max’s possible $600K to $925K in Biotech doesn’t surprise you Satchel.

  87. Posted by The Milkshake of Despair

    fluj – Yes absolutely I am recommending timing the market, especially in these conditions.
    I know that sort of statement is heresy in financial advisory and RE advisory professions and I’ve heard and understand the arguments against timing the market.
    If I had taken the advice to ignore market conditions not time the market I’d conservatively have 10-20% less assets.
    … or maybe I’m just incredibly lucky.
    One memorable case was in 1999 when my financial planner saw that I had pulled a lot of funds out of the stock market and was investing in lower volatility instruments. Despite my uneasiness with the inflated state of the tech market, he gave me the spiel of how it doesn’t matter for a young person like me to time the market when those funds would be invested for several decades. He advised to move about 90% of the portfolio into small and mid cap tech stocks. Advice which I ignored.
    I no longer employ a financial planner.

  88. Posted by unearthly

    @ fluj
    My statement had nothing to do with today’s lending standards and in fact was directed at another individuals comment. Calculating payment jumps assuming a constant interest rate is quite easy when the terms are spelled out as above.

  89. Posted by view lover

    Badly drawn, still my question is a rent or buy alternative. To me its expensive either way, 60% owning and deductions vs. 35-40% renting and no deductions. Neither provides for life’s emergencies and the historical “normal” expenses and savings, IMO. That was my intended point and really only point. I believe it is realistic as these are the costs of either renting or buying, I don’t believe they are sustainable without a major demographic shift. For all I know, maybe everyone is rich except me. I can’t figure it out.
    As far as CAR, well they are just trying to sell houses and I may have been off topic as this thread really is about CAR’s ray of sunshine comments.

  90. Posted by Satchel

    touche, sparky!
    (I was being a little charitable)
    Sorry if I came off wrong the other day on the other thread. I really took what you wrote (“pull down”) to imply that they were *regularly* earning those sorts of numbers. Sure, one off anything can happen. (You know, you can check options grants/exercises by insiders as well. There haven’t been any $1M+ sales by anyone other than the CEO over the last two or three years at MDCO. BUT, I don’t doubt you. Your friends are probably not “insiders” – top execs or large holders of securities for SEC purposes – and so don’t trigger the disclosure rules.)

  91. Posted by Jake

    One more thing I forgot – we do expect our incomes to increase substantially in the next few years (although maybe not doubling). I’m the primary wage earner but the spouse’s career is just taking off. We considered that fact when we bought.

  92. Posted by fluj

    @ milkshake,
    People can time real estate markets. If you can do it, more power to you. I’d like to think that I can. You need to immerse yourself in order to do it tho. The CW espoused by the majority on here last summer put right now as an excellent time to buy. Is that really the case in terms of bottoming? I’d argue that only Bayview for a longterm hold is a “market timing” buy right now. (I’d also try to grab a fixer in Glen park if you can get one for under 750K — very tough to do but not impossible.)
    @ Unearthly,
    Just for the sake of argument, why can you definitively say I/O payments are going to be shooting up so much? Because you know what’s going to happen with prime? You don’t. No one does. If I had to guess the Fed is going to yo-yo prime for the foreseeable future. Small increases will be followed by small decreases for I/O paying borrowerd. But no, i think you are only speaking to a specific fixed time period reset — the toxic loan.

  93. Posted by Satchel

    viewlover & bdb,
    One important “cost” of owning a home is the illiquidity of the asset, and the possibility (and, at times IMO, the near certainty) of price declines. This needs to be factored in.
    For instance, most people it seems are not buying their “final” property in SF. Many are expecting to “move up”, “build equity”, etc. Thus, there will be a sale in the next 3-5 years OR one needs to take the risk that rent prices will rise enough such that a purchase today will be cash flow positive in a few years. That’s been a losing bet for 5 years at least in most parts of SF from what I can tell. If the property is sold, it must have appreciated 7% just to cover transaction costs – to say nothing of the inconvenience of having to have a bunch of fools parading through your home in open houses every weekend and tuesday. If the price goes down – even 5% – after transaction costs, most people will be wiped out. And even worse, I’ll come on a blog and say they were “foolish”.
    These are all costs that should be balanced against the potential upsides of owning property, both in terms of stability of living arrangement, inflation hedge, potential for appreciation, etc.
    At these prices, in view of the enormous disparity I have found in renting v. buying (approx. $3K per month rent vs. $9K after tax cost all in for buying – NOT including any amortization of the eventual selling costs), it;s not a bet I would take. I would be literally PAYING to take the risk on what I believe is a bubble distorted asset price. I might even be willing to pay a *little* more in rent than to buy because I believe so strongly these assets are mispriced. But anyway, that’s how I look at it.

  94. Posted by Byron

    I find it interesting that this discussion has focused on whether someone making $132/yr can afford a $694K property when this scenario is not very likely for numerous reasons.
    People making $132K are not going to be interesting in buying what they can get for 694K in the city. They are going to want to live in one of the nicer neighborhoods and now we are talking realistically $850k on up with at least $400/month HOA. The numbers also don’t factor in closing costs or maintenance. The real question is can someone making $132K afford a place they’d be happy with in this city.
    Why buy a lower end of the market place where you have to reduce going out, vacations, clothing, forgo a car, etc. Is having a piece of property that valuable to you?
    People in this country are brain washed into thinking that owning a house (primary home) has more value than it really does, so they stretch themselves too far to own property.

