Dan Gross’ Newsweek article about “Can you be middle-class and earn $250,000?” struck a chord. If I was Middle Class, I should be able to buy a home with a white picket fence and a car in the garage, right? The goal of a balanced society is to have income a wealth distributed on a bell shaped curve, where you have few very rich and very poor people with the bulk in the middle class. This middle class shall have the good life, whatever that means. Owning a home is strongly associated with being middle class. Being middle class sounds great. I want to be middle class too! In my quest to be middle class, I’ve been looking into what it takes to buy a home in the San Francisco Bay region. My conclusions paint a sad future for my quest into the middle class.
For starters, let’s look at the median salary of a freshly minted Stanford MBA , which is around $115k/year. That’s a reasonable amount. If computer science straight out of Berkeley can make $80k/year working in Silicon Valley, $100k/year for anybody else should be attainable. A person with educated from a top-tier school after a few years of experience should be able to put down $100k/year no problem. Now let’s look at taxes.
For Federal taxes, TurboTax Tax Estimator pegs it at about $20k for a single person, so you’re left with $80k.
California tax is about $7k, so you’re left with $73k.
Now let’s look at retirement. $5k for a ROTH IRA and $15k for a 401(k), so that’s $53k left. $53k is more than the median household income in 2007 of $50k.
The median price of a home in San Francisco ranges from $500k in a place that I would likely to get shot to a median price of $8M where Robin Williams lives. For any normal place it is around $900k. That’s almost $1M. The rest of the bay area isn’t that encouraging either. Oakland is about $500k or more in some areas with the lowest being $200k. Let’s take $1M as the price for a home since that is slightly above the middle and most people want to reach a little bit. Using INGDirect’s Mortgage solutions calculator, I find that I qualify for a $444,777 mortgage and a monthly payment of $2667, which leaves me about $500,000 short of owning a home. If I was married and made $200k as a household, I could qualify for $750,000, which is in the ball park of 25% downpayment, where 20% is considered the minimum for a Jumbo Loan.
For me to own a home in the bay area, I would need a partner that also makes at least $100k/year to bring our household to $200k/year. Is a home attainable? Yes, but not for a single person. Then again, does a single person really need to own a home?