March 8, 2010
Measuring A Rising Bay Area Tide
From the Chronicle:
In the Bay Area, First American shows the Vallejo-Fairfield metropolitan market (essentially Solano County) with 61 percent of mortgage holders underwater. The next-highest concentration - but the biggest in numbers - is the Oakland-Fremont-Hayward metro area (Alameda and Contra Costa counties), where 35 percent of mortgage holders, or 192,726 households, have negative equity.
The aggregate of San Francisco, San Mateo, and Marin counties weighs in at 10.4 percent (33,861) with 2.6 percent (8,481) underwater by more than 25 percent.
∙ Strategic defaults on homes on the rise [SFGate]
First Published: March 8, 2010 7:30 AM
Comments from "Plugged In" Readers
The most misleading thing about these types of statistics IMO is the fact that the percentages underwater may be lowish but the abolute values are higher compared to the rest of the country.
If I have a house that is valued at $250k, and it's 10% underwater then I'm $25k in the whole. add in 6% transaction costs (if I try to sell) on a now-worth 225k property and that's an additional $13.5k.
So I need a $38.5k check at closing if I want to get out of the house without a foreclosure or a short sale. (FWIW: it makes a short sale more doable for the bank too).
if I have a house in SF that's $800k that is down 10% then I'm underwater $80k.
6% transaction costs on $720k property is another $43,200.
So I need $123,200 check to get out without foreclosure or short sale.
and no, incomes in SF are NOT that much higher where the SFer can afford $123,200 more easily than the midwesterner can afford $38.5k.
especially since both homes (the $250k midwestern home and the $800k SF home) are likely starter homes that were likely sold to people with starter-home incomes.
(in general 2 highly paid dot commers don't buy an $800k place in SF).
The above is important though because it shows the problem with high absolute home prices.
There are many SFers who will be "trapped" in their homes EVEN IF they are not much underwater, again just based on transaction costs.
If you have a $1.2M home that is now worth $1.2M, the sales costs on that are going to be around 5 or 6% right? That's around $60k to $72k to get out of a house that hasn't depreciated a dime.
Posted by: ex SF-er at March 8, 2010 8:12 AM
"and no, incomes in SF are NOT that much higher where the SFer can afford $123,200 more easily than the midwesterner can afford $38.5k."
Thank you for bringing up this point ex SF-er. I am an architect who owns a home in San Francisco that I currently have rented out while I work in Chicago where I was asked to relocate. (SF home was purchased about 18 years ago so taxes and cost are very low) Our firm pays exactly the same position salaries in our Chicago office as it does in our San Francisco branch, so for those of us who do not work in Technology or Biotech, the so called "higher salary" jobs of the Bay Area do not exist. Our firm does pay higher for positions in NYC, Hong Kong and London. The cost of housing in Chicago is FAR less than the Bay Area, so in my opinion, it is almost like getting a raise because your dollar goes so much further.
Posted by: AnonArch at March 8, 2010 8:27 AM
I would concuor with AnonArch.
We have neighbors who just moved to Bellvue in the past week.
The husband works for a major bank and got a transfer to Seattle. The salaries are the same - he is not being red-lined because he is at a higher salary than his new Seattle co-workers.
Housing costs in Seattle are signifcantly less too - as is the case with Chicago.
Posted by: Gil at March 8, 2010 8:51 AM
and no, incomes in SF are NOT that much higher where the SFer can afford $123,200 more easily than the midwesterner can afford $38.5k
There are industries here in this area that employ thousands of people where that is very much not true. An 80K difference? You cannot be serious.
Posted by: anonn at March 8, 2010 9:00 AM
^Which industries are those? IT is getting crushed by India salaries. Biotech never paid well. Venture Capital has returned around 8% in the last decade and is getting crushed.
It's all going away. The bay area prices are a relic of a bygone era.
Posted by: tipster at March 8, 2010 9:31 AM
Yeah, right. As if those industries even exist to this extent in the midwest. I'm not interested in interacting with you any longer, Tipster. Your spin doctoring isn't worth my time.
Posted by: anonn at March 8, 2010 9:37 AM
There are industries here in this area that employ thousands of people where that is very much not true.
The majority of homeowners in the Bay Area have to pay a far higher percentage of their salaries towards home ownership than homeowners in other areas.
Posted by: joh at March 8, 2010 9:40 AM
"As if those industries even exist to this extent in the midwest."
They don't have to exist in the midwest. Salaries here are declining due to global forces. If people want too much more than midwest salaries, the work gets done offshore and the product is shipped in.
We're seeing midwest service companies come in and compete with ours. They fly in, take the information they need and fly out and do the work for less in the midwest. How do you compete with that? Only by paying midwest salaries and rents, or you go out of business.
Posted by: tipster at March 8, 2010 9:54 AM
No thank you. The argument is not "declining salaries." It's 31K versus 123K, and not being able to afford that.