  95. Posted by fluj

    Excellent point Byron.

  96. Posted by The Milkshake of Despair

    fluj – I agree that you really have to become informed to successfully time any market.
    Just to clarify, I don’t expect to accurately time the market’s low point to buy and don’t think that anyone can reliably hit that bullseye anyways. Rather my approach is much like what Ex-SFer espouses which is to wait for solid evidence that we’ve hit the trough before pulling the trigger. Its OK to miss out on some of the recovery appreciation and that conservative approach is a good hedge against the downside of pulling the trigger too soon.
    The way I look at timing is to compare actual value against the market’s value. The market’s value stats are pretty easy to come across : you see various forms quoted here on SS all day long.
    Actual value is a much more vague concept. No-one can really put their finger on it and say, for example “this home sold for $900K (market value), but it is really only worth $800K (actual value)”
    Though you can’t precisely quantify actual value, you *can* know its nature. Aside from major events like Katrina that cause spikes in actual value, actual value changes slowly and steadily. So when market value spikes upwards for whatever reasons (exuberance, funny money, etc.) , you can be assured that the difference between actual and market has been reduced. I believe that the latest market run-up overshot actual value substantially.
    Then there are the skills of recognizing unrealized value. Flippers and developers do this all the time with good but underdeveloped properties. Realtors do this by recognizing trends.

  97. Posted by sparky

    Satchel,
    for what it’s worth they are not in the SEC finding and are listed as directors. Pluse the CEO all told made $2.75M last year in those same findings.

  98. Posted by Rillion

    “Do you think you could swing the extra $400/month payment as per the example?
    (you’re paying $3400/mo plus the extra 600/mo for the HELOC bringing you to $4000/mo… slightly less than the $4400/mo example).
    so to me it sounds as though someone could swing it, but it would be a little tight.”
    When I bought the place it would have been very tight. We had weekly/monthly transfers to savings/Roth IRA totalling $150 per month so those could have gone towards more housing but after that it would have had to come out of reduced 401k contributions or reduced standard of living (less vacation/travel).
    We thought we were going to be very “house poor” when we bought the place at the time but after a few months it all seemed to work out. We probably could have done it but it would have been a sacrifice.
    Of course, as stated elsewhere in this thread, we wouldn’t be able to get the loans to do it now. The companies that lent me the money have both disappeared (American Home Mortgage for the 1st and a division of Bear Stearns for the HELOC).

  99. Posted by NoeValleyJim

    our parents would fall down dead if someone suggested they buy a house at 5-6x annual salary in the 1980’s.
    That is why multiple of annual salary is a bad way to determine affordability: it is much smarter to calculate it on a cash flow basis. Financing is much cheaper today than it was in the 80’s. Locking in a $600k loan at 5.25% is a smart thing to do.
    Why buy a lower end of the market place where you have to reduce going out, vacations, clothing, forgo a car, etc. Is having a piece of property that valuable to you?
    That is always going to be true for new home buyers here. I have seen it happen to many of my friends: they live in a $4000/mo condo and have the high life and then look at what they can afford to buy for the same price and turn their nose up at it. Six years later, guess what? I have built up equity and my mortgage payment is lower than their condo rent. And they can buy even less for the price of rent.
    It is always going to cost more to buy than rent in San Francisco and you are always going to have to take a bit of a hit to your spending to make it work, especially the first few years. Is that worth it to you? I don’t know, that is a question you have to ask yourself.
    Nothing in this argument suggests that you have to buy this year, in fact I am sitting on the sidelines myself, but saying “I can live more cheaply renting” is not a good argument because it is always going to be true.

  100. Posted by Satchel

    sparky,
    OT Alert! You’re confusing the value of restricted stock + value of option grants for financial reporting purposes with actual cash (or IRS sec 61 income) for INDIVIDUAL reporting purposes.
    If the CEO reported $2.5M on his tax return, he needs to fire his accountant! Those are just notional amounts in the proxy (see pages 38-43 in the 2008 document). Blah, blah, blah, the accountants base the value on Black-Scholes model, blah blah (I’ve never met an accountant who understands anything about options pricing, but maybe I was hanging out with the wrong crowd!). The CEO’s cash earnings were ~$825K, and that’s what should be on his 1040 next year when he files it. Believe me, I’m not blowing smoke up your butt. I understand this stuff pretty well (rather not say how or why I do!).
    When the insiders actually exercise options or sell restricted stock, it will show up in the Sec 16(a) filings (Form 4s). I haven’t dug into those because fluj thinks it’s “creepy” to review public information that was designed to make companies accountable to shareholders and the public after the fraud of the 1920s. But when I *glanced* at them, there were no >$1M exercises bu anyone other than the President (not the CEO like I thought).

