So far San Francisco has weathered the storm better.

But in my opinion the biggest thundercloud is on the horizon. That is, given the new conforming limits and the more stringent requirements banks are putting on loans, who will be able to afford what? Previously the 850K to $1.2M property was a relative sweetspot for both luxury condo buyers and SFR buyers alike. However, there is a chance that in the very near future this zone will prove to be a very difficult one in which to maneuver. Look at it closely. The banks are asking for 25% down. So what it boils down to is this: Who in the heck buys a $1.2M property with 300K cash down?

(If we can get some mortgage broker participation on this one, that would be really great. In my opinion this is the biggest challenge to the SF market so far.)

I have a related question too. Doesn’t it seem as if there could be some money made by opportunistic banks here? There are 50 boatloads of responsible buyers out there. People with up to 20% to put down and good jobs, etc. Whatever happened to the old 80-10-10? And wouldn’t a bank capable of portfolio-ing loans be able to make some great returns with such a product?

fluj a k a kenneth kohlmyer

29 thoughts on “So far San Francisco has weathered the storm better.

  1. This is an interesting post. I am a thirtysomething DINK with strong income (more than $300K per year combined) and substantial liquidity (or at least so I think). I have not made millions in stock options, though. My spouse and I have been looking for the last 6-7 months. Putting $300K down is certainly possible, but that leaves us almost no cushion for an emergency (like me or my wife losing a job). Using norms of the last few years, I would have been a buyer in the $1.0-$1.2M range. Depending upon the neighborhood, that would likely be something along the lines of a 3/2 condo. Given new downpayment requirements, to be honest, my price range has to change, since a downpayment of 25% sops up most of my liquidity and doesn’t leave the cushion I would want for an emergency.

    I figure one of a few things is possible here: 1) I shouldn’t have been looking in that price range to begin with (although I was using the old rule of 4x our gross income as my guide); 2) We are lousy savers, and we have no excuses for not having $300K plus a substantial cushion for a downpayment; 3) Everyone in this price range has stock options millions, so, even though they don’t have the income to support the purchase price, they put down far more than 25% (maybe a mortgage broker or two can opine on this); 4) There are lots of people in this boat now, and at this price point, pricing will have to adjust to the new lending realities; or 5) Sellers are going to have to get into the financing game to get deals done. There are probably a few more options as well, but this is a decent start.

    Irrespective, we were once in the $1.0-$1.2M price range. Now, that’s not the case. We may be an isolated case, although I suspect that that’s not the case.

  2. My 36 year old colleague just went into contract on a $3million Pacific Heights SFH last week. They put down $900,000 and will be carrying a $2.1 million mortgage. They earn about $1million/yr.

    I just turned 30, and looking in the $1.5 mil range. I can put down $400,000 and have $100,000 cushion left over, and then in 5 months time, I’ll get anywhere from another $250,000-400,000 in AFTER TAX cash from my year end bonus. Hence, that will be a $350-500,000 cushion. I build that up for the next 3-5 years living in my place, I should have another $1-2million cash at 35-36 years old. I can then put down up to $1.5 million down, and have a $500,000 cushion as I plan to live in the $3milion-4million house for the next 10-15 years.

    The kicker? I’m one of probably 15 other early 30 year olds in my office, who have this kind of finance. Multiply 15 X 10 other companies in my industry, and there are 150 people like me, JUST looking and in my industry. And we are the blue collar industry in finance.

    I don’t want to become a 40 year old renter.

  3. Thanks folks. Pac Heights a k a 40 y.o. renter — if you like that place in Russian Hill tomorrow, call me.

    CS Investor — thank you very much. You are precisely the buyer I had in mind. I do not think you’re alone. I think there are quite a lot of people like you. But you may in fact be at the top of the demographic. For example there are folks who would like to buy a nice 900K place in the Sunset or elsewhere. Twenty percent down barely gets them into under the new conforming limit, for a few more months only.

  4. After reading these comments, I now know why I’m still a renter. My piddly $200K attorney salary can’t compete with numbers like those listed above.

  5. Mine either D.

    Fluj makes a good point about the 80/10/10. That’s how I bought my first few places and what lots of people did before the banks started giving mortgages away. I hope it goes back to this 10 percent down, and a cheaper line of credit. Banks seems to be making good money this way. Somebodies going to see that and get back in on it. Might take a year or more

  6. 80/10/10 will come back if and when the loans can be sold, either as “traditional” mortgage backed securities, or more likely, as covered bonds as they become more prevalent down the road. But it will be at a premium, that’s for sure.