Posted by: anonn at March 8, 2010 10:14 AM
I have gone through your formula. Everything is proportionally higher. Higher house price leads to higher down payment, higher mortgage, higher property tax, and higher $ lost (assuming same leverage), all by the same proportion. This is quite straight forward and transparent. I don't get what you mean by misleading statistics.
Posted by: Wai Yip Tung at March 8, 2010 10:19 AM
"IT is getting crushed by India salaries.", tipster
I work in IT. FYI we haven't been crushed by India salaries. I'm working with folks in India and some counterparts in Eastern Europe, and have been doing so for a number of years. Such global operation certainly has a different dynamic compares to local company hiring only locally. But it is over dramatic to say we are crushed. By the way we are currently hiring locally.
Posted by: Wai Yip Tung at March 8, 2010 10:29 AM
At one time hi-tech paid more in the Bay Area than elsewhere. But 80K more for the same job? I dunno.
I work for a large telecom and our on-shore local IT folks make the same in the Bay Area as they do in the mid-west. At one time there was a differential but it was maybe 5K - 10K. It never came near to making up the much higher housing costs in the Bay Area than in the mid-west.
Course in the past decade most on-shore IT in my company has shifted to the south or mid-west. There are just a few "old timer" IT folks still in the Bay Area and usually their direct report boss is in the mid-west as well as much of their work team.
Posted by: Gil at March 8, 2010 10:32 AM
"There are industries here in this area that employ thousands of people where that is very much not true."
Seriously, what industries are you referring to? Keep in mind that Chicago has industries that are either very small in the Bay Area or are non existent (e.g., insurance, finance, commodities exchange, research) and has a concentration of corporate headquarters far greater than you'll find here.
I think it's very difficult to imagine that the price differential is somehow supported by underlying labor markets. There are many more very wealthy people in Chicago than in SF (and many poor/working class people as well).
The greater the leverage, the greater the consequences if things go bad. The higher prices in the Bay Area mean that being underwater is much more catastrophic here than in other parts of the country.
Posted by: embarcadero at March 8, 2010 10:35 AM
I read SFGate this morning. I has surpirsed to see SF is doing so much better than Solano with only 10% underwater v.s. 61%. Remember this days when everyone seems to make boatload of money flipping houses in Fairfield? Now I know what the word 'speculation' means.
I haven't been watching SF long enough. I wonder if the current performance of SF reflect its strength, or if it is just a forebodement that things are still under tension that might buckle in the near term.
Posted by: Wai Yip Tung at March 8, 2010 10:40 AM
Who said "same job" Gil?
Posted by: anonn at March 8, 2010 10:40 AM
Tech would be one, embarcadero. A big one. So now we're talking about Chicago specifically, are we? (Oh how we love to do that here.) Well then embarcadero, since you decided to talk Chicago instead of Midwest, explain to me how far 31K goes in Chicago, would you please? You guys want to argue that there isn't a relatively large demographic of highly salaried tech, IT, web, VC, biotech, etc here. In a region that is absolutely dwarfed by what we were initially speaking of, the Midwest.
Posted by: anonn at March 8, 2010 10:47 AM
I don't get what you mean by misleading statistics.
I guess I wasn't clear and made inferences that aren't necessarily obvious.
These types of stats can be misleading if you use the percentages of underwater homeowners in isolation to make an overall case for "healthy" and "unhealthy" markets.
in other words, if you said (the above quote doesn't):
only 10% of SFers are underwater, but 30% of people in Des Moines are underwater.
therefore Des Moines is in more trouble.
Although I agree that it is enlightening to look at these stats, I would NOT agree that SF is anywhere near "safe" due to it's low levels of underwater homeowners simply because of the high debt loads that SFers take on. the problem does become proportionally bigger as the mortgages get bigger.
Posted by: ex SF-er at March 8, 2010 10:55 AM
we'll just have to agree to disagree.
You have always thought that SF is so rich that people can just easily afford SF property. I disagree.
For years I've shown you demographic info on SF that show how few people even make over $200k/year in SF. You counter with the idea that the homeowners in SF are all able to own because of inherited wealth or overseas fortunes or whatever that isn't captured in income statistics.
I've then shown you about the expolsion of adjustable rate and low-payment mortgages in SF since the late 1990's not to mention the increasing debt to income levels over that time (which shows the increasing unaffordability). You counter with the idea (that I think is largely a myth although true for a select few only) of the "sophisticated" SF homebuyer using these mortgages as cash management tools.
IMO your argument got shot to pieces with the Jumbo fiasco. when private industry decided to stop funding Jumbo loans in SF the sales collapsed. And I mean collapsed.
they returned significantly as lending was relaxed, the Jumbo conforming loans were created, Fannie/Freddie/FHA were relaxed, etc.
although there are a few people in SF who make striking salaries, the vast majority of SFers do not. don't take my word for it, look at the census data.