  101. Posted by Rillion

    “Another question for you Rillion. Since you’re paying IO, won’t you also have a balloon of principal to repay in 4 years on the 1st? That’s a cost that IO tends to gloss.”
    No balloon payment on this loan. I wouldn’t have taken it if it did. Also no prepayment penalty. It is IO for the first 10 years, fixed rate for the first 5 years, then it resets annually. After ten years it becomes an amortized 20 year loan. So if I don’t refi before 10 years then I’ll have to start paying principal on the 1st at that point.

  102. Posted by Mole Man

    Saying this shows a Fed banking boom since 1913 doesn’t match the data. The Herengracht index shows that over long periods housing prices return to historic medians, and the Case-Shiller index appears to show housing prices at historic median levels as recently as the mid 1990s depending on the exact area.
    This is a double boom that is more closely related to the changes in lending made in the late 1990s plus the Fed moves after 2001. It is also notable now that housing loan interest rates are substantially different from the rate set by the Fed. Fannie and Freddie also played an unusual role by purchasing repackaged toxic home loans in large quantities.

  103. Posted by chuckie

    max2:
    i’ll take a crack at the problem posed by you. now, i think real estate in sf is over priced and due for a correction. the only question in my mind is if the correction takes place by actual near term price declines or over a longer period by slow declines or via inflation. so i would wait to see what happens with prices over nextr year or so and, if i did buy, be willing to live in the property for 10 years or so.
    ok, so here’s how i look at the numbers. the current rent paid is $3000 per month. if you buy, there’s some tax savings but there are property taxes, maintenance costs, insurance, hoa etc. in my experience, the tax savings and the additional costs are roughly a wash. so, i would say if you keep your interest payments on the mortgage to $3000 a month, your budget doesn’t change. but, because you’re expecting substantial increases in salaries, and also because you have to be able to stay in the property for 10 years and your needs will grow, i would budget $4000 a month to make the interest payments on the mortgage or $48000 a year. that should allow you to borrow $800,000 at 6% for an interest only type mortgage. with your down payment of $150k, you can buy for $950k.
    in this scenario, you’re taking on $1000 per month additional expense. it may be a strain until your next raise.
    your mortgage paymentat $4000 pm is 46% of your after tax salary. it may make it difficult to get approved.
    you will need 20% down, so you’re short on down payment.
    $950k may not be enough to buy something comparable to your rental.
    i do think you wouldn’t be doing anything crazy if you could make this happen. and, i do think that if this or something very close to it does not work for you, then you are better off renting. At that point buying does not make sense.
    just my 2 cents :)

  104. Posted by Trip

    NVJ, you say “It is always going to cost more to buy than rent in San Francisco.” I just would not accept this as a given. When we bought our place in 1999, from the first mortgage payment (30-year fixed at 6.87%, 20% down) we were paying quite a bit less than rent for a comparable place would be. And that was without even taking into account the mortgage interest deduction (but that also does not account for the opportunity cost of the down payment, and also rents were sky-high then with the dot-com boom; they dropped considerably a few years later but were still higher than our monthly outlay).
    The SF buy to rent ratios have been way out of whack in recent years. I have no idea where they have been historically, but in most of the country and the world it is cheaper to buy than to rent — that is why people buy and that is why landlords buy rental properties. Add there certainly have been times in SF’s recent past where this rule held here as well. Conventional wisdom has it 180-degrees backwards in recent years.

  105. Posted by Satchel

    Mole Man,
    We probably don’t disagree. Once the Fed is eliminated (or more likely blows up), the historic ratios will reassert themselves!
    It’s a long discussion, and definitely too OT even for this blog and me to indulge, but I think you’ll find the inflation data (CPI or CPI-equivalent) interesting in the US pre- and post-Fed. If you look at it since 1800, you’ll see sustained deflation, which of course is the natural order of things as productivity improvement makes things cheaper in stable money (or real terms). The only wiggles are associated with major war (War of 1812 and Civil War), again as one would expect as productive resources are diverted. Take a look here (look at the index levels):
    http://woodrow.mpls.frb.fed.us/Research/data/us/calc/hist1800.cfm
    1800 – 1913 saw a cumulative deflation of >40% (index level 51 to 29).
    Since the Fed, look at the numbers. Hmmm. And of course, asset inflation has been even greater. It’s tough to talk of historic ratios against this backdrop of hyperinflation.
    Thanks for mentioning the Amsterdam data. 0% real return for hundreds of years if my memory is right. Makes sense. Real estate is a consumer good, not a productive asset. Probably land scarcity and increasing population just barely offsets the deflationary pressure. I haven’t really thought too deeply about the very long term that that Dutch data study deals in.

  106. Posted by spencer

    whatever % of city residents make over $220K per year are the % of residents who can afford a median home.
    if you make under $150K, you cannot afford a home over $500K
    (of course leaving out inheritance, stock windfalls, etc)

  107. Posted by fluj

    You know what, Spence-bot? A lot of people did a lot of thinking about this, did math, crunched numbers, etc.

  108. Posted by Byron

    NoeValleyJim,
    Saying you’re better off because you bought a condo 6 years ago than renting does not mean the same is true now.
    Remember you were buying at historically low interest rates, with easy lending and at the begining of perhaps the biggest housing boom for this country. I don’t think that is a fair comparison.
    Also $4000/month gets you a very high end place especially 6 years ago, how much would a place comparable to that cost to buy?

