According to the Planning Department’s latest Commerce and Industry Inventory report for San Francisco, employment within the city’s tech sector has grown by almost 91% since 2009 – up from 19,700 to 37,600 jobs in 2013 – but still represents a fairly small proportion (6 percent) of total employment in the city.
And while the average tech sector job in San Francisco paid around $154,000 last year, the average income for all workers in San Francisco was closer to $86,000, up 2.5 percent from 2012.
The rough income needed to purchase a median priced home in San Francisco last month ($999,250) was around $200,000 a year, and that’s assuming $200,000 down and no other household debts or monthly payments (including any HOA fees).
The full Commerce and Industry Inventory report for San Francisco which will be presented to the Planning Commission this week and covers a 10-year time-series of data for the city’s population, employment, wages, business growth, retails sales, government expenditures/revenues, building and transportation trends:
These sort of numbers usually group software and [internet] jobs with bio-tech and other “tech” sort of jobs so it is not just Twitter types.
[Editor’s Note: While far from perfect, the Inventory only includes those jobs classified as “Software Publisher,” “Other Telecommunications,” “Data Processing, Hosting and Related Services,” and “Computer Systems Design and Related services” in its tracking of San Francisco’s “tech sector.”]
They represent 6% of the work force, but almost 16% of the facial hair, and 27% of PBR drinkers. Curiouser and curiouser…
How are they determining the $154k number? That’s way too high to be the average.
A friend of mine in the tech industry says it is very common for entry level workers to get 6 figures, work less than 40 hours a week, and actually ask during interviews if the company serves beer at work. So if entry level workers are making $100,000, $154k as an average seems about right for kids making tons of money for very little effort.
You know, it may be a bit more effort than you think. Also their schooling was perhaps not really easy either.
“….$100,000, $154k as an average seems about right for kids making tons of money for very little effort.”
I hate to be a stickler, but I am a tech worker, and 90% of my coworkers have PhDs at places like Caltech, MIT, Stanford, etc. I can’t tell you how many ex professors for Stanford or Post Docs from Berkeley that we told to take a hike during job interviews. When I was in school, Engineers got the highest grades at every academic level and spent the most time studying (based on my own personal experience). I knew several people who ran away from engineering due to difficulty and went to pre-med or law, which they claim was easier. 70% of us are not born in the US, so local engineers face international competition from the hungriest innovators in the world. Unlike nurses who have virtually 100% job security, our jobs come and go. Many of us work 70-100 hours per week sometimes.
Let’s not confuse hipsters working for spinoffs of Twitter to be representative of the entire tech industry.
I’m not saying tech workers are saints or heart surgeons, but I take exception with being marginalized and demonized.
Very little effort? These guys are highly educated (or incredibly smart and didn’t require education) and live and breath for their jobs. While they may not be at the office for 40 hours/week, they still are working by constantly brainstorming and trying new ideas. In addition to the blockbuster apps like Uber and Air BnB, they are thousands of small business solutions which automate and streamline processes for small businesses to reduce costs and improve efficiency.
Long story short, these “kids” are putting in a lot of effort. Granted, a lot of ideas are extremely stupid. But it just takes one great one to spawn an ecosystem of jobs, wealth, and human capital.
So this is 6% of all jobs in SF are in tech?
More important to me are the % of people living in SF that work in tech. I’m guessing this will be (somewhat) higher given the significant bedroom community the South of The City has become – but maybe unavailable.
The makeup of the City during working hours mean little to me, as, well, I’m at work too – it’s the evenings and weekends that are more important, at least to me.
On the other hand, those 6% of tech job aren’t all filled by SF residents either. My observation is than about half of them are commuters from South Bay, East Bay or North Bay.
With $150k income, one can afford to buy a million dollar home. With the citywide average income of $86,000, a family of 2 average income earners will be able to buy a million home. So it is within the reach of many couples. This can explain the hot housing market despite the high RE price.
“The rough income needed to purchase a median priced home in San Francisco last month ($999,250) was around $200,000 a year, and that’s assuming $200,000 down and no other household debts or monthly payments (including any HOA fees).”
