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People buying houses for $1 million are wealthy even by the standards of the Bay Area. Median household income in the San Jose-Sunnyvale-Santa Clara metro area

People buying houses for $1 million are wealthy even by the standards of the Bay Area. Median household income in the San Jose-Sunnyvale-Santa Clara metro area is ~$125,000[1]. A traditional $1 million mortgage would require a $200,000 down payment, and ~$5000/month. The monthly payment alone would be 48% of the combined monthly pay for everyone in the household in a household making the median. House purchases at this price are only possible for households that are making significantly more than the metro-area median. [1] https://data.census.gov/cedsci/table?q=United%20States&tid=ACSST1Y2018.S1903&t=Income%20and%20Poverty&vintage=2018&hidePreview=true&g=310M400US41940&moe=false https://data.census.gov/cedsci/table?q=United%20States&tid=A...

onlyrealcuzzo 7y ago
And most people spend >40% of their income on rent & mortgage payments in The Bay. The average person with a house in The Bay probably doesn't make as much money as you think. They mostly have very high debt to income ratios.
- tehwebguy 7y ago
  Sure but someone is still running the drive-thru at every McDonald’s in the bay area.
  - berbec 7y ago
    And I imagine they take a hellishly long mass transit commute
    - duskwuff 7y ago
      And there's a good chance that they rent, not own.
      - mandelbrotwurst 7y ago
        Or live with family / many roommates.
        onlyrealcuzzo 7y ago
        And/or in section 8 housing...
    - tehwebguy 6y ago
      Doesn’t basically everyone in the bay area?
- alexhutcheson 7y ago
  Source? It would be surprising to me if lenders were regularly approving loans where the mortgage payment alone (not including insurance or taxes) was >=48% of monthly income. There are certainly lenders that will approve mortgages with high ratios relative to salary (due to the value of bonuses and equity comp), but the $125,000 figure is all-in income, so this isn't relevant. A 40% ratio for the $125,000 household would give you a maximum purchase price of $830,000, which would be a conforming loan in the Bay Area, not a jumbo one.
  - nostrademons 7y ago
    You can check out the actual sale prices of recently-sold homes on Zillow: https://www.zillow.com/homes/recently_sold/house_type/ https://www.zillow.com/homes/recently_sold/house_type/ In the South Bay near Mountain View, there's basically no single-family homes under $1.5M, and the majority of houses go for $2M up. Many are in the $4M+ range. You can get cheaper in San Jose ($800K-ish for a run-down 2BR from the 50s) or Daly City (low millions), but most of the Peninsula and SF has a floor at a million. Most Bay Area residents just don't own homes. They rent permanently or maybe own a condo. But the context for this sub-thread is "people with a house", and basically all mortgages for single-family homes are jumbo if you're not paying in cash or putting >50% down.
    - alexhutcheson 7y ago
      Yeah my argument was that all the people who are buying those homes are significantly wealthier than the Bay Area median household.
      - bananabreakfast 7y ago
        The median Bay Area household cannot afford to buy a house, yes, but that does not mean that those buying houses are significantly wealthier. The Bay is far, far richer than you can imagine. Buying a house for $1M is firmly middle class status. True lower class people simply cannot afford to live in the Bay at all. To be in the top 1% in the Bay Area you have to make close $1M per year.
- subsubzero 7y ago
  Truth.. me and my spouse sold our old house in san jose (2016) to a couple who had < 160k in 401k combined(no other assets) and were in their mid/late 50's, their downpayment was the 90k they got from the sale of their condo, they were in construction/design(unsure of income) and had to get a 2nd loan from the bank to make the downpayment. Their total new mortgage is 5k a month(payment and prop. taxes, guessed this), I was shocked that the bank approved them given they seemed leveraged to the hilt.
  - nostrademons 7y ago
    I wonder if this means a foreclosure crisis is coming. I've wondered recently how much of this house price inflation is because of cash buyers from China vs. cash buyers because they sold their stock in a unicorn vs. dual-FAANG-engineers with a mortgage vs. people who leveraged up to the hilt with 3-5% down adjustable mortgages. ChuckMcM posted county property records a couple years ago that suggested the former category isn't actually a big one. The first 3 categories are relatively insensitive to downturns. The last will get hit hard this recession. If most houses are owned by people in the last category, the effect on housing prices will be much more dramatic than if they're folks sitting on houses with no mortgage.
    - pkaye 7y ago
      A few years back I found a website where I could look up big expensive houses on the east bay area hills and it would mention who owned them. When I looked up a few of the big ones, 8 of 10 I looked at were owned by doctors.
6gvONxR4sf7o 7y ago
First of all, a $1M house with $200k down means an $800k mortgage, not a $1M mortgage. With rates as ridiculously low as they are, monthly payments are closer to $3.5k/mo. Add in an amortized $500/mo in property tax and you're at $4k/mo, for about 39% of income, not 48%. For that married couple making median income (filing jointly), after the mortgage interest tax deduction I think it's like 46% of their after-tax takehome pay. They'd have about $4.8k/mo ($57k/year) left over for whatever. That doesn't seem like so much of a strain as to be inaccessible. (I used some crappy googled income tax calculators, so it'll be off, but hopefully not by a ton. I only factored in mortgage interest deductions, and I don't understand SALT deductions and didn't factor that in, so they might be able to deduct more and have even more left over?) (We're also both using the 2018 median household income, which is like $8k more than 2017, so 2019 was probably even more. Who knows how that relates to today's chaos)
- ipython 7y ago
  Your numbers are way off - dangerously so. First, nobody is getting a sub-3% fixed 30 year mortgage right now - so your minimum for principal+interest on your 800k loan is already $3656 (assuming you can get 3% - every half% is going to cost you roughly another $350 per month) Next, your estimate for property taxes is similarly low. I don’t live in CA but where I live taxes are roughly 1% of the assessed value. Let’s say the county assesses your 1m home for 900k - and not to mention the assessment will probably increase over time - so you’re looking at about $750/mo there. You totally forgot about homeowners insurance - required for that loan plus it’s included in the front end dti ratio. That will set you back another ~$150 per month. That adds up to a total of $4556, almost 14% higher than your estimate and representing one trip to Disney world’s worth of extra spending over the year. Often overlooked is the savings you should make for maintenance, repairs, and improvements. Only after buying and selling a few houses do I finally appreciate exactly how expensive they are and how “only” a $100 per month difference adds up - quickly.
  - 6gvONxR4sf7o 7y ago
    Looking at three different calculators from googling "mortgage calculator," I get an $800k loan at 3.25% (higher than the rate I pay on mine in SF, but I paid the rate way down) coming to $3,482/mo for principal and interest. For property tax, i found this california property tax calculator [0], which says it's $6,490/year ($541/month) for a home assessed at $1M in SF. That brings us to $4023/mo. You're right I totally forgot about insurance. Oops. Sure let's use $150/mo, but IIRC that's more than I pay on mine. Maybe because I'm in a big building and the HOA has insurance for parts that I'd need to insure if it were a single family home? But I didn't factor in HOA, so $150's fair, even cheap. $3482+$541+$150 = $4173/mo. I still think this median household is going to have something like $4-5k/mo left over after principal, interest, property tax, insurance, and income tax. That's the most important number to get right in terms of how accessible this is. It tells us how much to they have to squeeze on everything else to make it work. [1] https://smartasset.com/taxes/california-property-tax-calculator#95nyLOqSYQ https://smartasset.com/taxes/california-property-tax-calcula... ... also "$4556... representing one trip to Disney world’s worth of extra spending over the year." Holy shit really? I never would have guessed disney world is that expensive. Daaaaamn. Guess I'm never going there :( (on second thought, I think you're right about the property tax estimate being low. I pay more than the online calculator said and my place is assessed below $1M. Maybe it's all the other stuff tacked on in SF? Add maybe ~$200/mo to my above estimate, we're still talking about something like $4k/mo left over)