  109. Posted by Stu

    I find that when I do the calculations for tax deductions at or around this price point / and income it turns out the amount you save in fed and state taxes ends up being about what you pay in property taxes and insurance (as evidenced above). Its easy then to decide if you can afford the mortgage payment — in my case, going from $1800 a month in rent to $3600…can I swing it? Before kids, yes. Now, probably not.
    I’d also add that if our hypothetical working couple has a young child, they’ll need to budget at least $1000 / month for daycare.

  110. Posted by Satchel

    “I’d also add that if our hypothetical working couple has a young child, they’ll need to budget at least $1000 / month for daycare.”
    And $1000 to $2000 per month for private (or parochial) school when the child turns 5. Kids are your true wealth, not some pile of sticks and stucco in a foggy city. Please don’t abandon them to the vagaries of the SFUSD lottery (we’ve heard some real sad stories).

  111. Posted by sparky

    Satchel, SFUSD got my daughter into West Portal (which I saw you had high on your lis), so I don’t think it’s all bad. I didn’t take so my spot went to someone else. Went private, and don’t pay as much as you quote (with some volunteer time)

  112. Posted by fluj

    “you pay in property taxes ”
    But these can be deductible too depending on the situation, and whether AMT is in play. I think for the case in question they probably could be deducted.

  113. Posted by satchelfan

    We went private and it is roughly $20k/kid not including the recommended annual donation. Sure it’s not bad if you go the parochial route with the volunteer time included. I’m assuming that’s what Sparky is referring too. Parochial schools are the not the same as private. Almost all the private schools in San Francisco are in the $20k range unless you are referring to Synergy which is about $12.5k.

  114. Posted by sparky

    yes parochial.

  115. Posted by NoeValleyJim

    Remember you were buying at historically low interest rates, with easy lending and at the begining of perhaps the biggest housing boom for this country. I don’t think that is a fair comparison.
    And at the time everyone said that the SF economy was in the tank, that we had just gone through the biggest run-up in home prices in SF history and that home prices
    were certain to fall in the wake of the Dot Com bust. I did the math and decided that I was better off locking in money at 5 1/4% in the long run.
    The Wall Street Journal listed Noe Valley as the riskiest neighborhood in the West to buy, because it had just run up and was next to a marginal neighborhood.
    I bought a duplex, not a condo, so it is not especially high end, in fact it is pretty modest. But the numbers sure did pencil out better with the rental income.
    but in most of the country and the world it is cheaper to buy than to rent — that is why people buy and that is why landlords buy rental properties
    Most landlords hold multi-unit buildings, which are a different animal entirely. A gold star if you can guess why most landlords don’t buy single family homes as rentals.
    When we bought our place in 1999, from the first mortgage payment (30-year fixed at 6.87%, 20% down) we were paying quite a bit less than rent for a comparable place would be.
    Funny, that is not how I remember it. I was looking at homes in Rockridge and Noe Valley right around them and the cheapest, most falling down 2 bedroom SFH was around $400k, while the equivalent rent for such a place was about $2000/mo. Remember, interest rates were around 8% then. Maybe it was different at a different price point or neighborhood.

  116. Posted by ForeignHolder [aka Prime]

    Question for you guys is: If this is the worst downturn in history, and SF is essentially flattish, does that mean SF prices start surging again if our financial system gets fixed, and people start getting paid?
    3-4X total gross salary is likely the maximum anybody should go, if they have a 20% downpayment.

  117. Posted by Satchel

    There’s a few good parochial schools IMO (and from what I’ve heard). However, they are very strict with age cutoff dates, and if you have a precocious kid, you might have to wait until he or she is 6 before starting kindergarten. I graduated 8th grade at age 12, so waiting until 6 seems silly to me! Back east, it’s simply a question of asking to see the monsignor privately, and then asking how much the check has to be. SF doesn’t seem to be as advanced :)
    Catholic schools will run you $6-9K, depending on the school, circumstances, etc. Jewish schools push up against private school prices – $15K min.
    As an amateur economist, I definitely don’t like the idea of public schools. It allows serious price discrimination because the bulk of the market is “absorbed” by the state. Think about it. If the government gave everyone a Volkswagen, just how much do you think Mercedes could charge overwhat hey charge now? But what can one do. We have to take the market as it is, not as we woul like it to be.
    Glad to hear your story sparky. West Portal School is pretty good from what I understand. But when we talked with the pricipal there, he told us his kids go to St. Cecilia. So, I’m guessing you made the right choice.
    We didn’t go through the lottery.

