
Where Can the Middle Class Buy a Home? - prostoalex
http://blogs.wsj.com/developments/2013/10/10/where-can-the-middle-class-buy-a-home/?mod=trending_now_1
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aray
This seems to be a WSJ re-spin of some nice original research by Trulia[1].
I'd read it there.

[1] [http://trends.truliablog.com/2013/10/middle-
class/](http://trends.truliablog.com/2013/10/middle-class/)

~~~
josephlord
From that it seems to assume a four times salary purchase that is largely
borrowed. The calculation is based on current borrowing cost and looking at
historical interest rates a doubling of the current rate seems plausible in 5
to 10 years potentially putting those buying these currently affordable houses
into trouble.

~~~
Domenic_S
Which is why you get a fixed-rate loan...

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josephlord
Can you get a multi-decade fixed rate mortgage in the US? I don't think that
they are obtainable in the UK, most fixes only cover the first couple of
years. Is it a two way commitment so that you are locked in for that time
period and it makes it harder to move/downsize or can you pay it off early?

~~~
Domenic_S
Yes you can. The product most people get these days is the 30-year fixed rate.
15- and 10- year are also available; as you shorten the term, the APR
decreases. They typically don't have any pre-payment penalty.

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buckbova
"For those of you in the coastal elite who are reading this post for the
perverse pleasure of finding out just how unaffordable your city is . . ."

You caught me.

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spot
SF better go high-rise or they will suffocate their economy.

~~~
codex
The market-god spin is that San Francisco has an advanced economy, with
advanced jobs, which is why there are so few poor paying ones.

~~~
maxander
The article is saying housing in San Francisco is unaffordable compared to
_San Francisco 's own_ median income. I'm not an economist (nor a San
Franciscan,) but that sounds unsustainable no matter how you spin it.

~~~
codex
This can occur when an influx of high paying jobs raises prices but the
original, poorer inhabitants are unwilling to move out. Eventually the median
income rises as people retire, die or can no longer afford the property tax on
their now-very-pricey homes. The few remaining low income jobs are staffed by
commuters.

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malandrew
Interesting topic and relevant to SF for a non-obvious reason. Most people
don't know this, but if you earn between 70% and 90% of the SF median income,
you are eligible for below market rate housing in the city. This means you can
buy a apt in a brand new building for far about 1/3 of market rate. i.e. a
$900k 2 bedroom in Hayes Valley would be around $300k BMR. Why do I bring this
up? Because if you aren't in that narrow range, then you need to earn like
3-4x or more of the median income in SF to afford a house otherwise. This
leaves an entire chunk of the market without any options for purchasing a
house. I find it strange that the city feels that a solution like this that
favors one small group and ignores everyone else is an acceptable solution to
the problem. Programs like BMR need to be replaced in favor of permitting
enough housing permits to satisfy demand so that housing is accessible to
people earning the median income and above.

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freehunter
I make almost exactly what is listed as the median household income for my
area, and I would never dream of buying a $200k+ house. My price range when I
was house hunting was around $120k, which is around 2.5x my salary. I didn't
find anything worth buying, so I rented.

Who buys a house that's 4.5x their salary?!

~~~
runamok
The historical "best practice" max home loan ratio was 3x your gross income.
However, that was at a time that interest rates were significantly higher.
Therefore the amount you are paying now over the life of the loan is smaller
and thus more manageable. This assumes you make a large enough down payment
that you don't need private mortgage insurance.

However, this presumes you will have 20-30 years of (more or less)
uninterrupted prosperity which I think is unlikely.

People also do things like rent out a room or two to give themselves more of a
cushion.

Here are some calculations using this site:
[http://www.mortgagecalculator.org/](http://www.mortgagecalculator.org/)

I assumed a loan of 250k, 30 years, with no property tax or PMI since this is
just for comparison.

Right now rates are ~3.5% so over 30 years you would pay $404k and
$1122/month. Over the past 30 years the average interest rate has been 7.45%
so over 30 years at that you would pay $626k and pay $1739/month.

So a very significant difference.

