Growing up in the San Francisco Bay Area, one of the most expensive housing markets in the U.S., tech worker Ramya Jagarlamudi knew the high bar he had to meet to own a home.
During the pandemic, he got married and began looking for a new home. At first, the search was going well, and he and his wife were considering moving up north to Sacramento, and other areas, given that they could now work remotely. They were looking for homes in the $700,000 to $800,000 range in Sacramento.
But things weren’t working out. They were outbid on homes, and they also backed out due to reservations they had about certain properties.
But then came the twist: His wife’s employer asked all employees to return to the office in the San Mateo area, where the median home price is $1.86 million, even higher than San Francisco.
“It was a bit of a surprise,” Jagarlamudi, who works as a software engineering manager, said. “So I started ruling out Sacramento as an option, and started focusing on the Bay Area.”
Home ownership is out of reach for many
For Jagarlamudi and millions of other Americans, homeownership has always been a part of the American Dream, but one that has become increasingly expensive and out of reach.
Companies asking employees to return to the office has not helped. It reduces their ability to live in cheaper towns, cities and states. In fact, a new report by the Mortgage Bankers Association highlights just how difficult a time house hunters in California and other hot real-estate markets are having.
The report, released Thursday, reveals that the new median monthly mortgage payment borne by a household in the U.S. has jumped by 20% from last March. The typical homeowner is paying $2,093 in March, up $357 from a year ago, the MBA said.
For some parts of the U.S., that number was far higher. Data from the MBA provided to MarketWatch reveal that the median mortgage payment in Hawaii was the highest in the nation, at $4,376.
Would-be homeowners like Jagarlamudi and his wife in California can expect to pay a median of $3,912 a month for their mortgage. D.C. homeowners were in the same boat, at third place, forking out $3,666 on a monthly basis to their servicer.
Homeowners in West Virginia were paying the least for their mortgage, at $1,092 per month, followed by Iowa and Ohio.
What Ramya Jagarlamudi did next
So what did Jagarlamudi and his wife do now that she had been called back to the office?
Resuming their search back in the Bay Area, the couple capped their budget at $1 million for a single-family home — a price below the median market price for Silicon Valley. The median price of an existing single-family home in the Bay Area was $1.23 million as of March 2023, according to the California Association of Realtors.
“So we definitely ruled anything close to the heart of Silicon Valley,” Jagarlamudi said. The couple wanted a home near good schools, as well as being close to public transportation.
They settled on a new home in Tracy, Calif. — 65 miles east of the Bay Area — for slightly over $1 million.
The builder, Lennar, had dropped prices slightly, and offered to pay closing credits of up to $6,000 as an incentive. The couple closed on the home in late April.
“‘My hope is once rates go down, I can refinance.’”
They initially planned to go to a big bank for their mortgage, but after shopping around, Jagarlamudi decided to take an adjustable-rate mortgage with a California-based credit union called Golden 1. The couple took out a mortgage with a five-year term at a rate of 5.6%. “My hope is once rates go down, I can refinance,” he said.
Golden 1 Credit Union declined to comment for this story.
For many aspiring homeowners, buying a home worth $1 million can seem daunting. But in California, given high home prices in the state, a homeowner’s monthly mortgage payment can run up to nearly $4,000. Yet the median annual household income is only around $82,000.
Put more bluntly: In one year, given the 2021 estimated income from the U.S. Census Bureau, a household in California would have spent nearly 64% of its pre-tax income on their mortgage.
Add to that the additional costs that come with homeownership, such as maintenance and repair work. Taking that into account, maintaining a single-family home can cost up to $6,400 a year.