And I'm not skewed by some "I'm poor" mentality. My combined household income is likely in the top 1-2% of all San Franciscans, I've already told you that I have family who were some of the original googleaires, and as I said a few years ago we briefly toyed with the idea of going and working for a VC or PE firm in the Bay Area. So I "get it" that there are rich SFers. I also "get it" that most SFers are not.
many people in professional fields make minimally more or sometimes even less in SF. Among them: many doctors, lawyers, architects, midlevel business people, etc.
sure, there are some fields in SF that aren't many other places, like biotech and tech and venture capital and private equity.
but there are other fields that really aren't a stronghold in SF, like agriculture and medical IT for instance that can bring in a lot of dough.
Posted by: ex SF-er at March 8, 2010 10:56 AM
You have always thought that SF is so rich that people can just easily afford SF property. I disagree
No, I really haven't, and I object to that pithy summation. Why such broad strokes? And black and white paint? Odd.
Posted by: anonn at March 8, 2010 11:03 AM
This whole conversation is divorced from reality. Seriously I can afford being 38.5k underwater just as easily as I can afford being 123k underwater. Ex-SF'er made the mistake of assuming that someone in either situation is going to actually bring a check to closing. So sure in theory $123k is a lot more then $38k but so what? The banks are taking the hit on either one. Okay, reality interlude over, please go back to arguing about fantasy world scenerios.
Posted by: Rillion at March 8, 2010 11:03 AM
Ex-SF'er made the mistake of assuming that someone in either situation is going to actually bring a check to closing.
actually, no I didn't.
you missed a key point:
I'll repeat it:
FWIW: it makes a short sale more doable for the bank too)
I did say (and still agree) that it is more likely that a person can bring a check for 38k than 123k.
but more importantly: it's more likely that the BANKS can afford to allow a short sale on 38k than 123k.
and even more so (but I didn't say this above): it's more likely that a GOVERNMENT PROGRAM can afford to pay the bank to take the 38k loss than the 123k loss.
it's not just about bringing checks, it's the entire way of getting the underwater homeowner out of the home (obviously only if they desire to be out, or can't afford to stay in).
unfortunately, the data linking being underwater to losing the house is pretty striking.
I believe my broad strokes to have summed 3 years of our arguments relatively fairly without trying to be inflammatory.
I believe you've discussed countless times (not always with the anonn handle of course): foreign buyers, children receiving home assistance from parents, googleaires, "all-cash" buyers when we had arguments about SF being significantly overvalued in the past.
if you disagree with my summations, then I retract them.
Posted by: ex SF-er at March 8, 2010 11:12 AM
I guess it's my fault in the first place. He began by talking about the average earner. Number one, the average earner is no longer buying r.e. around here (without family money, that is) by and large. Number two, if you were to parse the relatively few properties that change hands versus the demographic I've spoken about, would anybody be surprised if most buyers worked in tech or related? Number three, he didn't challenge the existence of high paying industries here. And I started off talking to ex-SFer, a worthwhile poster. Not some of the other yahoos who will pop up any time a thread gets long enough.
Posted by: anonn at March 8, 2010 11:13 AM
Foreign buyers? Hardly. I made a passing comment once because I had been hearing French spoken at open houses and you guys made a lot of hey about it. Googleaires? Not my bag either. Did it not factor into SFRE at all? I doubt you'd say that. Assistance from family? Pure and simple fact. All cash? Unquestionably a surprisingly frequent occurrence.
Posted by: anonn at March 8, 2010 11:18 AM
All this talk about Chicago this, tech jobs that, industries this, and Bellevue that, is just onanistic distraction from the essential and topical point brought up by ex Sf-er.
Whatever the underlying causes, no one can deny that in absolute terms, San Francisco has extremely high home prices. Thus, mathematically speaking, a lesser percentage decrease (or just transaction costs) may result in a higher absolute value loss than a higher percentage decrease would on a lower absolute base.
While different mortgage holders will have a different threshold as to when to throw in the towel, there is no question that the higher the absolute value loss, the more likely people will be to throw in the towel.
And, the point above doesn't even address the possibility (probability some may argue) that the percentage of SF mortgages underwater will increase in the near future.
Nor the possibility (probability?) that those who are already underwater in SF become "more" underwater with the subsequent psychological pressures that an increasing absolute value loss would incur.
Posted by: nnona at March 8, 2010 11:54 AM
Sorry I misread: "So I need a $38.5k check at closing if I want to get out of the house without a foreclosure or a short sale." and "So I need $123,200 check to get out without foreclosure or short sale."
My poor reading comprehension thought that those two sentences were implying that you were talking about having to bring checks to closings and that this sentence: "incomes in SF are NOT that much higher where the SFer can afford $123,200 more easily than the midwesterner can afford $38.5k," linked these two things and compared them to each other.
You obviously clarified in there somewhere that no one was ever going to bring either check to closing so therefore it did not really matter how big each non-existent check was. I must have just missed it in all your writing about how SF’ers are not in a position to afford paying the $123k that they are never going to pay anyway compared to not paying the $38.5k.