  118. Posted by nowonderitcostssomuchhere

    Satchel – I’m surprised that an armchair economist like yourself is so anti-public schools. I can find very few reasons to shell out $20-25K in post-tax income per kid. I venture that my kids would be better off if I stuck that money in a horrid performing money market account for 12+ years and handed them the dough when all was said and done. They could easily by their own damn house in San Francisco (according to your projections of collapse), start a business, blow through a million pounds of cocaine (I jest – but hey that’s what some of my flunky friends from my rich suburban school did with daddy’s hard earned cash). They probably learn more if I took that tuition money for one kid, plowed into the family for fun extracurriculars like music lessons, tutors, kicking trips to see things first hand like the pyramids in Egypt or the battlefields at Gettysburg or even (commence shock and horror) plowed that money into my PTA and benefited the whole school. I never seen such a lame attitude about local schools than here – the supposed nirvana for Democrats. They bitch endlessly about the quality without any acknowledgment that it’s local and in their hands. The only justifiable reason I can see for that money – you don’t want your kid to mingle with those common folks. And now I’m down off my soapbox.
    Most Catholic schools are under $6K if you drag your butt to church every Sunday. It gets progressively cheaper the more kids you have enrolled. Kid No. 4 and above are basically free.

  119. Posted by Stu

    I have a friend who’s sort of in this scenario: ~150K combined income, 5% down on a 700K peninsula condo bought in late 2005. Interest only on a 5% first mortgage and 3% second (company sponsored, 5/1) mortgage. The monthly cost of owning was probably about equal to renting with the low rates. I think they might have had some trouble refinancing in a few years, but I bet they would have been able to make it work out. Recently, however, my friend decided to change careers, move out of state, and take a substantial (combined 1/2 current salary) paycut. Perhaps a poor financial decision but apparently there’s more to life than money.
    So after 4 months on the market they’ve had one offer that fell through due to financing. Now they have a solid offer at 10% below what they paid and the buyers want a fast close. My friend is planning on taking the deal and liquidating the entirety of both of their 401K’s (between 100-150K I estimate from what I’ve been told) to make up the loan balance and pay the sales commission. This should get them free and clear with a few thousand dollars in the bank to start their new life.
    What other options are available to them? I hate to see them use 401k money to get out of this jam, because of the taxes and 10% penalty, not to mention the time value (present stock market conditions notwithstanding…) of that money. Being in your late 20s / early 30s with no retirement savings isn’t the end of the world I guess. They have no other substantial assets besides the condo (i.e. cars are leased). The best I could think of was to somehow wait until 2009 to liquidate the 401K to lessen the tax hit in their new (3% ) state and presumably lower fed tax bracket. That and to talk to a financial professional.
    Any ideas would be appreciated.
    [Editor's Note: Please see: We Should All Be So Lucky To Have A Plugged-In Friend Like Stu.]

  120. Posted by nowonderitcostssomuchhere

    Man – I can’t type today. Or is it an indictment of the quality of my rich suburban school district? You be the judge.

  121. Posted by ex SF-er

    Question for you guys is: If this is the worst downturn in history,
    it is not. there have been other downturns far worse. this MIGHT be the worst downturn SINCE the Great Depression (even that is debatable), but the GD was far worse.
    and SF is essentially flattish, does that mean SF prices start surging again if our financial system gets fixed, and people start getting paid?
    first, that’s a big IF about our financial system. The securitization model is broken. It is not getting “fixed” right now. It is worse today than it was 6 months ago. Currently the disease has “spread” to commercial real estate, Auction Rate Securities, and the new guys on the block: credit cards and auto loans. it will be years before our credit system is “fixed”
    even when it is fixed RE will still have problems. It is unlikely (but not impossible) that RE will become a favored investment anytime soon. perhaps in 1-2 decades or so. too many banks, investors, sovereign wealth funds, individuals are getting burned badly by the current mortgage fiasco. Not only that, soon it will be the taxpayer getting slaughtered as they are forced to bailout the big boys.
    there is no foreseable reason why RE should appreciate any time soon. that is not to say it can’t happen, just that there’s no reason why it should.
    most people don’t seem to understand how badly the credit markets are malfunctioning right now. There is no quick fix. IT will be quarter after quarter of grinding awfulness as the various institutions (banks, Fannie/Freddie, Investment Banks, Insurance Companies, etc) unwind and deleverage.
    this is why I keep telling people there is no hurry to buy a home. just wait until you see 1 year of YOY increases in home values, then jump in. The only problem with my advice: it is possible that we may see such restriction of credit that future aspiring homebuyers can’t get a loan at all. it is possible and has happened at various times in history before. i don’t think it will happen, but it could.
    but before you buy: make sure you are in excellent financial position. raise an emergency fund of 6-18 months, pay off all your debt, live under your means, make sure you’re timely with your bills, don’t take on unnecessary expenditures (high carloan, etc). this way you’ll be as healthy as possible pre-home purchase. And if things don’t turn out so negative it never hurts to follow my advice anyway!

  122. Posted by NoeValleyJim

    Yeah, I am not going to buy this year either. But I don’t think I am going to wait for rents to be more than a mortgage.

  123. Posted by spencer

    “how many people on this blog had high starting salaries and then doubled them? (I’m not talking going from 30-60k… I’m talking from 130-260k)”
    personally, i and others i know have found it very difficult to go up 50% once you get to $150K. In most industry jobs, you pretty much have to be a VP to make over $200K.
    Obcviously this doesn’t include banking or commercial real estate where you may get a VP title out of college.

  124. Posted by spencer

    “I don’t think there is any question that MOST people earning $160K should be able to afford a home in SF if they want — either as a couple or by themselves.”
    I am single with no dependents, make 15% more than the amount quoted above, have the money for a downpayment, and IMHO, i cannot afford a home in SF.

