2024 Update: How to Buy a Home in the Bay Area


As a financial planner in the Bay Area, I get a lot of people who want to talk to me about getting their finances in order because they’re preparing to buy a home. But in today’s real estate market, it can be hard to figure out what to do. So in today’s webinar, we’re going to talk with my friend, Brook Baird.

Brook is a Bay Area native and she’s had a real estate license since 2005. She works with a lot of single women, alternative family households, and entrepreneurs. Last year, we did a popular webinar together called How to Buy a Home in the Bay Area Without a Gazillion Dollars, in which she shared with us different alternative financing programs for first time buyers.

Join me for a Q&A with Brook, followed by my insights on financial ratios for determining if a home is affordable for you.
Full transcript: 

Jenni: Hi, everyone. As a financial planner in the Bay Area, I get a lot of people who want to talk to me about getting their finances in order because they’re preparing to buy a home. But in today’s real estate market, it can be hard to figure out what to do. So in today’s webinar, we’re going to talk with my friend, Brook Baird.  

Brook is a Bay Area native and she’s had a real estate license since 2005. She works with a lot of single women, alternative family households, and entrepreneurs. Last year, we did a popular webinar together called How to Buy a Home in the Bay Area Without a Gazillion Dollars, in which she shared with us different alternative financing programs for first time buyers.

So if you have not listened to that one, I recommend going back to it. So today we’ll dive into a Q& A with Brook, and at the end I’ll wrap up with some of my thoughts on financial ratios in order to figure out how much house you can afford.

What’s happening in the Bay Area real estate market today? (01:02)

Jenni: So Brook, tell me what is going on with the real estate market  in the Bay Area? 

Brook: Oh it’s, I would say uneven, which I think is what I said last time, but maybe even a little bit more. What we’re seeing are definitely a lot more opportunities for buyers. 

There are a lot more properties sitting longer not getting as many offers. We’re actually seeing some sellers taking offers below list price which was unheard of a few years ago. So, there are a lot of opportunities for buyers. We’re also seeing that buyers know this and they’re a lot more picky.

So things that wouldn’t have been hard to sell a few years ago are definitely more of a challenge now. And people kind of know when something’s a good thing and are waiting for that. So, some places, no competition at all. And then some of the homes that are really dialed in and check all the boxes there’s still quite a bit of competition for. 

Jenni: Gotcha. Is it like certain types of houses, bigger, smaller, certain family homes that are kind of more competitive and other ones that are less so? Or are there any trends that you see in that regards?

Brook: I think in general three bedrooms, like three/twos, family homes for first time homebuyers if they’re really in nice shape [are competitive]. Buyers are a lot more picky than they were in the past if there’s a high pest or if the neighborhood is near a busy intersection or something like that, things that people would have overlooked in the past. It’s really now got to check all the boxes. 

What about these interest rates and inventory? (02:54)

Jenni: Got it. And what are some of the factors that are influencing property values right now? 

Brook: I mean, definitely the interest rates. But I think the interest rates are the number one thing that keeping buyers out of the market. And the lack of inventory kind of the same story that it’s been for a while.

A lot of sellers are trapped in with a lower rate and just aren’t in a position to move. So there’s just not as much inventory out there, not as much movement. 

Jenni: Okay. And so how competitive is the offer process at this moment?

Brook: I think if you are getting in now and you’ve been pre-approved and you feel comfortable with the numbers that you’ve been approved at, I think it’s actually a really great time to be out looking because there are a lot more opportunities. If you’re willing to look a little bit beyond something that checks every single box to something that checks a lot of boxes and then there’s a lot of opportunities out there right now. It’s a mix. In the past where things might have gotten 14 offers, they might get 3.

Jenni: Gotcha 

Brook: But they’re still they’re still competitive. Nice properties are still going over, but you do have more of a chance to get in there and maybe even get a counter offer. If there’s only a few offers, you can just be be a little more engaged in the process. 

Jenni: With interest rates as they are today, are there strategies that you would suggest for a first time buyer? Especially with concerns about affordability because of interest rates? What would you suggest? 

Brook: Yeah, there are a couple of different things you can do. Nobody has a crystal ball, but I know a lot of people are thinking rates have already just improved a little bit. If the economy stays somewhat steady, rates could go down in the next 2 years. Maybe not immediately, but hopefully we’re kind of peaking now and they’ll start trending down.