Posted by: Rillion at March 8, 2010 12:51 PM
"but more importantly: it's more likely that the BANKS can afford to allow a short sale on 38k than 123k."
Right, cause we all know that banks determined how much to loan based on number of loans. So yes, a bank is more likely to be able to afford one $38.5k loss then one $123k loss. And that math works as long as a bank said we will only do X number of loans and 20% of them go bad, so the bank with 10 loans on $250k properties will see $77k in losses compared to the bank that used its 10 loans on $800k properties.
Of course let's not let the reality of the fact that we are talking about big loan pools with lots and lots of $250k houses and $800k houses in them and that percentage losses over the banks total loan portfolio are more important then the dollar amount of one individual loss get in the way of simplistic statements like a bank can more afford a $38.5 loss on a house then a $123k loss.
Posted by: Rillion at March 8, 2010 1:00 PM
"While different mortgage holders will have a different threshold as to when to throw in the towel, there is no question that the higher the absolute value loss, the more likely people will be to throw in the towel."
So someone with a $100,000 loss on a $2,000,000 property is more likely to throw in the towel then someone with a $50,000 loss on a $100,000 place? I mean on an absolute basis the $100,000 is twice as large as the $50,000 loss.
Posted by: Rillion at March 8, 2010 1:08 PM
These scenarios are interesting, but much of what happens may be driven psychological factors influencing decisions. The high earning real bay area household who bought for $800k probably have high holding costs for debt and property maintenance. That can turn unwanted properties into hot potatoes so that a greater loss seems worth paying in order to drop the property quickly. In the past people have tended not to hold on to underwater properties.
With the population moving toward smaller households in megaregion cities the entire game may be about to pivot against home ownership in a big way. Walking away may be even more popular and acceptable during this correction.
Posted by: Mole Man at March 8, 2010 2:06 PM
In the past people have tended not to hold on to underwater properties
I'd like to see something that corroborates that statement. All the reports that I've seen about the phenomenon talk about people in the past feeling obligated to hold onto mortgages come what may.
Posted by: anonn at March 8, 2010 2:17 PM
I love how the discussion completely missed the point of the article that it is supposedly about. As I sort of pointed out above, it seems it is because Ex-SF'er wanted to talk about absolute losses and how percentage underwater misses the point because it doesn't address the size of losses. Yet the article was about how people are more likely to walk away ("strategic default") when their relative underwater loss reached 25%.
From the article: "First American said a tipping point seems to come when homeowners have negative equity of 25 percent or more - owing $500,000 on a $400,000 house, for instance. At that point, owner-occupants default as frequently as investors."
Hence the reason the 25% underwater figures are supplied along with the broader underwater figures. Yet somehow this once again became a discussion about income and hi-tech. You guys are trying to use this as a proxy for another argument that this article doesn't support. It doesn't provide any info or enlightenment on the absolute losses involved, the income levels of people doing a strategic default or not, nothing that really speaks to the argument you seem to be trying to make.
Now as one of the 10.4% who is according to the city appraiser close to being one of the 2.6%, I will give you my personal thoughts on a strategic default. It is an option and I do agree that the large the relative loss becomes the more likely it becomes. Now for my personal situation the main drivers are:
1) What could my current payments get me if I rented? At this point, I do not see a large enough upgrade in what I could rent for what my current payments get me, big factors are parking (I have a deeded parking spot plus amble street parking), quality of my place (all the custom touches I have added, plus in unit laundry, etc). Now if rents continue to drop that will increase the likelihood.
2) Affordability, I can currently afford my place. If something happened that either drastically reduced my income or increased my payments it would influence my decision to continue making my payments.
3) December 2012 and the taxability of "forgiven" mortgage debt. As December 2012 approaches I will be evaluating how this could impact me. Will Congress extend this tax break? If not what are my chances that I would default post-2012, if high then this tax break could cause me to pull forward my default to receive favorable tax treatment.
4) The SF housing market, obviously the further it falls the more it increases the odds of a strategic default while if it continues to stabilize or if it rallies that would lower the chances I walk away.
5) Change in job, a windfall, relocation, divorce, while all remote each of these would provide a decision point that would require me to take another look at my options. Seeking to maximize my personal benefit for example if I won the lottery (I'd have to play first though so just using this as an example of a windfall) and could buy a larger place for all cash, I might do that then just walk away from my current place rather then take a loss on it greater than my down payment (in my defense the people that loaned me the money have all gone out of business so anyone that picked up their assets were well aware of the risks involved).
Posted by: Rillion at March 8, 2010 2:54 PM
All I can say is that my wife and I have looked job salaries and openings (online and finance, respectively) elsewhere in the U.S. and they don't come close to the bay area.
Particularly in tech, in what single other metro area in the U.S. could you find world-class players like apple, cisco, google, and many others. You can't.
Posted by: anon at March 8, 2010 3:01 PM
There is another issue. If you own a home worth $1000, and you are $250 underwater, you pretty much aren't really motivated to walk away, even though you are underwater by 25%. There just isn't enough benefit to walking away to offset the costs to your credit so you wouldn't do it.
