We recently saw a housing market report for the 10 counties that make up the “San Francisco Bay Area”. From the most expensive to the least, these 10 counties are:
1, San Mateo County
2, San Francisco County
3, Marin County
4, Santa Clara County
5, Alameda County
6, Santa Cruz County
7, Napa County
8, Contra Costa County
9, Sonoma County
10, Solano County
While Solano county has the lowest median home prices, those prices are still pretty close to half a million dollars. The average income in the Bay Area is about $100K according to this article: https://www.businessinsider.com/weath-maps-cities-san-francisco-bay-area-2018-3. Supposing you can save about 10% of the average income, that gives you about $10K a year. A $500K house with 25% down payment will be $125K. On average, it’ll take you 125K/10K = 12.5 years to save up enough down payments to purchase a house.
These numbers are daunting for a lot of people. There are many respectable professions that do not allow people to earn enough to purchase a home. Anywhere you go in the Bay Area, this is a hot discussion topic – at family dinners, at social gatherings, around water coolers in the office…as some of our staff members recently did. What do we observe? We summarize the things we see our friends and families do here into 3 categories:
1, Downsize Here
For those of us who need to say here in the Bay Area, it’s most often for work reasons. In the past, maybe some of us have family reasons too. But recently, more of us observe people just uprooting their entire family and extended family and moving away. For many of us, our jobs are here. There may not be enough jobs somewhere else, and we still have a very long working life to go before we can retire, so that we need to stay to work in the Bay Area. Downsizing is a great strategy.
Suppose this is your house value: $1mm
Equity at 30%: $300K
A condo that’s 33% cheaper: $670K
This condo will require 25% down: $167.5K
If you sell your home now, your $300K equity will be more than the $167.5K that you need to put down on a new condo. Plus it gives you a sizable $132.5K in savings.
Hypothetical scenario below:
Your house value now: $1mm
Equity at 30%: $300K
Average 2-bedroom apartment rental in SF bay area (among the 10 counties): $1500-3500, let’s say we take an average at $2500 per month, or $30K per year
We by no means can predict anything about the housing market here, so the following is not a prediction but a hypothetical scenario. But let’s say, in our dreams, if the market prices go down by about 10% in a year’s time, this house in our example would be worth $900K then. By selling now, we would save $100K, and spend $30K in rent in the meantime.
Suppose a 1-BR apartment rents for $2400
Suppose a 2-BR apartment rents for $3000
Monthly savings: $600
Yearly savings: $7200
Back to our examples above, if it would take you normally 12.5 years to save enough to buy a house for $500K, having $7200 in savings per year will shorten that to 7.26 years. If everything else stays the same, you can get to buy a house 5 years sooner.
2, Upsize There
For those of us who are close to retiring, and who, if we lived somewhere else but in the Bay Area, would be able to afford to do so, it really behooves us to think about moving out of the Bay Area. You might even be able to upsize in the process. If you don’t want to go far, the surrounding counties of the Bay Area, including Sacramento County, San Joaquin County, El Dorado County, Fresno County and so on, offer excellent choices. Median housing prices in those counties are about $300K-$350K. A simple online search can tell you that you can find houses easily for about 2000 Sq Ft, with much larger lot sizes (sometimes acres) at such prices in these surrounding counties. If you have a house like the one in our example, you can buy such a house for cash, and live rent and mortgage-free.
This is not to mention that you can decide to move out of the California state altogether and live even more cheaply. Here are just a few of our staff members’ favorites:
Median house price in Dallas TX: $190K
Median house price in Memphis TN: $130K
Median house price in Jacksonville FL: $165K
We won’t dwell on this scenario any further, as many of us cannot afford to retire yet and upsize somewhere else.
3, Go In-Between
It started out as a lunchtime conversation. One staff member was reading her Facebook posts and found out that a friend of hers has moved to a city in the Calaveras County, near Angels Camp where she took for family for a summer vacation last year. Then soon another staff mention mentioned his friend doing the same. And the stories go on and on. These people have bought houses further out where their children go to school, and maybe one spouse stays behind there, while another goes between their house and the Bay Area to work. In most cases, they will rent a room in a hotel in the Bay Area for the Monday to Thursday, or Monday to Friday, work week, and then drive back to their house to spend time with the family over the weekends. If timed and managed right, the commute time per trip is about 3-4 hours. They can truly relax in a far-slower paced area over the weekend, be close to nature, and most importantly, not have to worry about finances as much as before. Let’s take a look at an example here as well.
A $1 mm house (in the Bay Area) will have a monthly mortgage payment of about $5000 (with 3.5% to 4% interest rate, 30 years term)
A $100K house will have a monthly mortgage payment of about $500
Daily hotel rate in the Bay Area (e.g. Redwood City): $100-150 a night
If you stay in the Bay Area Monday to Friday, you only need 4 nights a week, that’s $400-$600 a week, or $1600-$2400 a month
You drive twice a week for about 200 miles total – assume that costs about $60 a week, or $240 a month
Total hotel plus mortgage plus commute costs: $2300-3100 per month, vs the $5000 per month in mortgage
Going through these numbers has certainly expanded our minds. In any case, it is really heartening to know that we do options to live a comfortable life with our families even in the one of the hottest real estate market in the country (and, the world).