Richard Dawkins describes how we have evolved to exist in what he calls “middle world”. The properties of immeasurably small and incomprehensibly large matter never came into play in terms of the survival of our ancestors and so, unlike the properties of matter in middle world, understanding their behavior is nearly impossible for us to the point of being ridiculously absurd.
I bought my home 10 years ago for $90,000. Zillow says I could get anywhere from $168,000 to $190,000 for it today. The city says it’s worth $140,000. I can’t imagine getting anywhere anywhere near that much for it if I put it on the market. I wouldn’t pay that much for it, not because I don’t love it, but because I just wouldn’t want to shell out that much for a home. I’d rather focus my efforts on annoying my realtor and finding a place for, well, less.
My brain is attuned to my own little economic middle world. Even imagining putting down $365,000 as only a down payment for a $1.8 million 1,500 square foot condo, which would entail payments of nearly $10,000 a month for mortgage, taxes, insurance, and condo fees for 30 years, describes a reality which is completely beyond my ken.
While it isn’t the circumstance Johnny describes, I suppose it might be clever to buy such a place in hopes that in a year you could turn as much profit as it takes me 10 years to earn as a high school teacher; and if it crashes and burns you kiss the cash you’ve invested goodbye and move on to the next wild speculative gamble. To do it under the assumption that you could keep earning 5 to 6 times the median family income in the country for over a quarter of a century, without interruption, in a field (“tech”) which by definition advances and changes at lightning speed, shows either remarkable confidence, a reckless lack of caution, or both.
Back in my world I can’t help but think of what the $365,000 down payment alone could do. You could buy a pretty decent palace outright for cash, and have a good quarter of a million dollars left to do whatever. I’m sure someone in the tech field could find a pleasant job for $40-$50 grand a year and, with monthly home expenses in the hundreds of dollars, not the thousands, have enough to live whatever lifestyle you chose. And that’s understating the tech opportunities here; the Hartford, New Haven, Springfield metros actually are above average in that regard. I get that there’s much more to life than money, or even stability but, wow. Boston is an hour and a half away, NYC is between 2-3 hours away and there are a dozen trains going both ways every day.
But I get it. Middle worlds like mine are as imperceptible as a quark to people in the Bay Area or Toronto, in the same way the Bay Area and Toronto are as incomprehensible to me as the physics of an astral cloud or a black hole.
In my world even the ideas that a home should be up to 3x yearly earnings, or take up as much as 1/4 of your yearly gross income seem insanely extravagant. I read a piece last week at ZeroHedge recommending a 1x earnings test and, I think, no more than a 15% drain on net income: That seems more like it. But impossible. Unless you’re willing to live…in the kind of places the virtues, and vices, of which this website was intended to describe. I suppose a problem with San Francisco and Toronto is that there are no high quality “bad” neighborhoods left to move into; an idea I can’t comprehend as a resident of the greater Springfield area.
In all seriousness, Johnny’s post is one of the most interesting I’ve read in months, and I include my own! When I read articles at CityLab, Planetizen, ZeroHedge, or The New York Times about housing costs or homelessness on the West Coast I’m always concerned about the political slant of the author in trying to promote this or that agenda.
I can best describe my incredulity by mentioning the way network television covers snow storms here on the East Coast: Every one is this unprecedented disaster threatening the end of civilization as we know it leaving millions to suffer in the wake of its destruction! Except, no it’s not. It’s snow. You shovel it. They plow it. It melts. And it’s not only not a big deal, it’s pretty and it’s fun and you go sledding or build a snow man or you sit in the house for a day or two. I delivered over 100 newspapers on the morning of the Blizzard of ’78. It took me 4 times as long, but school was cancelled so, no big deal. My jet-black mutt Charlie followed me the entire time and we had the time of our lives, and everyone along Tiffany Street got their “Morning Union”.
But if regular people with regular jobs are plunking down 1/3 of a million dollars as a down payment for a nice little condo AND just outside the door there actually are people living in tents and defecating on the streets then I suppose I owe the editors of the aforementioned news outlets an apology. Wow. That really is crazy. All the tropes apply, “the market can remain irrational longer than you can remain solvent”, etc., but I can’t imagine NOT selling in that environment and moving…somewhere. Maybe not New England if culture and quaintness aren’t your thing, but at least Appalachia or Nebraska or something! Ohio or Indiana, right? Missourri!
Let’s go with, to me, the way too high crazy numbers and multiply the median income of a given place by three. Every nickel over that for housing costs is a bubble, sorry, even if it’s been sustained for 40 years, it’s going to crash. Get out…the call is coming from inside the house!
Our house. Purchase price, 2/3 our yearly gross income. Mortgage, taxes, insurance<10% net income. With a 15 year mortgage. The Springfield Strategy.
The hook is they aren’t regular people with regular jobs. Only 1/3 of SF is owner-occupied, renters make up 2/3. And renters pay a higher percent of their income for rent (43%) than owners with a mortgage (41%) do. And 30% of CA homes (slightly less in SF but I couldn’t find an exact number) are without a mortgage, which is higher than average across the US. So it’s a really nice gig if you can deal with the upfront costs. You get a ton of cash and you suddenly become a powerful land-use expert, which magically protects your ton of cash.
Like I say, nice gig, and kind of a microcosm of the rest of US, but that’s for another day.