However, if you own a home worth $10M, if it is underwater by 10%, that's a million dollar savings for walking away, and you would do it more readily than you would if you were $250 underwater on the first house if you determined that prices wouldn't recover any time soon.
So the motivations are not strictly a function of percentage loss, but also the absolute dollar losses. So I take away from this discussion the fact that, although SF has fewer numbers of people whose homes are underwater by 25%, it could still have a high default rate because the absolute dollar amounts are so much larger, making smaller-than-25%-losses worth walking away from.
And sure enough, comrade Obama would like to help you walk away from your loan, beginning April 5.
Although this program will no doubt help people in Alameda and Co Co counties more than it will help people here, this should continue the steady decline there, and eventually, here.
Posted by: tipster at March 8, 2010 3:15 PM
"All I can say is that my wife and I have looked job salaries and openings (online and finance, respectively) elsewhere in the U.S. and they don't come close to the bay area."
But that's highly dependent on industry. Big law firm salaries are essentially nationalized. Finance salaries aren't necessarily that much different in big cities. Doctors don't necessarily make materially more in the Bay Area than they would in other big cities.
If all you're saying is that a programmer in Little Rock makes less than a programmer in Palo Alto, I don't think anyone will disagree with you.
Posted by: Anon E. Mouse at March 8, 2010 3:54 PM
Wow Tipster, just wow. Really, $1000 and $10 million properties? How many $10 million owner-occupied homes have been foreclosed on in SF in the past 3 years and is does that really tell us ANYTHING about the regular R/E market in SF (you know the 99% of the market in SF that isn't $10 million properties)? How many owner-occupied mortgaged $1,000 properties are there in the US?
So after I have already complained once in this thread about people making up arguments not based in reality you come back with comments about the psychology of people underwater on $1,000 homes? Well played sir.
Posted by: Rillion at March 8, 2010 4:26 PM
All I can say is that my wife and I have looked job salaries and openings (online and finance, respectively) elsewhere in the U.S. and they don't come close to the bay area.
Total BS. Did you forget to look for finance jobs in NY?
For the record, big law firms in NY on average pay more than firms in the Bay Area as well (nearly all pay bigger bonuses; and the NY firms have not had splintering caused by pay freezes and the institution of non-lockstep schemes over the past 2 years). My wife and I could leave our biglaw jobs and make the same exact money in much cheaper cities like Chicago or Dallas (though I'd need a much bigger premium than the COL bonus to move to either of those places).
Posted by: Shza at March 8, 2010 4:32 PM
"The majority of homeowners in the Bay Area have to pay a far higher percentage of their salaries towards home ownership than homeowners in other areas."
Census data from 2006-2008:
In SF County, 40+% of people with a mortgage spend 35% or more of their gross income on their mortgage, and 33+% of renters spend 35% or more of their gross income on their rent. Note that 72+% of owner-occupied housing has a mortgage.
SF is slightly fewer than in the San Francisco-Oakland-Fremont MSA, where the coresponding numbers are 42.5% and 40.0%. It's a bit fewer still than Oakland city where the numbers are 50+% and almost 48%. San Jose-Sunnyvale-Santa Clara MSA is almost identical to SF County at 40+% and 36+%. San Jose is around 43%/40%. Palo Alto city is around 27%/27%, and Sunnyvale city is 34%/27%.
New York County, NY (aka the Borough of Manhattan): 24% for owners, almost 35% for renters vs. 42.5%/41.5% for NY City (all boroughs).
Cook County, IL, since SocketSiters love talking about Chicago: 37+% for owners and 43% for renters.
District of Columbia: 30%/39%.
LA County, CA: almost 46% for owners, almost 47% for renters (vs. almost 50%/48% for the City of Los Angeles)
Polk County, IA, since someone mentioned Des Moines: 18+% for owners and 37%+ for renters (vs. Des Moines city at 22/43).
Nashville-Davidson County, TN: 25+% for owners and 38%+ for renters.
Miami-Dade County, FL: a whopping 50+% for owners, almost 55% for renters.
Maricopa County, AZ (Phoenix), around 30% for owners, 40% for renters (vs. 33/42 in Phoenix city).
Fulton County, GA (Atlanta), 27% for owners, 39% for renters (vs. 32/42 for ATL city).
Seems like SF owners stretch more to buy houses than a lot of places, but not more than LA, Miami, and Oakland, and SF owners stretch similarly to owners in San Jose and NY City (but Manhattanites don't stretch as much). Interesting that SF renters seem to stretch less than other cities, big and small.
Posted by: Anon E. Mouse at March 8, 2010 4:35 PM
"For years I've shown you demographic info on SF that show how few people even make over $200k/year in SF."
For the record, 12.2% of households as of the 2006-2008 data (adjusted based on inflation to 2008) made above $200K in SF County. 15.7% between $100K and $150K and 8.8% between $150K and $200K. Median was just under $72K and mean was more than $104K.
