Housing article

[hotdog36]

Here'sn article I was reading on how unaffordable houses have become:

http://money.cnn.com/2007/01/10/real_estate/bc.housing.affordability.reut/index.htm?postversion=2007011010

It says that you have to make $85,000 on average to afford a house nowadays.

[SmilesSoSweet]

I wouldn't doubt that income. A lot of people have bought houses and are paying a mortgage that is way beyond their means.

Supposedly with my $42k salary at the time I was pre-approved for a 100% financed loan of $250k! :eek: This was last year when I was looking to buy.

Thank goodness I didn't buy. I think I would have been in foreclosure by now if I did.

[arrow]

What would payments on a $250K house, including taxes and insurance, cost in that area?

[capella]

I love this line. :rolleyes:

"While home prices range widely across the country, wages for low-wage jobs - from teachers to janitors - are about the same no matter where they are located, Lipman said."

Fantastic. I love being in the same spectrum as janitors. Not that I would disparage a janitor, but COME THE FRICK ON! Teachers do a much more vital and complicated job. Gah!!

Anyhow, the only reason I could afford my house is that it is about 45 minutes, with NO traffic, from the downtown area. It's also not a fancy or convenient area at all. We have grocery stores, CVS and a bowling alley. Oh, and Walmart (though that's technically in the next town over). :rolleyes: Not exactly a happening town.

[capella]

What would payments on a $250K house, including taxes and insurance, cost in that area?
I'm not sure what that would be in Arizona, since taxes and insurance costs vary WIDELY from place to place, but around here that's a good 2K a month payment.

[arrow]

I'm not sure what that would be in Arizona, since taxes and insurance costs vary WIDELY from place to place, but around here that's a good 2K a month payment.

:eek:
I could never pay that alone on my salary!! That is insane!! Even if you were making 85K that would be nearly half your takehome pay after taxes.

[capella]

It'd be ALL of my take home after taxes... and I live in a state that has NO income tax! :eek: Is absolutely correct.

Where I would prefer to live around here in Central Florida.... It would be around 250-300K for a decent house in a decent area. My mortgage is 166K and that is more than enough for me for right now. We could MAYBE buy a condo or townhouse around there that would be nice enough. But then you have the condo fees and stuff that adds at least 150 a month to your payment. Ugh. It's depressing. I am fortunate that I AT LEAST have a nice house... even if it's not in the greatest area. It's not in a slum or TOO ghetto-y. It's blue collar working class. I just wish there was STUFF to do around here besides drink beer and watch Nascar.

My husband and I make around 68K a year together and that won't grow much in the coming years. Besides we're very close to being bumped to the next tax bracket after we adjust our income every year. No kids and all. It's not even worth it to work in the summer on break because, A. We wouldn't make more than 7 bucks an hour, B. Nobody wants to hire a person who is overqualified, C. We would end up making just enough to push us over the tax bracket and we'd pay more in fed income taxes than we earned by working. It's insane!! So we're sort of stuck where we are.

When and IF I get an administrator position... I'll be making at least 58K. So that will help things considerably.

[SmilesSoSweet]

What would payments on a $250K house, including taxes and insurance, cost in that area?

Well from what I remember I was looking at a house that was $230k. With taxes and all that junk my monthly payments would have been well over $1500 - that's more than one of my two paychecks I get a month. That doesn't included typical basic utilities (electric, water, etc.)

So I'm sticking with my $575/month rent for now until I make enough money to find something nearby that I can afford, or I end up having a second income (i.e. a husband! LOL).

[Kallisandra]

Try living in Southern California, I'm crossing my fingers hoping the housing market takes a dip. On average a house here is $600K. Oh and you're not exactly getting much of a house either. Jumbo loans galore. Definitely I don't make that much money, it's eaten by taxes... HELP!

[SmilesSoSweet]

Try living in Southern California . . .

I did, since the age of 4. I moved out of there just for a change of scenery. And I ended up with a higher paying job in a much more affordable city. Totally worth it!

[EmberMae]

when you look at the median income and the median home prices, it just doesn't add up. and hardly anyone seems to see the huge problem with this.

My parents' mortgage is like 1800 a month on a 200k house. 1/3 of that is taxes and insurance.

[and1grad]

The study assumed home buyers needed a 10 percent down payment and could afford to pay 28 percent of their income on mortgage payments, property taxes and home insurance.

In reality, many households expend a much higher percentage of their incomes on mortgage payments, Lipman said. To afford that, consumers cut other expenses such as for health care and transportation, she said, citing research showing unaffordable housing is the major reason families lack health insurance.
I think this is a really relevant part of the article. 28% of your income isnt very much. I dont agree that with the inference that you would need to cut health care to pay more than 28% of your income on a mortgage but I guess that depends on where your priorities lie.