~~~
freehunter
I guess I'm either making significantly more than people in my area who are my
age or I must spend a lot more, but there's no way I could afford a $1122/mo
house payment with my student loan bills and a small car payment. I mean, I
_could_ afford it, but I would be incredibly uncomfortable every month knowing
that one missed week of pay meant a bill that wasn't going to be met that
month.

I did at one point rent a room from someone who was making $35k/yr who had
just bought a $90k house and couldn't make the payment. It wasn't much cheaper
than an apartment and the person made it clear almost every day that I was
only welcome in the house because I paid more than half of his mortgage every
month. He was an ass and I had no rental contract with him, so I left. His
house got foreclosed upon a couple months later; I was going to buy it from
the bank but he had trashed the entire inside and ripped out chunks of the
exterior wall. Anyway, this was just a long winded story to say yeah, I can
see what you're saying about renting a room to pay the mortgage. It would
still make more financial sense to just buy a house you know you can afford.

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lifeisstillgood
I did a little research in London a while back:

assume that the Rich dad poor dad idea of 2.5x income is the value of an
affordable house, and the average median UK income is 25k that leaves houses
at ~70k. Do you know how many houses are for sale in London at less than 70k,
in this city of 8million? 6. just six.

ridiculous

~~~
josephlord
Median London salary is probably higher. This[1] says about £35K.

Now it doesn't change the reality that much, prices have been driven
ridiculously high by the escalating levels of borrowing. We need a strategy to
limit the amount of borrowing taken rather than government encouragement for
even bigger mortgages.

[1] [http://career-advice.monster.co.uk/salary-benefits/pay-
salar...](http://career-advice.monster.co.uk/salary-benefits/pay-salary-
advice/uk-average-salary-graphs/article.aspx)

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xradionut
I'm reminded of Brain Burn's "Welcome to Texas":
[http://www.youtube.com/watch?v=YPQHghD3Ddw](http://www.youtube.com/watch?v=YPQHghD3Ddw)

~~~
dasil003
Why are Texans so sensitive? I would never make fun of a Texan in Texas. I
only do that when they're seen skiing in jeans in New Mexico.

~~~
xradionut
If you're an older native Texan, you might remember the days when the majority
of the residents were actually born in the state and also had parents born in
the state. Fast forward a couple of score of years and if you're not a farmer
and don't live in the sticks, odds are that you are surrounded by people from
the surrounding states, from the coasts and around the world.

So culturally and demographically the state has changed tremendously over the
last two censuses. The urban sprawl and traffic is starting to remind people
of California. And the people from California remind people constantly they
are from California. And the neighborhoods could be from California. (Sans the
climate since we have earthquakes here now, too...)

Plus the growth is fueled by short-sighted policies of the modern slick
version of the good-ole-boy, fake Christian, supposedly conservative state
government. (Don't blame me, I didn't vote for them...) In the long run, lack
of water resources, too many damn people and a stupid government will crash
the state hard. The area around Austin is as flammable as SoCal, the traffic
is DFW is becoming a monster and the social net is non-existent except for
federal money.

But hey, my house would be worth 9 times as much if it were in San Francisco.
:)

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JPKab
I've been considering moving to the Austin/New Braunfels/San Antonio region
for a while now (I'm currently in Arlington, VA). Any reasons I should
reconsider, other than what you just mentioned? The housing prices here are
insane, and are only affordable if you work for a contractor. Hence my
motivation to look for a more private sector fueled economic area with sane
prices.