onlyrealcuzzo 7y ago

And most people spend >40% of their income on rent & mortgage payments in The Bay. The average person with a house in The Bay probably doesn't make as much money as you think. They mostly have very high debt to income ratios.

tehwebguy 7y ago
Sure but someone is still running the drive-thru at every McDonald’s in the bay area.
- berbec 7y ago
  And I imagine they take a hellishly long mass transit commute
  - duskwuff 7y ago
    And there's a good chance that they rent, not own.
    - mandelbrotwurst 7y ago
      Or live with family / many roommates.
      - onlyrealcuzzo 7y ago
        And/or in section 8 housing...
  - tehwebguy 6y ago
    Doesn’t basically everyone in the bay area?
alexhutcheson 7y ago
Source? It would be surprising to me if lenders were regularly approving loans where the mortgage payment alone (not including insurance or taxes) was >=48% of monthly income. There are certainly lenders that will approve mortgages with high ratios relative to salary (due to the value of bonuses and equity comp), but the $125,000 figure is all-in income, so this isn't relevant. A 40% ratio for the $125,000 household would give you a maximum purchase price of $830,000, which would be a conforming loan in the Bay Area, not a jumbo one.
- nostrademons 7y ago
  You can check out the actual sale prices of recently-sold homes on Zillow: https://www.zillow.com/homes/recently_sold/house_type/ https://www.zillow.com/homes/recently_sold/house_type/ In the South Bay near Mountain View, there's basically no single-family homes under $1.5M, and the majority of houses go for $2M up. Many are in the $4M+ range. You can get cheaper in San Jose ($800K-ish for a run-down 2BR from the 50s) or Daly City (low millions), but most of the Peninsula and SF has a floor at a million. Most Bay Area residents just don't own homes. They rent permanently or maybe own a condo. But the context for this sub-thread is "people with a house", and basically all mortgages for single-family homes are jumbo if you're not paying in cash or putting >50% down.
  - alexhutcheson 7y ago
    Yeah my argument was that all the people who are buying those homes are significantly wealthier than the Bay Area median household.
    - bananabreakfast 7y ago
      The median Bay Area household cannot afford to buy a house, yes, but that does not mean that those buying houses are significantly wealthier. The Bay is far, far richer than you can imagine. Buying a house for $1M is firmly middle class status. True lower class people simply cannot afford to live in the Bay at all. To be in the top 1% in the Bay Area you have to make close $1M per year.
subsubzero 7y ago
Truth.. me and my spouse sold our old house in san jose (2016) to a couple who had < 160k in 401k combined(no other assets) and were in their mid/late 50's, their downpayment was the 90k they got from the sale of their condo, they were in construction/design(unsure of income) and had to get a 2nd loan from the bank to make the downpayment. Their total new mortgage is 5k a month(payment and prop. taxes, guessed this), I was shocked that the bank approved them given they seemed leveraged to the hilt.
- nostrademons 7y ago
  I wonder if this means a foreclosure crisis is coming. I've wondered recently how much of this house price inflation is because of cash buyers from China vs. cash buyers because they sold their stock in a unicorn vs. dual-FAANG-engineers with a mortgage vs. people who leveraged up to the hilt with 3-5% down adjustable mortgages. ChuckMcM posted county property records a couple years ago that suggested the former category isn't actually a big one. The first 3 categories are relatively insensitive to downturns. The last will get hit hard this recession. If most houses are owned by people in the last category, the effect on housing prices will be much more dramatic than if they're folks sitting on houses with no mortgage.
  - pkaye 7y ago
    A few years back I found a website where I could look up big expensive houses on the east bay area hills and it would mention who owned them. When I looked up a few of the big ones, 8 of 10 I looked at were owned by doctors.