[yankeeyosh]

I will refrain from saying much, but I would take this opportunity to thank hotdog for posting the article :)

[and1grad]

Try living in Southern California, I'm crossing my fingers hoping the housing market takes a dip. On average a house here is $600K. Oh and you're not exactly getting much of a house either. Jumbo loans galore. Definitely I don't make that much money, it's eaten by taxes... HELP!
I think you're SOL living in So Cal. There's just too much demand. My friend works in SD and he lives out in Temecula. Not a fun drive.

[capella]

I think this is a really relevant part of the article. 28% of your income isnt very much. I dont agree that with the inference that you would need to cut health care to pay more than 28% of your income on a mortgage but I guess that depends on where your priorities lie.
But that's 28% of an 85K a year salary right? That's pretty decent. And it says, IN REALITY most people pay a lot more.

My mortgage is about 1400 a month with taxes and insurance. That's 35% or so of our take home pay. That's the LIMIT for me to feel comfortable. I just don't see paying 1800-2K a month for a house. That's ONE thing and 50% of our pay. And we aren't poor... clearly not as rich as some, but not THAT poor. (Not that I wouldn't like or deserve to be paid more for my job... but that's another story.)

[and1grad]

And it says, IN REALITY most people pay a lot more.
Thats part of my point. Because most people pay more than that, 85k is a pretty high number for just a 250k loan.

[SmilesSoSweet]

Thats part of my point. Because most people pay more than that, 85k is a pretty high number for just a 250k loan.

And I would think someone making $85k/yr would probably look to buy a more expensive house because supposedly they can afford one compared to the incomes of those that own $250k or less homes.

[nikorock28]

Thats part of my point. Because most people pay more than that, 85k is a pretty high number for just a 250k loan.

JUST a 250k loan. That statement alone explains everything.

[capella]

Thats part of my point. Because most people pay more than that, 85k is a pretty high number for just a 250k loan.
I think most people aren't making 85K either... at least not where you can buy a house for 250K. Salaries are higher where the housing is higher. Maybe some couples, but they'd either be in high paying fields or they'd be mid-thirties I would think.

I'm making assumptions here... I do realize that, but I don't know a lot of people who pull in 85K. I think the 250K house would be alright for them. For me... it's not even close to in my comfort zone. It's about 90K over my comfort zone. Even after I go for the admin position and make 58K and let's assume my husband would be at around 38K.... that's about 96K and I would finally be close to feeling comfortable with a 250-300K house.

And then you have to account for kids and other stuff. The so-called American Dream ain't cheap.

[LaFille]

i don't say this often... but after reading this thread i'm glad to be an upstate new yorker.

[nikorock28]

I think most people aren't making 85K either... at least not where you can buy a house for 250K. Salaries are higher where the housing is higher. Maybe some couples, but they'd either be in high paying fields or they'd be mid-thirties I would think.

I'm making assumptions here... I do realize that, but I don't know a lot of people who pull in 85K. I think the 250K house would be alright for them. For me... it's not even close to in my comfort zone. It's about 90K over my comfort zone. Even after I go for the admin position and make 58K and let's assume my husband would be at around 38K.... that's about 96K and I would finally be close to feeling comfortable with a 250-300K house.

And then you have to account for kids and other stuff. The so-called American Dream ain't cheap.

You are taking the wise route. Some people will buy whatever they can qualify for, regardless of the type of loan or whether or not they can really afford it.

[and1grad]

JUST a 250k loan. That statement alone explains everything.
I live in CA. 250k for a house is NOTHING.

[nikorock28]

I live in CA. 250k for a house is NOTHING.

I know. I was born and lived in southern CA for 22 yrs, until I moved to AZ over a yr ago. My parents sold their home for 632k, the home I grew up in. The people who bought it have a 5k mortgage payment (I think they put 100k down) and probably another 500 in property taxes... it is crazy. My parents purchased the home in 1984 for 132k. It is a good thing their property appreciated that much because they have no retirement savings, but at least now they have a paid off home in AZ.

My friend from high school just purchased a 510k townhome on a 50k income. He rents out two rooms. I think he is just hoping to get by for a couple yrs until he makes the big bucks (he's a CPA for Ernst & Young).

My point is that the notion that 250K is NOTHING shows how crazy home prices are.