So anything that kind of can get you some short term relief. We’re seeing a lot of people request a seller buy down of the rate so the seller will just credit you enough to kind of make up the difference.  So it your rate was 7.5%, you’ll make up the difference so it is as if your rate was 6.5% for 1 year. The one we’re seeing most often is a 2/1, so if the rate is 7.5% they pay enough to bring it down to 5.5% in the 1st year and then 6.5% in the 2nd year. The hope is that during that time you’ll be able to refinance to a consistently lower rate. 

That’s a really good option because it really helps sellers too. You can get the buyer’s payment to someplace that they are comfortable with without having to lower the price to equal what it would be at a 5.5% rate. So it’s not a permanent solution, but you’re kind of banking on something’s going to change in the next two years and this is what’s going to get you through till you can refinance.

Jenni: Gotcha. So it’s a little bit of a win-win on both sides is what it sounds like. 

Brook: It’s a win-win on both sides.  The only risk is if the rate don’t change and in 3 years you’re back at 7.5% Then are you able to afford it? So you don’t want to do that if at the 7.5% rate there’s absolutely no chance you could afford that. Right? You want to do it if 7.5% feels like an uncomfortable stretch, but you could do it.

Jenni:  Actually, that’s really helpful. So on the seller buy down, are there other things that people are looking at other alternative ways to like get creative about this interest rate challenge for buyers?

Brook: Another thing is a lot of folks looking at multi-unit properties properties with ADUs. There’s been a huge boom in building ADUs, (Accessory Dwelling Units) over the past few years. A lot of properties now have a studio ADU which you might be able to rent out short term or long term to offset your mortgage.

That’s a really nice option to have. So look at different options like that to just bring down the monthly payment and maybe when you can refinance, you’ll decide that you want to take that space back and use it as your office or whatever. It can help you out in the short term.

How can you make a strong offer as a buyer? (07:44)

Jenni: So what strategies do you recommend for making a strong offer for a buyer?

Brook: If you think it’s going to be competitive, do as much research as possible up front before you can submit your offer. The properties that are competitive that are getting multiple offers are still getting a lot of non-contingent offers.

I think we talked about contingencies before. If you submit your offer non-contingent, you’re waiving your right to cancel the contract if you find something that you don’t like about the condition of the property, if something happens with your loan, or if something happens with the appraisal. You’re basically waiving your right to cancel for pretty much any reason. So you definitely don’t want to go into that lightly. If you want to put in a competitive offer and if you are know that this property is going to get more than 1 offer, do as much research as you can up front. Speak with your lender, make sure that they’re really solid on the numbers, and make sure that they already have all of your documents so they’ve fully underwritten your file. That way there’s not going to be any question marks working with your agent and looking at the comparable properties in the neighborhood so that your price solidly matches what’s going on in the rest of the neighborhood and there won’t be an issue with the appraisal. Lastly, dig through the reports that the listing agent provides, because for the most part, agents are still providing home inspections, pest inspections, and that kind of stuff. Then if you want to do anything else up front you can try and get in there before the offer date to get any of those questions answered so that you can write with as few contingencies as possible.

Jenni: Got it. 

Brook: I kind of hate that. People could have contingencies, but that’s kind of the reality of where it is. 

Jenni:  Got it. What would you say to somebody saying, look, I’ve been parking my money in cash because I really want to buy in the house the next one, two years. But these interest rates, they scare me. I don’t feel like I can afford it. I’m just sitting on this. What is there anything they should be doing now?

Brook: I actually think this is a great time to buy. You know, prices are coming down. You have more negotiating power. I think once the rates go down everybody’s going to jump back in and you’re not going to have the kind of leverage that you have right now.

You know, you can change the rate. You can’t do anything about your purchase price. So, if you are able to get in now, I think you’re going to look back and feel really smart in 5 years. 

Jenni: On the idea of being you bought the house at what it is, but you can always refinance later. But you can’t change the price of the house.

Brook:  Yes, exactly. 

What about current homeowners with a low interest rate who want to move? (10:43)

Jenni:  What do you say to people who bought their house a couple of years ago or back when rates were real low and they have an awesome 30 year mortgage at 3%, but now they’re finding that this house no longer fits their needs?

Brook: I mean, it’s a tough spot to be in right now. I know a lot of people who are in that situation and that’s part of the reason why we have low inventory at the moment. You have a couple options if there’s any possibility that you can rent out the original property and just hold it for a while. I think that’s a great option. You could talk to your lender and your financial advisor about taking money out on that property, doing a HELOC (Home Equity Line of Credit) or something like that to have enough cash for your down payment on your new property while still keep that old property rented for the time being.

