Life in Balance: Amit D. Chaudhary’s Blog
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It was amusing, ironic and yet sad when I read in the Yahoo Personal Finance article: US economy fears mount as housing starts dive:

“If the heavily indebted US consumer suddenly decides to appreciably increase savings next year, a recession would be more likely than a soft landing,” Manufacturers Alliance chief economist Daniel Meckstroth said.

It comes on tail of Tim of Seattle Bubble taking about considering the complete price of a house instead of the monthly payments in The Monthly Payment Buyer

Coming from India, where one has to have to pay for all the price of their home (Think $600-$800k in the US tech areas like Bay Area and Redmond) when buying there house, it is still a changing mindset for me.

Now the question is when do I start saving for Rs. 3 Crore? (Indian Rupee) or skip the plan for the sake of USA.

From Free The Drones Personal Finance Blog:

• The Peacock, who splurges on expensive stuff to impress other people and keep up with the Jones.

• The Mattress Stuffer, who is terrified of the stock market and ends up with tiny retirement savings by sticking to the most conservative investments possible.

• The Foot Dragger, who puts off saving for retirement until it’s nearly impossible to do.

• The Emotional Spender who spends not because they need something, or even because they really want it, but because they have stress or problems in other areas of their lives.

So far, I have been at different times in the last 5 years, a Mattress Stuffer and a variation of Foot dragger, the kind which pushes investment in a sector\company though He\She knows it will do well. A suggestion for personality:

• The Ostrich who avoids all things financial, this includes reading, budgeting planning and investment. This is a more common version of the Foot Dragger.

Amit

A year back, we moved from Santa Clara, CA to Bellevue, WA in the US. A year is enough time to get some perspective on how the places compare and what makes one better than the other.

The notes and areas of interest are from a point of view of an Indian immigrant working in the IT (Software) industry and with a family.

1. Housing. Advantage: Seattle

The Housing situation is slightly better in Seattle when compares to the bay area and the Seattle market is traiing the bay area market by a year or so, that meant 15% price increases in the last year while a almost flat market in the bay area. If considering single family house. one can buy a decent livable house in Greater Seattle area for U$500k (A new one in Snoqualmie or a older one needing renovation in some Bellevue zips: 98008)

Our preferred criteria is to avoid too much commute (<= 20 minutes each way) from current and future work (Bellevue, Redmond, Seattle, Kirkland) and good feature set in the house.

Seattle market: Areas worth considering to stay: Bellevue, parts of Redmond (much lesser commute). Areas within 30 minutes commute any time of the day are Snoqualmie, Kirkland, Woodinville and Redmond Ridge. The lowest house prices are around 500k (30+ year old small (1500 sq ft.) 3BR, 2BA rambler in good living places, average school district in Bellevue or a new larger house (2500 sq ft.) with good features(hardwood floor, island, etc) in Snoqualmie. Next level of houses are in the U$ 700k-850k range, these are newer (<10 years), good school district (Eastgate, etc), basically these are snoqualmie or better houses with lesser distance from work, shops, etc. Rents in Eastside for Houses is typically from 1400 to 1800, 1600 to 2000
Bay area market: Areas worth considering to stay and affordable: Santa Clara, Sunnyvale and parts of Mountain View. Areas within 30 minutes commute are San Jose (Evergreen, etc) and Fremont. The lowest house prices are around 800k (30+ year old (2000 sq ft.) 3BR, 2BA house in Evergreen.) Typically prices are U$ 900k-$1 million in and around Sunnyvale and highend comparable houses are in the US$ 1.3-1.5 million range (v/s 800k.) Rents for Houses is from 1800 to 2200, 2000 to 2400
Summary: Even with a house market slowdown, bay area requires both couples working and a singular focus on making more money. In the Greater Seattle area, buying one of the good houses creates the same requirement and the 30% or so lower salaries partially offset the 40% or so less higher end house prices. The key difference in Seattle: Lower cost homes are available(yes, 500k is lower these days) if you want take lower quality or larger commute and dream houses which would be US$2-3 million in Saratoga are available for US$1 million in Woodinville.

2. Tech Job openings and salaries. Advantage: Bay area

In Seattle, the total number of tech job openings are much less than bay area, I would expect them to be 1/3 or 1/4 of bay area.

Bay area has job openings for much wider area of expertise. Another key point, if you (as I have) worked in non-Microsoft technologies, these jobs are very few in the Seattle area. When I was looking last year, there were maybe 6 companies that were looking for Software developers for Unix\Linux\Kernel skillset. Skillsets Seattle are Windows (C#, dot-net), gaming and internet.
In Seattle, the typical software engineer salaries for mid level experience C++ engineer are in the 75-100k range. In Bay area, the typical software engineer salaries for mid level experience C++ engineer are in the 90-130k range. This is a large advantage even after the CA state income tax of around 9%.
Disclaimer: In both places, if you stay in one company for > 5 years and perform well, you can and will get into higher range and develop depth in the company\group’s area of expertise.

The other article in this series:

• Comparing living in Seattle (Eastside) or Silicon Valley (SF Bay Area): Part 2 (Weather)
• Comparing living in Seattle (Eastside) or Silicon Valley (SF Bay Area): Part 3 (Traffic and Miscellaneous)

Articles by others:

• Andrew Chen writes on the Entrepreneur culture in Silicon Valley as compared to Seattle: Meeting people in Silicon Valley
• Dustin on Rain City Guide: 10 Things You Should Know Before Moving to Seattle

Last Updated: Feb 15 2007

I read the post on Paul’s Tips: How to work out if you’re better off renting or buying a place to live and found a problem with this quick back on the envelope calculations.

What the cost of renting a house is compared to buying it

House number one
Price: $1,000,000
Rent: $31,285 per annum ($600 per week)
Current interest rate: 7%
Interest on $1,000,000 loan for one year: $70,000

In this example, buying the house costs over double what renting it does for a single year. A lot of factors would have to change before buying could be considered more financially attractive.

This is incorrect as the comparison should be to the real impact of interest, which is total minus income tax deduction+property tax. My modified version would be:

If rent >= 60% of interest or 55% of total payment+1% of payment, it is better to buy on a pure cost basis as interest is tax deductible(25-33% off) if you do not hit the AMT limit.
For a 500K house, it has to be >= 2025 per month
For a 600K house, it has to be >= 2375 per month
For a 700K house, it has to be >= 2900 per month
For a 900K house, it has to be >= 3750 per month
For a 1.15M house, it has to be >= 5000 per month

The market should not be about to fall though and this does not cover property taxes, closing costs, insurance (House as well as Mortgage).
Now back to my usual topics.

Update: The deduction of interest rate from your federal income tax is a US law.