Are banks really giving $800k loans to people who only make $150k a year and have gone broke just to make a down payment and closing costs (in an amount that in sum significantly exceeds their annual income)? Here we go again . . . .
How in god’s name are you supposed to afford an $800K mortgage on $150K a year?! You’re talking over $4K a month in mortgage payments and $1K a month in property taxes. Even assuming a generous 60% take-home (after taxes), you’ve now eaten up 2/3rd of the monthly take-home pay before you even get into all of life’s other expenses.
150 x .6 = 90
(4+1)x12=60
Leaves 30K to live on, or 2.5K/month. Doesn’t seem too absurd.
Out of the $4k mortgage payment, $1k goes to principal. Only $3k is the interest. Plus $1k property tax, your pre-tax housing is $4k. Since you assumed 40% tax rate, your real after-tax cost for a million dollar home is only $2400. Seems like a steal comparing with the rent for the equivalent unit.
After a few years, you can do a cash out refinance to get $100k out based on appreciation and principal payment. You can use the $100k as emergency fund if you are really worried about losing the income, which can last you 2 years to pay the mortgage without a job. If you still can not find a job within 2 years, you can sell the house and more likely than not, you’ll get a nice capital gain.
That must include exec pay, a median would probably be a more relevant number.
i would call it insanity to spend more than 4x income on a home. No wayin hell a family making $200K should consider paying $1M for a home, unless they have a very considerable nest egg on top of the 20% downpayment.
“are banks really giving $800k loans to people who only make $150K a year…?”
Yes. Yes they are. At 3.75% an $800k loan is about $3700. Add $1100 for insurance and taxes and subtract around $1000 for tax the deductions and you get a net of about $3800. Against $7500 in take home that’s not ideal but lots of people do it. Plus those earners may have stock options and/or already socked away a ton of money. I think for most people it still comes down to rent vs buy and if renting that million dollar place costs $5K per month it will push a lot of people to buy.
Exactly. How much rent does a 150k income couple pay in San Francisco? If they are pay $3800 for rent, they can certainly buy a million dollar home if they have the downpayment.
much easier to get out of a $3800 rent than a mortgage if things go south. too many people financially plan for continued success
You can sell any decent house in a hot minute in this town.
Yeah, but it costs you about $60,000 in commissions and taxes to sell that $1 million home. Not fun if you are already strapped. It costs, at most, a few thousand to walk away from a rental.
May be possible to get an 800k loan on a 150k gross income, but unlikely, and very stupid for both the lender and borrower. Rate for such a loan would be more like 4.00% (can get a lower rate, but only if you are a very high net worth, high earner). And taxes/insurance are about $1300/mo. Even 3.75% would put you right at the extreme high of a permissible DTI. Even if some bank offered it to you, you’d be foolish to take it. Add in HOA (for a condo) and/or maintenance, and you simply cannot afford a million dollar place – you’d have to forgo retirement savings and you’d be living paycheck to paycheck.
Now if you had a trust fund or some other substantial wealth, that changes things. Otherwise, you can’t afford it, and no bank is going to make that loan. Mortgage lenders do not hand out loans to people that can’t afford it like they did before the crash.
Lenders do approve the 800k for 150k income if you have no other debt.
In you opinion, what’s the minimum income to consider to buy a million dollar home?
^ correct:
Assuming a 45% debt to income ratio, borrower is allowed to spend $5,625
Monthly PITI on $1mm sales price/$800k l/a is $5,368.82 – doesn’t leave much room, but very possible
personally i would put the number at $300K salary for a $1M home
SF median price is 1 mil. I do not believe that half of the buyers has a 300k salary. My guess is that many people do buy a million dollar home with income of 150k to 200k.
But not that many places turn over at all in SF. For example, my read is that only 119 places sold in SF over the last year around that $1 million mark (900k – 1.25 million). Very easy to believe that number of buyers had household incomes in the 300k range. I don’t know where one could get conclusive figures on incomes of buyers. But I do know that anyone buying a $1 million place on 150k gross income is foolish (absent unusual circumstances like inherited wealth).
“(absent unusual circumstances like inherited wealth).”
Why unusual? It’s typical. Not necessarily “inherited,” but family money? Very, very common.