Then on the buyer side, the same things of just trying to get that rate down for a few years until hopefully things change. 

Jenni: Got it. Yeah, that is a tough one, right? 

Brook: It’s a tough one. Yeah. 

Jenni: What are rental rates like? 

Brook: Let’s see pretty stable. I’m not seeing them go down. 

Jenni: Gotcha. 

Brook: It’s a pretty decent market for rentals. With everybody not being able to buy and so many people sitting out this buying time, there’s quite a bit of competition for rentals. So that’s keeping the prices pretty steady.

What new alternative financing programs exist for homebuyers in 2024? (12:43)

Jenni:  In last year’s chat, we talked about how to access alternative financing programs.  Can you kind of do a review of what’s available and is there anything new for coming into 2024? 

Brook: I don’t know if I shared this last time, but I came upon a great resource. It’s called Down Payment ResourceIt’s a website where you can log in and put in all of your information and it brings up basically all of the down payment programs that are available to you.

Screenshot taken from downpaymentresource.com

It asked you a bunch of questions to figure out if you are 1st generation homebuyer. There might be some programs if you’re a veteran, Native American, and a bunch of different criteria. It’ll just pop up all of the programs that are available. It’s fantastic because even if you’re very familiar, it’s hard to know all of the programs since there’s so many different ones out there. So I’ve been using that quite a bit. It’s called, it’s just downpaymentresource.comI always send people there.

There is a program called Dream for All that came out last year where they used up all of the funds almost immediately within two weeks. It’s a great program that gives you a 20% down payment, up to a certain amount. I think it’s up to $150,000 and you don’t have to pay it back until you sell the house. So there are some calculations to that shared equity program. We won’t get into the details of it, but in general it’s fantastic for just giving you a bump up to a nicer property that wouldn’t have been able to afford otherwise.

Jenni: Who qualifies for these programs in general? 

Brook: There were some income qualifications, but they were pretty high. I think they were up to 120% area median income which is decent in the Bay Area. I think that this next round of Home for All it is going to be only for 1st generation home buyers. Those are people whose parents have not owned a home in the past 10 years.

Jenni: Gotcha. Okay. 

Brook: They mix up the criteria. There are a couple other different programs that are shared equity down payment programs that give up to $250,000 that just kind of boost your ability to get into more house. 

Jenni: That’s great.

Brook: Yes, coming up with a down payment is really hard in the Bay Area if you’re not getting help.

What tips do you have if you want to sell your home and leave the Bay Area? (15:59)

Jenni: What if you’re somebody who has a house and you’re done with the Bay Area. You want to leave. You want to sell. What would you say from a seller’s perspective right now?

Brook: I’d say if you’re committed to leaving, I think now more than ever it really helps to present your home nicely. Because people are really out looking for deals and you don’t want your home to read as the deal. I think if it does, you’re more likely to get offers under asking have it sit.

The homes that I’m seeing competition with are the homes still that are really nicely presented. So, I think it’s worthwhile to put that effort in up front. 

Jenni: Yeah. That makes sense. 

Jenni’s thoughts on how to think about how much house you can afford (17:04)

Thank you so much, Brook. That was really helpful. So I’m going to end this with talking about how to answer the question of how much house can you afford?

So I would think about this in two ways: First of all, how much could you afford? Well, the ratio that most mortgage lenders use is that housing costs should not exceed 28% of your gross income. So that is one way to think about it. 28% of your gross income is how much house you could afford. You might also look at how much you’re paying right now in rent or your mortgage and use that as a starting point. And that’s really, these two things are how most people think about that question.

But I would actually turn that around and ask how much should you afford first ask yourself, how much do you need to save in order to reach your other long-term goals? For example, for most people, the biggest one is retirement, and I would advise that 20% is a good savings rate target. Then secondly, how much of your income is going to go away for taxes? So for my clients who are mostly tech professionals or self-employed professionals in the Bay Area, that number is usually around 30%, and that’s for Fed, State, Social Security, okay? And then thirdly, How much money do you need to spend each month to live enjoyably today outside of housing?

Then whatever’s left is how much house you can afford. So that’s my alternative view of trying to answer that question. I hope that’s helpful. If you would like to chat or just bounce some ideas off of me or just use me as a sounding board, I am happy to do that. You can reach me at jennifer@modernfamilyfinance.com. Thanks