Saving for a down payment could take Palo Alto renters nearly 50 years, new estimates show

A Bay Area renter hoping to buy a first home could need decades just to save the down payment and closing costs. Palo Alto Online applied the method from a new national report and estimated 28 years in the San Francisco metro area, 43 years in the San Jose metro and nearly 50 years in Palo Alto. In the San Francisco metro, the estimate has nearly doubled from 15 years in 2019.

The national report

The report, "Homeownership Further Out of Reach," comes from the Julian Bond Institute at the Center for Responsible Lending and updates research CRL released in 2019. It found that a family earning the median income for renters, about $58,000, now needs 16 years to save, double the 8 years needed in 2019. The typical Black family seeking to buy now needs 21 years, 10 more than in 2019. The report covers the 10 most populous metro areas, which don't include the Bay Area; the local numbers are Palo Alto Online's own calculations using the same method.

"Families saving for homeownership have a far steeper climb than just a few years ago," said Mike Calhoun, CRL's president and a co-author. He pointed to the difficulty for buyers who can't get help with upfront costs from the "bank of mom and dad."

How the math works

The method assumes a household sets aside 2.63% of its pretax income each year. A starter home is priced at 80% of the local median, with a 3.5% down payment (the FHA minimum) and closing costs of 3.65%. Palo Alto Online notes that many Bay Area homes are above FHA loan limits.

• San Jose metro: the median renter household earns $103,391, saves about $2,719 a year and needs $117,260, or roughly 43 years.
• Palo Alto: the median renter household earns $158,266 and saves about $4,162 a year. Using a $3.6 million median sale price, a starter home would cost about $2.88 million, and upfront costs would total $205,920, nearly 50 years of saving.

The report calls for more down-payment assistance, continued access to low-down-payment mortgages and more modestly priced starter homes. It also says lower mortgage rates alone won't fix the problem of saving for upfront costs.