Posted by: Anon E. Mouse at March 8, 2010 4:44 PM
^ anon e. mouse ...SF renters stretch less than other cities because of rent control. In almost all other places the market sets rents...here it only sets them upon unit vacancy, and many long term renters pay sub-market rates.
Posted by: curmudgeon at March 8, 2010 4:48 PM
And what percentage of housing units changes hands? Who among the 12.2% buy up those relatively few properties? We're not discussing across the board demographics here. We're talking about a minority and a minority from the word "go."
Posted by: anonn at March 8, 2010 4:51 PM
"SF renters stretch less than other cities because of rent control."
Yes, I left that out intentionally, mostly because I don't know what other cities have rent control provisions. I think NY does for apartments that are less than $2K/mo, and Manhattan's renters (although not renters in NYC as a whole) seem to stretch less than everywhere except SF. Los Angeles has rent control for apartments built before 1978 (and Santa Monica's is more aggressive, like SF).
Posted by: Anon E. Mouse at March 8, 2010 4:55 PM
"And what percentage of housing units changes hands?"
All based on the same data set:
SF has 323,028 occupied housing units and 35,476 vacant housing units. Of those 323K occupied, 125,733 or 38.9% are owner-occupied and 90,933 (or 72.4%) of those have a mortgage. Many have estimated SF's approximately sales volume to be about 6K houses/year, although it has been lower than that lately. So approximately 1.7% of all housing stock changes hands ever year. I'm not sure what that really tells you or what you're trying to get at.
Interestingly, of all occupied housing units in SF, about 6K houses lack complete plumbing, about 12K houses lack a complete kitchen, and about 10K have no telephone service available.
Posted by: Anon E. Mouse at March 8, 2010 5:10 PM
Someone making only $200k can't come close to affording the average $1.2M crappy 3BR SF house anyway. What percentage of SF households make $400k or more?
Posted by: Shza at March 8, 2010 5:59 PM
Good question on $400K. Based solely on 2008 data:
The top 5% of households in SF are $312,608 and higher. The average of the top 20% is just under $294K. The average of the top 5% is $523,744.
Out of those 323K households (relatively stable number -- only up by 300 or so vs. 2006-2008 data), a little under 85K households have no income/salary. Around 48.5K households have self employment income. Around 70.5K households have Social Security income. Not sure if any of that helps you figure out how many trustafarians there are here!
Posted by: Anon E. Mouse at March 8, 2010 6:28 PM
That should say: "a little under 85K households have no *wage* income/salary"
Posted by: Anon E. Mouse at March 8, 2010 6:31 PM
All you have to do is look at rents.
Rent prices are by far a better indication of the current income and employment levels. The rationale is that most people can spend up to a specific fraction of income on rent.
Rent prices have not came down in SF nearly as much as they have in the rest of the bay area.
Posted by: anon at March 8, 2010 6:49 PM
So according to the real data from the Census, San Franciscans stretch just about as much for their mortgage as people in Chicago. This is interesting, but includes the universe of all buyers.
I suspect, but cannot prove, that recent purchasers in San Francisco have stretched more. The overwhelming majority of San Francisco home buyers are fine though. It is the 2005-2008 crowd that might have a problem. But since only 2% are "deep" underwater, we are not really in a danger zone, at least not yet.
Home buyers in San Francisco, even those buying $800k "starter" homes tend to be two income professionals. There is just no other way to afford it or even to get the bank to approve your loan. This might not have been true for a few years during the worst of the runup, but has been true for the overwhelming majority of the last 30 years.
Salaries are definitely higher here for most professions. Probably not quite enough to completely balance the extra cost of living, but there are other amenities here, like the great availability to recreation and the good weather, not to mention the extremely tolerant and diverse social climate, that make up for it for most people.
Here is payscale.dom for lawyers, for example:
If you are really looking to live in a big house and that is what defines a good quality of life to you, obviously San Francisco is going to not cut it for you.
Posted by: NoeValleyJim at March 9, 2010 1:44 PM
NVJ, that lawyer payscale is wacky. For large (i.e., AMLaw 100) firms, the NY market is set at $160k for first year lawyers, with increases of 10-30k each year, in lockstep (so that, e.g., a fifth year attorney makes $250k). Most of the largest CA firms match that, though not all. All of the largest Chicago firms match that. Some, but not most, of the big DC and [Boston] firms match that. The numbers in that chart are presumably skewed low because they include all of the second-tier firms and small local shops.
In any case, I maintain that the HHI numbers in SF don't remotely support the housing prices here. I don't care if you have 2 incomes. If they only add up to $200k (and most of them don't even), you really have no business buying an $800k home, much less an average $1-1.5M home (unless you have no kids, in which case, you're presumably only looking at 1 and 2BRs anyway). Based on Anon E. Mouse's numbers, my household is in the top 5% of SF incomes; but there's absolutely no way I could come close to responsibly affording monthly payments on a top 5% (or even top 30%) SF property.