  125. Posted by anon94123

    I bought in 1992 in the Marina, and earn about 170K, and if I had to buy at today’s prices, I would be renting. There is no way I would be able to sleep at night having more than half of my income going towards “ownership” of a 1bd Soma condo.

  126. Posted by anon

    “personally, i and others i know have found it very difficult to go up 50% once you get to $150K. In most industry jobs, you pretty much have to be a VP to make over $200K.”
    Yeah, but if you were at $75k, getting to $150k is doable. Times two for a spouse and that is $300k.
    Sounds like the lowside scenario of every single resident of the condo where I live. Most people earn far more and have multiple homes. And this is not the St Regis, Four Seasons etc.

  127. Posted by ex SF-er

    “Sounds like the lowside scenario of every single resident of the condo where I live. Most people earn far more and have multiple homes”
    so clearly your building is not the “average” person, is it? since average people don’t earn “far more” than $150k and most people don’t have multiple homes.
    we’re talking rationale for why the AVERAGE home (actually a home that is 15% LESS than average) is affordable at 700k.
    using people who are on the far right of the earning potential to show why the AVERAGE person can afford a 700k condo is silly.
    using that argument, anybody should be able to increase their income by 1,000x, since everybody on Google’s board did it.

  128. Posted by Max2

    Dear Satchel (and chuckie, Milkshake, fluj, Byron, NoeVallyJim, et al);
    Many thanks for your comments. To address Satchel’s useful questions:
    1. The 15 to 20% increase is based upon recent product developments and anticipated success in a market which has clear demand for the product.
    2. I am renting a 3 bd/1ba on the Noe/Glen border. (My observation is that there are few safe neighborhoods in SF).
    3. My children are both tutored (specialized subjects) and homeschooled (general education). After considerable research and evaluation, we found this approach to provide both a better-quality of education, and at an average cost of $9000/yr, one which is 25% to 50% less than the parochial/private school option. Their ages are 8 and 5.
    4. Retirement assumption is based upon an equivalent annual expenditure per person (2) without mortgage. My savings rate will be 10% of gross, inflation assumption 3.5%, and compounded interest at 5% over total of 30 years. Also, should the times get really tough, it assumes a tactic of geographical flexibility.
    5. I am not loyal to San Francisco, if that is what you mean. I greatly value my present career opportunity in SF, and the specific company and manager for which I work. I also value the little things, like occasionally volunteering, friendships and sense of neighborhood, etc. But to quote Mark Twain: “My kind of loyalty (is) loyalty to one’s country, not to its institutions or its office-holders. The country is the real thing, the substantial thing, the eternal thing; it is the thing to watch over, and care for, and be loyal to.”
    Does anyone know of a reference for the turn-over rate for San Francisco skilled labor? Or, for example, how many 150k earners who cannot get above the glass ceiling (i,e greater or equal to 200k) leave due to high living expenses?
    I do find Viewlover’s specification (like chuckie’s point) to be a potential context for present demand conditions: 40% rent and no deduction versus 60% own with deduction.
    Best regards,
    Max2

  129. Posted by spencer

    using the calculator providing via satchel via link……..
    If in 2004, I bought goods or services for $750,000
    then in 2008, the same goods or services would cost $856,008
    So according to many, we are back at the 2004 median in SF in nominal prices, which is about $750K.
    But really if someone bought a place in 2004 for $750K and sold it in 2008 at $750K, then they lost $106,008 + brokers fees, transaction costs etc.
    Under this scenario, you need upwards of 4% annual apprciation to break even

  130. Posted by spencer

    “I think my partner and I are somewhat in this range: we bought an 850k place with 20% down and have a (fixed) loan balance at 6.675 (about a 670k loan balance if I recall correctly) and our annual income is about 165k (so more expensive place but marginally higher income). We have no other debt beyond the mortgage, use zipcar instead of owning a car (about twice a month is all we need and we get to rent the parking space out at 400 a month which almost covers the HOA) and save about 15% of our income. Since purchasing the place, we do go out to eat less frequently (2-3 times a week) and at cheaper places and our vacations have become less exotic including more visits to family and friends but it’s been an easy adjustment. ”
    Honestly, i don’t see why anyone would do this.. your montly mortgage according to loan parameters above should be $4320.
    Your net pay should be around $98,000 minus the 15% investment(assume tax free).
    so you are paying $51,840 in mortgage only, or 53% of your monthly income on mortgage.

  131. Posted by spencer

    “I am renting and (like most people) believe I am typical of the majority here in SF. Regardless of whether that is the case, I would very much like your opinion based upon the following data (which is very unlikely to change) of whether to:
    a. Buy in SF. If so, what is the maximum purchase price you would advise, and where would you advise I look? If it goes beyond the “old” rules of 3x income and 28% gross/33% net, please advise with greater level of detail on i,e how to continue to save for retirement, pay bills during an inflationary period, etc.
    or
    b. Continue to rent, for ~1.5 years, and return to a far more affordable part of the country.
    Cash available for down payment: 150,000
    Cash savings: 30,000
    Credit score: Excellent
    Annual Gross Salary: $153,000
    Annual Net: $104,834
    Expected salary increase year-to-year: 15% to 20%
    Retirement savings (available within 20 years): 50% of what will be required
    Industry: Biotech
    Stability in Company/Industry: High
    Monthly rent: $3,000″
    Continue to rent. it is much cheaper and with a salary of $253K, you can’t afford to buy (right now).
    However, if you rent for 2 more years, increase your salry by 15% annually (now $202K) and consider that the market will stay flat or drop 10-15%, you can definitely buy.