6gvONxR4sf7o 7y ago

First of all, a $1M house with $200k down means an $800k mortgage, not a $1M mortgage. With rates as ridiculously low as they are, monthly payments are closer to $3.5k/mo. Add in an amortized $500/mo in property tax and you're at $4k/mo, for about 39% of income, not 48%. For that married couple making median income (filing jointly), after the mortgage interest tax deduction I think it's like 46% of their after-tax takehome pay. They'd have about $4.8k/mo ($57k/year) left over for whatever. That doesn't seem like so much of a strain as to be inaccessible. (I used some crappy googled income tax calculators, so it'll be off, but hopefully not by a ton. I only factored in mortgage interest deductions, and I don't understand SALT deductions and didn't factor that in, so they might be able to deduct more and have even more left over?) (We're also both using the 2018 median household income, which is like $8k more than 2017, so 2019 was probably even more. Who knows how that relates to today's chaos)

ipython 7y ago
Your numbers are way off - dangerously so. First, nobody is getting a sub-3% fixed 30 year mortgage right now - so your minimum for principal+interest on your 800k loan is already $3656 (assuming you can get 3% - every half% is going to cost you roughly another $350 per month) Next, your estimate for property taxes is similarly low. I don’t live in CA but where I live taxes are roughly 1% of the assessed value. Let’s say the county assesses your 1m home for 900k - and not to mention the assessment will probably increase over time - so you’re looking at about $750/mo there. You totally forgot about homeowners insurance - required for that loan plus it’s included in the front end dti ratio. That will set you back another ~$150 per month. That adds up to a total of $4556, almost 14% higher than your estimate and representing one trip to Disney world’s worth of extra spending over the year. Often overlooked is the savings you should make for maintenance, repairs, and improvements. Only after buying and selling a few houses do I finally appreciate exactly how expensive they are and how “only” a $100 per month difference adds up - quickly.
- 6gvONxR4sf7o 7y ago
  Looking at three different calculators from googling "mortgage calculator," I get an $800k loan at 3.25% (higher than the rate I pay on mine in SF, but I paid the rate way down) coming to $3,482/mo for principal and interest. For property tax, i found this california property tax calculator [0], which says it's $6,490/year ($541/month) for a home assessed at $1M in SF. That brings us to $4023/mo. You're right I totally forgot about insurance. Oops. Sure let's use $150/mo, but IIRC that's more than I pay on mine. Maybe because I'm in a big building and the HOA has insurance for parts that I'd need to insure if it were a single family home? But I didn't factor in HOA, so $150's fair, even cheap. $3482+$541+$150 = $4173/mo. I still think this median household is going to have something like $4-5k/mo left over after principal, interest, property tax, insurance, and income tax. That's the most important number to get right in terms of how accessible this is. It tells us how much to they have to squeeze on everything else to make it work. [1] https://smartasset.com/taxes/california-property-tax-calculator#95nyLOqSYQ https://smartasset.com/taxes/california-property-tax-calcula... ... also "$4556... representing one trip to Disney world’s worth of extra spending over the year." Holy shit really? I never would have guessed disney world is that expensive. Daaaaamn. Guess I'm never going there :( (on second thought, I think you're right about the property tax estimate being low. I pay more than the online calculator said and my place is assessed below $1M. Maybe it's all the other stuff tacked on in SF? Add maybe ~$200/mo to my above estimate, we're still talking about something like $4k/mo left over)