OK fluj, so if the question is: “Can someone making 150k/yr afford a million dollar place if they have a ton of money from some source other than their earnings?” The answer is Yes. As I stated. If this is, in fact, “typical,” then it all goes to prove my main point, which is that banks aren’t handing out 800k loans to people earning 150k to buy a million dollar place UNLESS they have some independent source of wealth. Glad we are all in agreement on this.
huh? two things. what is your fascination with an ancient handle, number one. secondly, you said “unusual” clearly. it’s not. not in this city. now you’re backing up and rearranging. as to your point about banks handing out 800K loans to people earning 150K, didn’t a couple people who seemed to be mortgage bankers check in and confirm same? BetterSF and open?
800k mortgage at 4% rate has a payment of $3819. Plus $1100 for tax and insurance. Total PITI payment is $4919. With a 150k salary, debt to income ratio is 39.35%. Most banks allow 40-42% DTI, some even allow 50% for some cases. It is perfect fine for the bank to lend 800k mortgage for a 150k salary earner.
Mortgage underwriting standard are made over the years based on the whole population. If most banks are comfortable to lend 800k to a 150k earner, I assume the risk is acceptable and a very high percentage of these borrowers are doing fine.
Assumptions:
1. the 150k earner do not have other significant debt;
2. the borrower has excellent credit;
3. The borrower has reserve funds after purchase;
4. the borrower can verify his income and asset for down payment and reserves.
In SF, if you are renting your place with market rent, you should be able to afford to buy the same unit you are renting. This means that most of the folks renting non-rent controlled buildings without any roommate should be able to afford to buy.
It is a valid point to make sure you have 6 months of emergency savings. It is ok to have less than 20% down payment, but it is crucial to have some savings for emergency. If you are not sure of your job security, of course it is better to rent. However, there are many people renting for many years even without rent control. For all those years, they have lost the opportunity to build equity. Of course, you can save for retirement and invest in stock market, but I suspect more people are spending instead of saving.
Owning a house is also a type of forced saving. Especially in the beginning years of ownership, people need to make some sacrifice and spend less on other things, or jut buy a place below their means to maintain the same level of spending.
stock ownership is a much better way to build wealth. S&P has consistently beat housing over the long term. Its good to ahve a home as a place to live and not to overpay. I personally dont consider my $1M home as an investment, at least not in the same way as i see stocks, bonds, businesses, etc. Now, if i owned multiple homes, then I would consider that an investment. . I consider net worth to be totaled saved, excluding the home and 401K.
Really?
Let’s take a look. From 2010 to 2014, S&P went up roughly 67%. If you invested 200k in 2010, it becomes 334k, nice.
On the other hand, if you bought a million dollar Bernal Heights house with 200k down in 2010. With a 65% appreciation in the same time frame, your equity is worth 850k in 2014. I would think 850k is much better than 334k.
you picked a very specifc point in time. Try doing that same comparison for the past 20 yrs or the past 40. you also bought the house on margin, but you didnt consider the stock being bought on margin, so you are giving the leverage play to RE but not to stocks. There are oodles of info written on this topic. overall stocks outperform RE. its not a debate. its a proven fact. you can always find outliers at given points in time
Let’s pick the last 20 years. From 1994 to 2014, S&P rise from 500 to 2000, 300% return. If you buy a house in Noe Valley, I think the price is also roughly up 300%. With a 20% down payment, Noe house beats S&P 5 times.
You are right that the difference was due to the use of leverage. When you buy a house, you can use 5 times leverage or more; however, for stocks, you are not allowed to use more than twice of leverage. Why? Because buying a house on leverage is much less risky than buying stock on margin.
The reason why the banks give people 5 times leverage for housing is that they believe housing purchase carries less risk. With a lower risk and 5 times of return, it seems that one should buy a house instead of stock. I have not seen any conclusive research to suggest that stock investment is better than housing. Actually, I remember that one of the stock investment guru Peter Lynch says that the best investment for most people is to buy a single family house.
If you can find any good research to prove that stock investment is better than SF housing, I am very interested in reading the report. If they compare S&P against mid-west housing, it could be a tie or a little better than S&P.