Posted by: Shza at March 9, 2010 2:02 PM
I know that site does a good job representing average IT salaries, so unless you can show me something else, I am going to take it as a good source. I agree with you, this is presumably across the universe of all lawyers, which in this case means things like Public Defenders and probably even people working in non-profits. No doubt a partner makes much, much more.
Remember only 30% of HH in SF even own homes, so you really should be comparing home prices with the incomes of the top 30%. It is not a stretch at all to afford a $800k home on a $200k salary, presumably with 20% down. I don't know who is buying the $1.5M homes either, but most home buyer in San Francisco at that level are presumably bringing a lot of cash to the table, either from a prior home being sold, or a stock option cashout or the Bank of Mom and Dad.
Posted by: NoeValleyJim at March 9, 2010 3:09 PM
"NVJ, that lawyer payscale is wacky. For large (i.e., AMLaw 100) firms, the NY market is set at $160k for first year lawyers, with increases of 10-30k each year, in lockstep (so that, e.g., a fifth year attorney makes $250k). Most of the largest CA firms match that, though not all. All of the largest Chicago firms match that. Some, but not most, of the big DC and Chicago firms match that. The numbers in that chart are presumably skewed low because they include all of the second-tier firms and small local shops."
People have a skewed view of big firm salaries vs. other lawyers. A huge percentage of lawyers (even in big cities) start out at less than $100K, contrary to popular belief. There are plenty of lawyers in all of the big cities who aren't big firm lawyers, whether government, small firm, in-house, etc. The national salary survey for lawyers is bimodal:
Posted by: Anon E. Mouse at March 9, 2010 3:48 PM
"Remember only 30% of HH in SF even own homes, so you really should be comparing home prices with the incomes of the top 30%."
That's a questionable assertion, NVJ. I mean, hell, my barber owns a house in a Western neighborhood, and I would guess he isn't in the top 30%.
FWIW, top 30% of households is over $100K as I pointed out above.
"No doubt a partner makes much, much more."
You'd be surprised how close junior partner draws are to senior associate salaries at many big firms outside the top 40 or so big firms. And partners at small firms, let's not even go there. There are so few big firm partners in the relative universe of lawyers, so we're talking about a very small number here out of even the overall lawyer population.
Posted by: Anon E. Mouse at March 9, 2010 3:54 PM
It is not a stretch at all to afford a $800k home on a $200k salary, presumably with 20% down.
I have no interest (or time) for getting into a detailed discussion about this but suffice to say I disagree completely. At 4x HHI, I'd be in the market for a $1.7 home, which is absolutely ludicrous -- notwithstanding that plenty of people here sacrifice and stretch to do just this.
Posted by: Shza at March 9, 2010 5:19 PM
Just to throw it out there, the banksters do agree that $200K is sufficient for an $800K home at current interest rates. If you finance $640K at 6% (let's say), your payments are around $3800/mo. Under traditional 28/36 lending ratios, 28% of $200K gross is $4667/month (very close to the monthly payment for $640K at 8% of around $4700). Of course, that's based on *gross* salary, not net. I personally probably wouldn't feel comfortable paying 28% of gross household income for housing.
Posted by: anon at March 9, 2010 5:37 PM
anon's point is a good one, but it just illustrates why we got into this terrible crash. Banks lent money to people who could not afford the house they were buying (now the govt does the same). Also, good luck saving that 160,000 down payment on 200,000 a year gross income. Oh yeah, everyone in SF not only makes a half million a year but their parents shower them with money for that down payment. Or not (which is why sales volume continues to run close to half of the no-down bubble years).
Posted by: A.T. at March 9, 2010 6:29 PM
I know when we first bought out place, it was 5X our income at the time. It was a two unit, with some rental income, but including that as income, our house was over 4X our combined income and we only put down 10%, so our mortgage was almost exactly 4X.
We had no problem affording it whatsoever, in fact we were able to save about 30% of our gross income, including 401k deductions, in addition to making our mortgage payments. We do live lightly on the earth, packing our lunches and bicycling instead of driving, but this is because we want to leave as much of the earth's resources to the next generation as possible.
If you want to drive a late model luxury car, send your kids to elite schools and go on expensive European vacations every year, don't be too surprised if real estate in one of the most expensive markets in the United States is beyond your reach. Or at least the home that you think that someone of your station deserves to live in. It is all a matter of priorities.
Posted by: NoeValleyJim at March 9, 2010 9:18 PM
It is not a stretch at all to afford a $800k home on a $200k salary, presumably with 20% down.
i am in this salary range, have $150K and still don't feel comfortable buying a $800K property for several reasons
1) there is nothing of the size i want in the neighborhood i want for that price. currentl renting 2bd 2ba with parking and laundry in Pac hts for $2100.
