How much do you need to earn to buy a home in San Jose? More than $240K a year

The housing market in Silicon Valley is notoriously expensive. But a new report from HSH.com shows just how much a resident needs to earn in San Jose to pay for a home.

According to the study, to afford the principal, interest, taxes and insurance payments on a median-priced home, a buyer in San Jose must earn $243,303 a year to cover the $5,600 monthly mortgage payment.

A typical family in San Jose makes around half that amount.

“While we are producing housing, it’s also about what cost point we’re producing that housing,” said Noni Ramos, the chief executive officer of Housing Trust Silicon Valley, an affordable housing advocacy group. “We need to recognize that we have a spectrum of individuals who have a spectrum of income levels, and not every household will even be remotely able to come close to be able to buy something in that range.”

That’s priced out San Jose natives like John De Guzman, a procurement specialist for a Silicon Valley tech company. De Guzman and his fiancee, a nurse practitioner, both work in the area. They got a head start in their search for a single-family home before getting married, but even with their combined incomes, they realized buying for a home would be difficult.

“We looked at a few houses. It was kind of scary looking at prices and seeing what we could afford,” De Guzman said. “We used Zillow just to browse but the down payment and mortgage looked too much for what we want to pay on a monthly basis.”

Instead, they’ve considered moving to places like Tracy or Manteca, even though the commute might put them an hour away from their workplaces.

The COVID-19 pandemic has exacerbated issues of housing affordability, leaving many people priced out of homes due to unemployment. That’s despite the fact that the area has seen a “red-hot” market in recent months, with demand keeping single-family home prices high.

“That has resulted in increased prices and multiple offers, and homes selling over asking price,” said Doug Goss, broker associate at Keller Williams Bay Area Estates and president of the Santa Clara County Association of Realtors. “Given the pandemic, it’s surprising how well the housing market has really picked up, not only here, but nationwide.”

By Goss’s estimate, 75% to 80% of the homes he’s worked with in San Jose are receiving multiple offers, making homes more likely to be sold over asking price. Single-family homes, he said, are more likely to be sold over listing price, while condos are more likely to be sold near their listing price.

There are several reasons, Goss said, that prices in the area remain so high. First, the region’s position as the tech capital of the world means there is a high number of residents who want to live near where they work. That means — even with the exodus of big companies in search of cheaper land — people still want to live in Silicon Valley, which keeps demand high.

Second, the supply of housing has not kept up with the demand, so there are more buyers than there are homes. Also, interest rates are at historic lows. According to the study, the 30-year fixed mortgage rate dropped in all 50 of the largest metropolitan areas in the U.S. In San Jose, interest rates experienced a -0.27% change over the last quarter.

The study used a 20% down payment, a fixed-rate 30-year mortgage, local property tax numbers and homeowner’s insurance costs to calculate home costs. The numbers are based on data from the second quarter of 2020.

For comparison, the average income needed to buy a house nationally is $60,770 — approximately a quarter of the income needed in San Jose. In the cheapest metro area, Pittsburgh, one must only earn around $33,000 a year, with the median home price being $177,250.

The median home price in San Jose is $1.4 million, according to the study.

The prices might be overwhelming for some prospective buyers, but Helen Gardin, realtor at San Jose-based Pulse Real Estate, has some advice.

“They (homeowners) should watch their credit,” Gardin said. “And find a lender to help them with that and to help them figure out what to pay off.”

She and Goss also recommended homebuyer assistance programs, such as Empower Homebuyers.

Still, the problem might be more long-term than that, according to Mathew Reed, spokesperson with Silicon Valley At Home, a local affordable housing advocacy group. He said the housing market, which has far outpaced the median incomes of people in the area, is “not sustainable.”

“It’s not good for families and it’s not good for the economy,” said Reed.

For De Guzman, who is looking to also take care of his parents, it’s near impossible — even with what they consider “well-paying jobs,” to afford to live in San Jose.

“We can’t get a break and catch up with costs,” he said.

Contact Lloyd Alaban at [email protected] or follow @lloydalaban on Twitter.