  7. Funny–– “I don’t want to become a 40 year old renter.” I’m doing that by choice, but have previously owned homes. Like Sparky, I did the 80/10/10 for my first place. I bought a duplex with a relative, and we barely scraped together the 10% down payment. But, the mortgage payments were quite affordable, even though the two of us made less than $100k combined. That was in Oakland in 1999, though. A world of difference from the current market in SF.

    Now my husband and I have a hefty down payment, thanks to having bought and sold twice within the boom, and also to living below our means. We make a little less than CSInvestor, but have more to put down. We’re probably looking at the same homes. Given the uncertainty in the housing market and the economy, we’re not willing to overinvest in a home right now. So we probably won’t buy this year.

    Glad I’m not competing with PacHeights–– clearly we’re not in THAT ballgame!

  8. wow, $1m/yr compensation and still not savvy enough to avoid the large mortgage eh?

    i’m curious as to where all the money goes (besides the banker’s pocket…)

    any mortgage over $1m=kinda lame.

  9. Hey Guys,

    I feel honored to be mentioned so much. I haven’t posted here this week btw. Our administrator on vacation can verify.

    Anyway, I kinda agree with PacHeights. Making $500,000 is a dime a dozen in SF.

    $200,000 as a lawyer is pretty piddily, especially since lawyers spend $100,000 in tuition, and 3 yrs of their lives in law school. But, if that’s your first 1-2 years after school, that’s not bad.

    Landlords are RAISING RENTS like crazy right now. Nuts.


  10. sitting in harrisville new hampshire on iPhone. R.e. Is pennies on the dollar here!

    Nice work fluj!


  11. Buyers looking for 80% financing should check out Borel Private Bank, a portfolio lender ( Sorry about the sales pitch, but I thought it would be helpful for buyers to know that 80% loans at attractive rates ARE available for buyers with good income and credit. CSInvestor and PacHeights, you would be perfect for us!

    I agree with fluj that lenders are missing out on the opportunity to provide 80/10 financing for good buyers. That used to be an attractive option for people who didn’t want to wait another year or three or ten to save up the extra 10% down. But Dede is right, until the secondary market will start buying those loans again, those programs won’t be widely available. What is scaring banks away is the possibility that even if you have a responsible buyer who can afford the payments at 90%, you could still end up with a property that’s under water if market values decrease around him or her. Even though San Francisco is still strong, they are looking for more of a cushion.

  12. We make $25,000 monthly,moved here from New Jersey,only eat Take-out

    from Gary Danko,spend every weekend at a B &B in Healdsburg or St. Helena

    and a month every summer at the Marriott in Maui or the Hyatt in Cancun.

    We will settle for a 4 Bedroom on the Pacific Avenue Wall or a condo in

    the 1000 block of Green Street. We proudly wear our success as a status symbol.

    How come we can’t find a place to buy?

  13. Hmmmm. I wonder if it has anything to do with the lack of vowels in your name. Just a guess.

    hhahahha. Good one nthn chrhll.

  14. $25,000 monthly is only $300,000 a month. I remember when I was young and made that. I was very comfortable. Now I’m over 2.5X that, and life is even better.

    But again, A TON of people make over $50,000/month. And they/we are all living very comfortably.

  15. pacheights – what the heck do you do and how can i get working in that industry? jeez..i work in software and salaries are south of 200K and unless your company has done amazing on the stock front (rare), that’s about it…jeeez!

  16. @dan

    “pacheights – what the heck do you do and how can i get working in that industry? jeez”

    he writes fiction on internet blogs. its easy to get into…

  17. I don’t think CS Investor failed to express his point. Whether or not it was a gripping narrative for the passably interested? That’s not an apt criticism for blogs.

  18. uh, actually, i meant “trust me on this” because if he were a writer, his income would not be $300k a year.

  19. “he writes fiction on internet blogs. its easy to get into…”

    um, i mean that he is full of sh!t; he writes

    “untruths” on internet blogs.

  20. Dan – 1st year MBA’s out of Stanford and Cal in the finance industry make $100,000 base, $25-35,000 sign on, and $50,000 bonuses. The very next year they are making $200-250,000. It’s not hard to imagine.

  21. Lefty is correct. I’m not a writer. And, unless I were John Grisham or someone like that, I most likely wouldn’t make $300K per year. I have a few friends who claim to be writers. They all have “second” jobs to support their writing habits.

    My spouse and I are both in tech, making good salaries (or relatively good salaries, I guess). Seems like I should have gone into finance, huh? Then I’d be eating take-out from Gary Danko every night!

  22. I just met Alex out front of Aqua in Peterborough NH and he told me about this site. Pretty cool stuff. What a different world you all live in over there in San Francisco. Say hi to the Greenwoods next time you chat with them Alex and keep up the great work. This site is very informative.


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