2) rent is way way way chaeper than mortgage. a comparable place in my building recently sold for about $950K
3) the cash outlay is too much when there are many better places to make your money work for you
4) there is a good chance that in 7 yrs from now, there will be no appreciation and I don't think a 15 yr horizion makes sense for condo buying.
5) i dont want to make $220K, and still be house poor and not be able to vacation at least once per yr. i drive a 10 yr old domestic car
6) investing is important for me as i may want to retire one day so need to save and couldn't do so with a $4500 mortgage payment.
7) the NYT calculator tells me i should definitely rent, no matter how i change the parameters.
8) this market has to correct to its historical rent/price ratio over time. it's still wildly overvalued compared to its own historical norms
Posted by: spencer at March 9, 2010 10:08 PM
Spencer: You live in a rent-controlled apt. at well below-market rent. You apparently are quite content with your home and your neighborhood. San Francisco rent control law guarantees that your rent increases will be below the inflation rate, so your deal will likely get even better over time. It is unlikely to ever make sense for you to voluntarily give up the great deal you have now.
Posted by: Dan at March 9, 2010 10:47 PM
"If you want to drive a late model luxury car, send your kids to elite schools and go on expensive European vacations every year"
You can't really lump "send your kids to elite schools" in with that group. SF schools stink, and it is quite selfish to sacrifice one's kids' education by forcing them on that lousy alternative just so one can afford a bigger, nicer house. Fact is that if you want a decent education for your kids in SF, that means paying for private school. Another reason why the cost of living in SF -- at least for those with kids -- is higher than it appears at first blush.
Posted by: A.T. at March 10, 2010 8:23 AM
There are plenty of great public schools in San Francisco. Lowell has one of the highest acceptance rates to UC Berkeley and Stanford in the nation, perhaps the highest. San Francisco Unified School District itself is the best urban district in the State, beating out San Diego and San Jose and has numerous awards recently. There is no doubt that the public schools have improved greatly over the last decade.
Having said that, there are also plenty of terrible public schools in San Francisco as well and if our daughter(s) end up in one of them we will be forced to either send them to private school or leave for a suburban school district with uniformly good schools. Fortunately we have the resources to afford private school but my wife and I would strongly prefer to send them to public school if possible.
So the challenge is getting them into a good public school and with the proposed School Board changes this will be harder than ever for people living on this side of town. We are two blocks from Fairmount, but since language immersion schools are not going to be slotted via the "local preference" process, we really have no idea what our local elementary will be.
Posted by: NoeValleyJim at March 10, 2010 10:50 AM
Spencer, all those reasons make great sense and I agree with you, it probably doesn't make a lot of financial sense to buy right now. But that is different than saying that it is impossible.
I am curious, why didn't you buy back in 2002/3 when the rent vs. buy numbers made more sense? That is what we did and we immediately starting paying less than we would have by renting a comparable place. Plus we locked in our costs for 30 years.
Posted by: NoeValleyJim at March 10, 2010 11:24 AM
There are plenty of great public schools in San Francisco. Lowell has one of the highest acceptance rates to UC Berkeley and Stanford in the nation, perhaps the highest.
This must be a joke. Yes, Lowell is a great high school. It's also incredibly difficult to get accepted to and its greatness is irrelevant until your kid is high school-age. There are maybe 7 elementary schools that are (currently, pre-humongous budget cuts) good/acceptable; and your statistical chance of actually getting your kid into one of them is miniscule.
NVJ, I know from your past posts that your kid (kids?) isn't old enough for you to have gone through the SF kindergarten lottery but many of our friends are going through it now and -- no surprise -- are all getting stuck with no acceptable options; and the ones who are house-poor are going to be forced to sacrifice their children's educations because they can't sell/move or afford good private school.
And none of this even takes into account the massive education cuts that are coming -- which will cut funding more than even Prop 13 did, and which will make CA public schools the worst-funded on a per-student basis in the entire US. All of SFUSD's gains are going to be wiped and more in the next couple of years. You need to be prepared to either (a) spend $20k/kid/year on private school or (b) move to Piedmont, Orinda, Lafayette or some awful place like Cupertino or Fremont (those schools will be hurt too but there's way more voluntary investment in those schools than SF's so they'll be fine).
Posted by: Shza at March 10, 2010 12:11 PM
There are far more than seven good elementary schools in SFUSD. I think there are seven language immersion schools alone! Everyone I know who went through the lottery has ended up in a school they are happy with, though many of them had to go on the waiting list and transfer in. One of our friends kids got into a really bad school initially, then put their kid in San Francisco Day School. After that they were informed that they had been accepted into Jose Ortega off the waiting list. But since they had already paid the full years tuition at SFDS, and they really like it, they will keep their son there.
Many of the people on my block send their children to St. Paul's, since it is right around the corner. That is an option we will probably explore as a back up as well.
You are right about the worrisome tendency of California to shortchange our investment in our future. This should turn around as the economy improves, but that is going to take a few years.
Posted by: NoeValleyJim at March 10, 2010 10:29 PM