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Where Can Our Kids Afford to Buy a House? Four Strategies to Get Into the Market.

December 20 2016
December 20 2016
By
Now that my kids, and the kids of my friends, are grown and making their way in the world, we’re starting to wonder where they’ll be able to buy a house someday. The sky-high prices here on the Peninsula make it challenging for them to be settling down close to home. This article about the income needed to purchase a single-family home in 15 major U.S. cities was eye-opening.

San Francisco*, where one of my sons lives, tops the list with a median home price of $835,400, meaning a monthly mortgage payment of $3,550, requiring a $152, 170 annual salary. Even in a city where technology companies are paying excellent wages, that is a pretty high bar.

But it gets worse if our kids want to be closer to home. The median home price for Santa Clara and San Mateo counties combined is $941,500, requiring an income of $199,714 per year. And for Palo Alto, Menlo Park, Portola Valley, Woodside and Atherton, the median home price is a whopping $2,325,000, meaning a buyer would have to make an annual salary of $487,928 to purchase a home**. In almost all these cases if the buyer is a first time buyer they have already succeeded with a company and cashed in on those lucrative stock options.

In addition to these high home prices, rents are also expensive, so saving for a down payment is increasingly difficult. So what are our kids to do if they want to own a home?

Move someplace less expensive than California. On the west coast, Seattle doesn’t have our sunny weather, but it does have lots of jobs and the median price for a home there is $422,100, requiring an income of $81,770. If your kids prefer the heat, they can buy a median priced home in Phoenix for the relative bargain price of $235,300 while making $44,130 a year. Or if they are into food and outdoor activities, look at Portland where a median home costs $358,500 and is affordable with an income of $78,257.

Move someplace in the Bay Area that’s less expensive and/or buy a condo instead of a single-family home. For example, the median price of a condo in San Jose costs $470,000, affordable on a $101,486 salary.

Get help paying the mortgage. The first property I bought was a duplex . My wife and I lived in one part and we rented out the other part - the rent covered the mortgage payment. This could also work for a two-bedroom condo or a single-family home with multiple bedrooms.

Get by with a little help from your friends (or more likely parents) With the high costs of living in the Bay Area, more kids are getting help from parents when possible - we see quite a bit of this. Depending on everyone’s circumstances, this could be a gift or a loan to be repaid as the kid’s income goes up or the house appreciates. Parental loans are a little tricky though, as they add to the debt / income calculations the banks use, so if you are in the position to do so, a gift is best.

Many things may be different for our kids and future generations, but one thing is constant. Owning a home is still one of the best paths to building long term financial security.

*San Francisco Bay Area

**Assuming 20% down payment and a maximum of 28% of income spent on a 30-year mortgage at today’s rates.


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