[MsClear]

I live in MA, so buying a house is really out of reach for me and the hubby, unless we want to embrace the hour long commute-two car-no life thing, which we do not. We're planning on being long term renters, probably for another three or four years. Hopefully after hubby finishes his MBA, his salary prospects will improve greatly. But there are no guarantees are there? I'm just glad I've got spare money and a good job. If I have to rent and get no equity, then so be it. Better than being stuck in some overpriced mortgage and facing financial ruin.

I think people in their 20s have to adjust their expectations. The life of buying a house early and attaining financial security just isn't there for our generation. It sucks, but there's not much to be done.

[NewMrs.]

i don't say this often... but after reading this thread i'm glad to be an upstate new yorker.


I'm glad that I live in Western PA. Wages are low, but so are housing costs. Everybody's financial dynamic is different, but I personally think that $250,000 WAY too large a mortgage for an $85,000 salary. However, I'm really conservative about money and my husband and I own a really old house that we're fixing up ourselves.

That being said, one of my neighbor's houses just went onto the market. My husband and I were really surprised when we saw the "For Sale" sign because they had just bought the house last spring. We found out from someone else in the neighborhood that our neighbors had recently lost one of their sources of income and as a result are now struggling to make their mortgage payments. The whole story was pretty sad.

[yankeeyosh]

I live in MA, so buying a house is really out of reach for me and the hubby, unless we want to embrace the hour long commute-two car-no life thing, which we do not. We're planning on being long term renters, probably for another three or four years. Hopefully after hubby finishes his MBA, his salary prospects will improve greatly. But there are no guarantees are there? I'm just glad I've got spare money and a good job. If I have to rent and get no equity, then so be it. Better than being stuck in some overpriced mortgage and facing financial ruin.

I think people in their 20s have to adjust their expectations. The life of buying a house early and attaining financial security just isn't there for our generation. It sucks, but there's not much to be done.

From one "masshole" to another, thank you so much :)

[NewMrs.]

From one "masshole" to another, thank you so much :)

Mark, I feel that you have implied in previous posts that the 20-something's desire to own their home is related to their senses of entitlement, though.

I don't think that home ownership is a case of "entitlement" at all. My parents bought their first home when my dad was 25 and my mom was 22 and pregnant.

[yankeeyosh]

Mark, I feel that you have implied in previous posts that the 20-something's desire to own their home is related to their senses of entitlement, though.

I don't think that home ownership is a case of "entitlement" at all. My parents bought their first home when my dad was 25 and my mom was 22 and pregnant.

No, I don't think it's entitlement. I don't want to rock the boat and get myself in trouble, so I won't say much more. But I think that some people may not understand what it means to own a home...it's more than a mortgage. Some can do it fine, but I have seen and heard of many people who struggle...esp. if they're doing it on their own. The moral of the story is, if you are sure your finances are in order, and you spoke about them with an advisor or such, then it's fine. If you're not sure, maybe you should wait.

[NewMrs.]

No, I don't think it's entitlement. I don't want to rock the boat and get myself in trouble, so I won't say much more. But I think that some people may not understand what it means to own a home...it's more than a mortgage. Some can do it fine, but I have seen and heard of many people who struggle...esp. if they're doing it on their own. The moral of the story is, if you are sure your finances are in order, and you spoke about them with an advisor or such, then it's fine. If you're not sure, maybe you should wait.


Yeah, but this can be said about people in their 30's or 40's or 50's just as easily as it can be said about people in their 20's.

Like I mentioned in my post above, my neighbors had to put their house on the market less than a year after buying it because they can't make their payments. They're in the age range of 30-40 (he's older than she is).

[yankeeyosh]

Yeah, but this can be said about people in their 30's or 40's or 50's just as easily as it can be said about people in their 20's.

Like I mentioned in my post above, my neighbors had to put their house on the market less than a year after buying it because they can't make their payments. They're in the age range of 30-40 (he's older than she is).

Oh, I'm not doubting that. People in all age ranges are overextending themselves.

Personally, the max I could probably pay for a place right now, on my salary, and be able to live the lifestyle I am currently living, is what I am currently paying in rent, or $1,100 a month. I don't think a $250K mortgage will equate to $1,100/month after everything is said and done (insurance, fees, maintenance, taxes, etc). Perhaps there are a few things I could sacrifice, but I'm not willing to do it, since I want to enjoy my life a bit while I'm still in my twenties. Maybe some people feel different, and home ownership is paramount...and they are willing to make the sacrifices. If that's the case, I have no problem with it anymore. It's their money, and if that's what they want, they can do it. That's just not the lifestyle I personally want.

However, if I get the University job, I will seriously consider looking for a condo in the boston area.

