California’s Bay Area is infamous for its extreme cost of living — and its residents have the pocket books to prove it. Bay Area residents need a net worth of at least $6 million to be considered wealthy, according to a recent survey of Bay Area locals by Charles Schwab.
As for the rest of the U.S., a measly $2.5 million will do to put residents at a wealthy level.
Respondents in the survey administered a rough financial report card for the Bay Area. The 1,000 residents polled indicated, in addition to the excessive net worth needed to attain “wealth,” that:
- the local cost of living is unreasonable and inhibits their financial goals;
- the Bay Area is inhospitable to recent graduates and retirees; and
- Bay Area tax rates, housing markets and costs are some of the worst in the country.
The single gold star on the survey reveals residents’ confidence in the local tech economy. Residents said the Bay Area is an excellent place for career growth and innovation — surprise, surprise.
Income growth and home prices
The survey results are quite subjective, and likely depend on the respondents’ attitude toward their personal financial well-being — the freedom of choice they feel they have based on their financial ability. However, residents’ opinions are not far off the mark.
The inordinate net worth locals believe is needed to be wealthy in the Bay Area represents the economic factors long at work against California homebuyers. Although California incomes have increased a measly 12% from 2000 to 2015, home prices are leaps and bounds ahead, having risen 94% over the same time period – with even greater bounces in the interim.
The gap between income and expenditures is even wider among a majority of Bay Area residents. San Francisco County residents earn nearly double the statewide income, but spend an average of 41% of their earnings on housing expenses — rent payments in particular. Those determined to buy homes are most often forced out to the suburbs, where their hefty paychecks are able to perform as desired.
And Bay Area residents are right to believe their community is cold and aloof to graduates and retirees. San Francisco, Oakland and other steeply priced Bay Area cities require recent graduates to locate two to three roommates and pool resources just to cover rent at citywide averages. Additionally, college grads take approximately 29 years to save up for a 20% down payment in San Francisco.
In accordance with respondents’ opinions, retirees, too, will be hung out to dry in the Bay Area. Retirement savings won’t last long without a continuous income source in the cutthroat Bay Area market, despite the Generation Y (Gen Y) trend of downsizing to smaller urban homes. Gen Y individuals looking to retire and downsize to urban homes in the near future instead will be forced into coastal towns and suburbs.
How can agents help?
Despite the army of obstacles facing Bay Area homebuyers, local real estate agents are not out of plays. The survey indicated a surge of confidence among local residents who have written out a plan for reaching their financial goals. 90% of residents feel a written plan will help them to better manage their finances and reach milestones like homeownership.
Thus, agents can use financial planning worksheets, such as a buy-versus-rent cost comparison sheet, to assist their clients and outline methods of smart financial management to help buyers and sellers achieve their future housing goals. [See RPI Form 320-4]