It’s not news that increased capital flowing into the San Francisco Bay Area has made the area’s housing market absurdly competitive. But it’s still shocking to see the already high numbers get even higher—and so quickly. Case in point: Zillow recently released a study stating that, by June 2019, a whopping nine cities in the Bay Area will likely have median home values of more than $1 million. In fact, four of the five most expensive cities featured on the list are in the Bay Area: Burbank (a small town close to San Jose), Morgan Hill, East Palo Alto, and Broadmoor Village. Each of these cities already has a high median home value as of June 2018—ranging from $984,300 to $999,500—but are expected to hit at least $1.1 million, on average, next summer.
According to Peter Holmes, a mortgage consultant with Sterling Mortgage in Alameda, the Bay Area housing market appreciated 12 to 15 percent in the last year, compared with the general statistics of a healthy real estate market being between 5 to 7 percent.
“I am concerned and, certainly at sometimes shocked, at the pricing we’re seeing in the markets right now—values are definitely on the rise,” Holmes said. “We are seeing properties that are either tear-downs or very small that are selling at very inflated price points right now.”
As an outsider, $1.1 million seems like a lot—but what does this really mean for those living in the Silicon Valley?
“Most of the clients in the Bay Area are very strong financially, on average making $170,000 to $280,000 annually as a couple,” says Stephen Wong, a mortgage loan agent at BayOne Real Estate.
This year alone, Wong estimated that he worked with 10 to 15 million-dollar buyers near San Jose, where he’s based. Because of their incomes, those couples will look for houses ranging from $1 million to $1.6 million—close to the median price Zillow is predicting.
Holmes says it’s recommended that those looking to buy a home should not only make at least $175,000 a year, but should also have at least $120,000 stocked away for a down payment. However, it’s always better to have more money saved. It’s typical that a prospective buyer would want to put a down payment of at least 20 percent on a home. So, for example, if a couple is looking to purchase a home in East Palo Alto valued at $963,000—the median value of a home in the city this past June—they are recommended to put down at least $192,600.
“That’s unfortunately a pretty large equity state for buyers to bring in, and a pretty high income for households to have to make to qualify,” he said.
Though Bay Area salaries skew higher than other parts of the country, so does the cost of living. The median family income in the area is $118,400—but the U.S. Department of Housing and Urban Development now considers an annual salary of $117,400 to be “low income.” Yes, though this income might sound like a lot to those living in less-expensive areas, it’s still not enough to buy a home.
San Jose resident Kelly Pulizzi has worked her best with her husband, David, to make sacrifices to be able to afford a home in the near future. However, with their combined income of approximately $120,000, they have been told that they do not have what it takes to even think of entering the market.
“We both grew up in the Silicon Valley, so both of our families are here and naturally, it was really important for us to, thinking long-term, be really close to our families,” she said. “Job-wise, it makes a lot of sense for us to hold jobs here because the earning potential is really high.”
Pulizzi works in corporate wellness at a number of large corporations, while her husband works in financial planning. Regardless of their fields and incomes, the couple appears to be no match in comparison with a number of other buyers. Pulizzi has been told to have three times her annual income in order to buy a house.
“We both do feel as though we are doing well—we’re college graduates, we’re both making what would be a really good salary in another part of the country,” she said. “It’s really hard to come to terms with the fact that we are doing good when you’re seeing these prices and trying to figure out next steps.”
Pulizzi’s experience is a common one in the area, and the market has taken notice. CMG Mortgage (Sterling’s parent company) released a program last year called HomeFundMe—a crowdfunding platform prospective buyers can use to save up for a down payment with the assistance of friends, family, coworkers, and even strangers. Holmes said that almost 300 individuals, couples, and families have used the service.
Cheryl Mehe’ula, a loan officer at Foley Mortgage in San Jose, has noticed buyers are now commonly finding help from family—something that hasn’t always been as prevalent.
“For families that would like their children to be able to stay in the area, because a lot of people are moving away, parents and grandparents are stepping up to help,” she said.
Mehe’ula mentioned that she’s also noticed multi-family households and sibling-based households are becoming more frequent.
And for those who don’t have access to outside help? Wong says you’ve either got to make more money to save, or make sacrifices so you can diligently save: If you can, he recommends renting somewhere cheaper so you can save more money.
However, this step isn’t one many are willing to take.
“Some people are willing to sacrifice to purchase,” Mehe’ula says. “But a lot of people don’t want to sacrifice to purchase a home.”