~~~
fsckin
Austin is OK. San Antonio is better. Definitely move there.

~~~
JPKab
I recognized your username, but couldn't remember where I remembered it from.
I then looked in your comment history. After seeing the medical malpractice
comment you left, I don't think I want to live in Texas anymore.

My wife and I were victims of malpractice in 2006. The result of it was our
son was born 3 months early when otherwise he could have been born full term.
We lucked out. He appears to have no complications from being so premature.
But the emotional hell that dumb bitch doctor caused us I will never forget.
(yeah, dumb bitch is a nasty term, but we were in a Christian hospital due to
proximity, and she judged us for our hippy-like appearance and failed to do
the most basic diagnostic activities before sending us on our way)

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pdelbarba
This doesn't seem to fill in the gap of where people are living if most of the
housing is above median income. They did imply that the median income was
calculated per city so that rules out any wealth concentrations. This seems
more of a market/response problem than a 1%er debate.

EDIT: Now that I think about it, I would bet that the SF numbers were heavily
influenced by the <2000 DOTCOM bubble

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RougeFemme
Building smaller starter homes, with more "basic" decorator options would
help, e.g., does a starter home _have_ to have 2.5 bathrooms? The counter-
argument, right or wrong, is that builders say that with the proffers they are
required to pay, they can't make a decent profit on smaller, more basic homes
_and_ that the buying public doesn't want them.

~~~
judk
No. Homes they are unaffordable are not expensive homes, they are expensive
land. Building a mini house is a waste of effort and drives costs up, as it
will need to be knocked down or mangled later to support expansion.

~~~
seanmcdirmid
Mini houses use less land. More likely, they are small apartments, though;
single dwelling houses are not very practical where land is expensive, even if
Americans tend to pretend so.

~~~
Swizec
So much this. I will never understand why somebody would want to own a one-
family house if they aren't going to at least have a goat or something.

Doesn't have to be a farm, but houses are for people who want to work the land
at least in some capacity. Hell, at least have a solid garden!

~~~
seanmcdirmid
You can have a community garden in an apartment complex, or at least garden on
your balcony.

~~~
Swizec
Yes you can. But it's stupid to have a whole house and _not_ have any of that.

I've so far lived 3 months in the Valley and those houses are ridiculous.
Super big, with a yard that is huge, but useless for anything other than
parking your bike, possibly having a few deck chairs, and keeping the front-
lawn perfect for absolutely nobody.

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aliston
It's interesting that the affordability is calculated relative to median
income. If SF is the most expensive, relative to household income, doesn't
that imply that either San Franciscans are living above their means, or there
are more renters in SF than any other city in the country? Is there another
possible explanation?

~~~
akgerber
It implies that there's a housing shortage, and that housing is purchased by
the rich and those willing to live above their means (or willing to skimp in
non-housing areas of their budget) bidding up the small quantity of available
housing, and everyone else moving away. A similar thing happens in most
expensive housing markets, driving the population growth in low-wage, easy-to-
build areas of the Sunbelt like Texas, Arizona, and Nevada.

~~~
nostrademons
Or alternatively, that everybody else doubles up and lives the bachelor
lifestyle for a long time. Roommates are very common in the Bay Area, as is
youth. The large number of 20-somethings just starting out in their careers
skews median incomes downwards, and many of them don't have the same housing
needs as someone with a family.

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mixmastamyk
Yep... in LA and just watched a hundred-year-old, boarded up crack-house
across the street list and sell for almost $700k.

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vinceguidry
But then you have to live in Ohio.

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pdelbarba
As someone from Ohio, I can understand why so many others here have felt the
need to leave the planet.
[http://webcache.googleusercontent.com/search?q=cache:gesERte...](http://webcache.googleusercontent.com/search?q=cache:gesERte16GAJ:www.nasa.gov/centers/glenn/about/bios/ohio_astronauts.html+&cd=1&hl=en&ct=clnk&gl=us&lr=lang_en%7Clang_de)

~~~
dasil003
Have some pride in where you're from!
[http://www.youtube.com/watch?v=bV_E8SPc_jo](http://www.youtube.com/watch?v=bV_E8SPc_jo)

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sscalia
This is absolutely perverse and unsustainable.

I don't know what "fixes" this - a massive correction in tech wages? Another
recession? Not sure.

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dasil003
I thought this way too, then I moved to London and took around and European
real estate, and now I think maybe it's just the future.

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toomuchtodo
Is all European real estate ridiculously expensive?

~~~
seanmcdirmid
Yes. Most people rent flats also, and it works fairly well.