  132. Posted by NoeValleyJim

    I am single with no dependents, make 15% more than the amount quoted above, have the money for a downpayment, and IMHO, i cannot afford a home in SF.
    Of course you can. How large a mortgage do you think you can assume? How large is your down payment?
    Not to be mean about it, but your math skills are pretty rusty spencer. In your 12:17 post you forgot to include tax breaks in your calculation, while in your 12:00 post you forgot about how inflation affects your loan balance value as well. Perhaps a financial analyst can help you do these calculations so you can understand what you can and cannot afford.

  133. Posted by Satchel

    Max2,
    Thanks for all the information. You sound level headed and smart. You seem to have real skills and have confidence in your career, and if you are sensible enough to homeschool your kids (great choice – I admire you!) you probably have a pretty good handle on your future. Also sensible that you are not tied to SF. It’s a nice place – no more, no less.
    At $3K per month on the border of Noe/Glen Park for a 3/1, I’d probably be inclined just to keep renting for another year or two and watch how this all shakes out. I am assuming that to buy a similar place in a similar neighborhood would run about $850K – $1M, which would mean that your all-in costs (including opportunity cost on the $150K you’ve got already) are realistically going to be double your current rent (more or less), in after tax dollars equivalent. You will also expose yourself to the risk of decline, which could seriously hamper your ability to move out of SF if you choose.
    If you feel like moving from your current place within SF, and like safe neighborhoods, I’d recommend looking in the West Portal/Forest Hill Extension area (as close to West Portal Avenue as possible). We lived not too far from there, and loved it – a much better family environment IMO than GP/Noe for sensible people. You should be able to get a better value rental property is my guess. But moving stinks, so if you’re happy where you are, just stay!
    I wouldn’t get too worried about being “priced out” of SF real estate if you decide to stay. In my experience, the only people who should worry about that are people with limited value in the workplace. If you really think about it, the idea that productive talented people can be priced out of a city is sort of silly.
    I hope that helps, and best of luck.

  134. Posted by NoeValleyJim

    Max2,
    If you can make just as money elsewhere, and you think your quality of life would be better somewhere else, I can’t understand why you wouldn’t move. What is keeping you here?
    My observation is that there are few safe neighborhoods in SF
    If you honestly believe this, you would probably be happier somewhere else. I can name at least 20 safe neighborhoods. Is The Sunset safe? West Portal? Nob Hill ?
    I personally think that all of Districts 1, 2, 4, and 7 are safe, as well as most of 3, 5 and 8 and parts of 6 and 9. What neighborhoods do you regard as safe? What is your criteria?

  135. Posted by spencer

    “The real question is can someone making $132K afford a place they’d be happy with in this city.”
    NO

  136. Posted by spencer

    “You know what, Spence-bot?”
    Fluj, is this coming from the guy who does not make any personal attacks. I stated my opinion and you called me a name….a very clever one too. You are a very very clever guy.

  137. Posted by spencer

    “Not to be mean about it, but your math skills are pretty rusty spencer. In your 12:17 post you forgot to include tax breaks in your calculation, while in your 12:00 post you forgot about how inflation affects your loan balance value as well. Perhaps a financial analyst can help you do these calculations so you can understand what you can and cannot afford.”
    not my math, just being vague to simplify the equations for people who clearly are making huge financial mistakes by buying overpriced homes that they cannot afford.
    i didn’t include tax breaks in the calculations because are generally offsite by other costs, HOAs, maintenance, commisions, etc.
    In my second “mistake” i assumed the asset as a whole. If you are doing a straight comparison of asset A vs Asset B, then it is more relevant to look at fixed costs of asset A vs. B. So assume a cash buy.

  138. Posted by spencer

    “Of course you can. How large a mortgage do you think you can assume? How large is your down payment?”
    I would be willing to put down $160K and pay $4K oer month for mortgage. there is nothing on the market that i would consider that i could be with that money. so will just keep saving and investing the money

  139. Posted by NoeValleyJim

    So what is that $850k? So you can afford something just fine, there is just nothing in your price range that you would be happy with. That makes sense.

  140. Posted by paco

    spence, you said,
    ” there is nothing on the market that i would consider that i could be with that money. so will just keep saving and investing the money”
    i’m curious as to where people are investing and what kind of return they are getting outside of real estate.
    safe money does not beat inflation at the moment. what does?

