How does anyone afford the median 1.2M house price? The income multiplier I always considered was 2X annual income which would require an income of $600K per household. I don't know anyone who makes that much as a programmer, even a dual $300K income seems unlikely. Are there really that many startup millionaires in SF?
People leverage themselves to the hilt. That's true in most of the major markets. Here in DC, there is a compressed clustering of houses around the 1-1.5m mark. Just below 1m you're talking about a dilapidated 3br in Bethesda. Above 1.5m you're looking at mansions in Georgetown.
I found the compressed range weird until I realized it was driven by the max mortgage you could qualify for on two incomes each in the 100-150k range (common mid-upper end government or NGO salary).
Got any stats on the mortgages issued? In the last housing boom I was concerned about the rate of buyers being over-leveraged and found that 80%+ of Seattle area mortgages were less than 5% down - that was a red flag for me to sell ASAP. Despite having bought a place only a month before I found out, I tried desperately to sell (nobody wanted to sell a place that had a lawsuit against the HOA and I was unlucky to have a lender whose underwriters didn't care when everyone else did) and get out of the impending doom but couldn't.
Last I remember in northern Virginia around Fairfax and Vienna (early 2015) more than 80%+ of home purchases were cash-only purchases and with median of 850k - this differs drastically from what you're seeing in DC though it seems. I did notice that my real estate agent was strongly pressuring me to buy when I wasn't ready to buy nor had the $150k+ to put down. Even worse, Virginia (and I think DC) is a recourse state so if house prices crash again you'd be on the hook to pay the difference back resulting in a likely bankruptcy or a debt burden that makes most student loan debt look laughable if all your equity and then some is erased.
For simplicity, let's say you put 200k down on this 1.2 mil home. Your mortgage payment on a $1 million loan would be a $4,490/month, or around $50,000 per year. $30,000 of that is tax deductible.
A general rule of thumb is that you shouldn't spend more than roughly thirty percent of your income on rent, so I think any person or family making over 150k/year could feasibly think about a purchase like this.
The major caveat is that $200k in savings is hard to come by.
You'd also have ~ $13,200/year in property taxes (also deductible) and should budget another ~ $4,000/year for maintenance and upkeep. Not earth shattering but it does add up. There's some political risk that the Feds will eliminate or at least limit one or both of these deductions. Your basic premise is accurate which is that low rates have enabled people to stretch their incomes to meet high housing prices. Since rates have steadily fallen since the late 70s we've sort of seen this play out before, and we know how it ends: people get into trouble when they lose their jobs and can't sell their house in a down market. If you have 30 years of relatively steady employment, then you are fine.
>The income multiplier I always considered was 2X annual income
It's generally 3-5x, depending on rates. I know that in Silicon Valley everyone thinks everyone is "killing it", but I bet people would be surprised how few people are actually making the ~$250,000 required to service a mortgage this size. The median income in SF is less than $80,000.
Thats the same what I thought when I read that comment. Here in germany most hoses go around for 300k-1M€. And still they are bought from families with a COMBINED income of far less then 100k€. It's quite normal for people to pay for a house for 20years, which would make it still cheaper then renting.
Also, 3.5% in mortgage interest? That's ridiculously high. Where I'm from you can easily get a mortgage with a variable interest of 1.46%.
In completely unrelated news, Stockholm is in a crazy housing bubble as well, and prices are actualy above Silicon Valley levels, yet people sustain that with incomes much lower.
>Also, 3.5% in mortgage interest? That's ridiculously high. Where I'm from you can easily get a mortgage with a variable interest of 1.46%.
I'm not sure where this even came from but: 3.5% isn't "high", historically. And that fact that you can get a variable rate of 1.46% during a period of globally historically low interest rates has little relevance to the 20-30 years it will take to pay down your mortgage.
In fact, buying a more expensive house because you can get a super-low rate now, without accounting for future rates, is a classic blunder.
How to buy a home in the US is weird and baffling to me, everything is different from what I'm used to.
The interest rate discussion is one thing, I don't understand why everyone here is only talking about a long-term fixed rate mortgage, where I'm from, everyone advertises the lowest variable rate. Coincidentally, Stockholm has a crazy housing bubble, so there's that.
Dual $300K income is achievable in households where they're both engineering or management professionals. But honestly, most of the people I know who've bought here have done so with the help of family money, eg. their parents plop down $500K for the down payment and they handle the mortgage.
Prices are also being driven up by a large number of foreign (largely Chinese) investment buyers. Their incomes are driven by all the Americans who buy goods manufactured in China, and so normal salaries don't apply.
I have always heard the loan should be 3x or less (so 100k salary = a 300k loan). Though that was back when interest rates were much higher and initially you would be paying mostly interest. Most people here are doing 5x or more.
As far as income, some engineers make 150k but then make close to another 150 due to bonus and RSUs.
The real question is will you make that for the next 30 years it takes to pay off the mortgage...
Most of my friends who purchased in SF or NYC used family money. There are a ton of wealthy families out there. Tech stock options follow close behind, but seem much more cyclical.