  141. Posted by spencer

    currently am in a money market drawing 6% and large cap biotech, which have done really well over past 8 months (GILD, AMGN, DNA, BIIB)(up about 30%).. hope to switch back to index funds by mid Q4 (barinng major market meltdown)

  142. Posted by Satchel

    “currently am in a money market drawing 6%”
    That doesn’t sound right, spencer. Do you mean a company-sponsored GIC?
    I actually DO have risk-free money yielding 6.5-8% (and should reset a little higher in November): inflation protected bonds offered by the USG (I-bonds) back in 2001. (The 8%’s date from August 2001). AND they are all state tax free and fed tax deferred. If you can believe it, the USG was offering 30-year bonds at 3.4% + CPI for the life of the bonds (bonds reset every 6 months). Even as late as 2003 the USG was offering more than 2% + CPI (these are now yielding 6%). That was a no-brainer investment if I ever saw one. And it was possible for a married couple to purchase $120K per year of these bonds, and anyone sensible with some capital did just that.
    Today, I-bonds are NOT a good deal, and I wouldn’t buy any. The last offering in May 2008 (I think) offered ZERO percent + CPI. Looks like even the supid USG got smart (probably because a bunch of people like me who watch this stuff like hawks jumped all over it and took down everything they offered!)

  143. Posted by paco

    “currently am in a money market drawing 6%”
    is this possible? where?

  144. Posted by NoeValleyJim

    30 year CA Muni zero coupon bonds are yielding about 7% – tax free – right now, more if you are getting the tobacco bonds. This is not risk free though, as the ones I bought last year are down about 10%, because of inflation fears and the meltdown of the bond insurers.
    Muni bonds were yielding about 8% back in 2000 as well and I wish I had gotten more of them, but we are starting to get back into that range again. You have to be careful about the quality of the issuer though, ask anyone who got stuck with City of Vallejo bonds. I am pretty sure that my Piedmont School District bonds are safe though.

  145. Posted by paco

    ok, so i’m seeing i-bonds, muni bonds and biotech stock picks.
    i’m not seeing any money market funds yielding anywhere near 6%. (more like 4% which is 33% less)
    ORH buyer is in the biz and i think he can tell us if 6% is possible.

  146. Posted by spencer

    I should restate my money market quote. Thanks satchel and paco for pointing out this is no longer what i am drawing. however, this is what i was getting when i started the account. I will have to check back on current rate.

  147. Posted by Brutus

    ^^^How long ago are you talking about with the 6% money market figure? Has to have been quite awhile ago.

  148. Posted by Max2

    Thanks, Satchel.
    Hi NoeValleyJim;
    “If you can make just as money elsewhere, and you think your quality of life would be better somewhere else, I can’t understand why you wouldn’t move. What is keeping you here?”
    The portfolio of an excellent company, great boss, and the fact that I made a significant contribution to completely curing a patient with advanced metatstatic pancreatic cancer. Will that product pan-out in the long-run? Let time tell. But right now –- across the U.S geographic region of real estate — it’s my best bet.
    “My observation is that there are few safe neighborhoods in S
    If you honestly believe this, you would probably be happier somewhere else. I can name at least 20 safe neighborhoods. Is The Sunset safe? West Portal? Nob Hill ?
    I personally think that all of Districts 1, 2, 4, and 7 are safe, as well as most of 3, 5 and 8 and parts of 6 and 9. What neighborhoods do you regard as safe? What is your criteria?”
    Defer to demographers; While Detroit comes in as worst, that fact does not make San Francisco safe.
    http://www.sanfranciscosentinel.com/?p=7105
    Or the SFPD, selecting options 02 – 10 of Offense Types, While some neighborhoods are safer than others, relatively few are.
    http://www.sfgov.org/site/police_index.asp?id=23813

  149. Posted by NoeValleyJim

    So San Francisco is in the top 1/3, almost the top 1/4 of safest cities in America and the top rankings are dominated by suburban communities like Thousand Oaks. The truth is that the overwhelming majority of violent crime in San Francisco happens south of Mission Street.
    You never really answered the question as to what your criteria for a safe neighborhood is. How many crimes in what period of time? I am sure that your chance of getting injured in an auto accident in a suburban community is greater than your chance of being a victim of violent crime in the vast majority of San Francisco. People are pretty bad about estimating risk. I can show you the calculations if you like.
    I personally think that the Marina, Pac Heights, Cow Hollow, Presidio Heights, Laurel Heights, Sea Cliff, The Richmond, Lone Mountain, Telegraph Hill, Russian Hill, Nob Hill, Forest Hill, St. Francis Wood, Ingleside Terrace, West Portal, Balbao Terrace, Westwood Highland, Monterey Heights, Miraloma, Merced Manor, Lakeshore, Lakeside, Ashbury Heights, Twin Peaks, Corona Heights, Noe Valley, Glen Park, South Beach and Mission Bay are all pretty safe, wouldn’t you?

  150. Posted by NoeValleyJim

    The portfolio of an excellent company, great boss, and the fact that I made a significant contribution to completely curing a patient with advanced metatstatic pancreatic cancer. Will that product pan-out in the long-run? Let time tell. But right now –- across the U.S geographic region of real estate — it’s my best bet.
    This is all good stuff by the way, very admirable that you have been able to contribute to finding a cure for pancreatic cancer. It is hard to find opportunities like that elsewhere, though I am sure they exist. It sounds like your career is going great.

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