[redav]

Everybody's financial dynamic is different, but I personally think that $250,000 WAY too large a mortgage for an $85,000 salary. However, I'm really conservative about money and my husband and I own a really old house that we're fixing up ourselves.

The article mentions a few examples of the 3x rule--a typical person can afford a house that is ~3x his/her salary. This is a very good rule of thumb, especially with today's interest rates. (250/85 = 2.94) Going above that ratio is where people start having to get creative in their mort (ARMs, interest only, etc). These are generally unwise, and we are seeing the effects as foreclosure rates are increasing, particularly among those with these loans.

Another fact to remember is the tax breaks that come with home ownership--mort interest and property taxes are deductible, so that cuts out a healthy part of the cost. However, buying a house for the purpose of getting a tax break is unwise since you never make money by spending a dollar to get a quarter back. (This is a fact that a couple FPs I've talked with never understood.)

[steph78]

What would payments on a $250K house, including taxes and insurance, cost in that area?
We just bought a house on Tuesday for $285k and our monthly payments for a 30-year fixed mortgage worked out to around $1500/month including insurance and taxes...but that's with a 20% down payment. I guess they would probably be a lot more if we didn't have that full 20% down payment - we've been living like grad students for the past six years to scrimp and save up that much!

Actually, my husband really HAS been in grad school that whole time but I've been pulling in a real income. But in order to get that loan we had to give the bank a copy of my husband's offer letter from the company he is starting work for next month - we definitely couldn't qualify for that mortgage on my income alone.

[arrow]

We just bought a house on Tuesday for $285k and our monthly payments for a 30-year fixed mortgage worked out to around $1500/month including insurance and taxes...but that's with a 20% down payment. I guess they would probably be a lot more if we didn't have that full 20% down payment - we've been living like grad students for the past six years to scrimp and save up that much!

Actually, my husband really HAS been in grad school that whole time but I've been pulling in a real income. But in order to get that loan we had to give the bank a copy of my husband's offer letter from the company he is starting work for next month - we definitely couldn't qualify for that mortgage on my income alone.


Wow, congrats on being able to save the 20% on one income!! That's a big deal, and probably very hard to do. I hope you enjoy your home. :)

[steph78]

Wow, congrats on being able to save the 20% on one income!! That's a big deal, and probably very hard to do. I hope you enjoy your home. :)
Thanks! :) I was all excited that now we can start spending a little more freely...but we just had a baby and now we'll be saving for her college expenses...holy moly college is going to cost a lot in 2024! It's like buying a whole additional house! Well, at least we're going to be living in a lower cost of living area (Alabama) so it should make it easier to save.

[redav]

We just bought a house on Tuesday for $285k and our monthly payments for a 30-year fixed mortgage worked out to around $1500/month including insurance and taxes...but that's with a 20% down payment. I guess they would probably be a lot more if we didn't have that full 20% down payment - we've been living like grad students for the past six years to scrimp and save up that much!
Those numbers just don't seem right to me. It has to be a very low interest rate--much lower than the current ave of a bit over 6%. If insurance & taxes only come to $3k/yr, it would be ~5.25%, but that would mean your tax rate is under 1%. (My tax rate is VERY low for my state: 2.3% after exemptions, but other states are lower.) If your tax rate is 2% & you pay $1k in insurance, then the interest rate would have to be ~3%. :frustrate

[AshleyJordan]

I wouldn't doubt that income. A lot of people have bought houses and are paying a mortgage that is way beyond their means.

Supposedly with my $42k salary at the time I was pre-approved for a 100% financed loan of $250k! :eek: This was last year when I was looking to buy.

Thank goodness I didn't buy. I think I would have been in foreclosure by now if I did.


That's interesting because I only asked to be pre-approved for what I considered a manageable amount (based on all sorts of calculations,) and the bank gave me a pre-approval letter for much more. . . and I, too, would be headed for foreclosure *if* I chose to borrow $300K. . . . but I'm sure a lot of people would just accept all of the credit they were offered, and buy way more house than they could afford.

[steph78]

Those numbers just don't seem right to me. It has to be a very low interest rate--much lower than the current ave of a bit over 6%. If insurance & taxes only come to $3k/yr, it would be ~5.25%, but that would mean your tax rate is under 1%. (My tax rate is VERY low for my state: 2.3% after exemptions, but other states are lower.) If your tax rate is 2% & you pay $1k in insurance, then the interest rate would have to be ~3%. :frustrate
We got a 5.75% interest rate (we have great credit scores). Property taxes are $1300/year, and insurance is ~$1000/year. These numbers were what we estimated on our own via online research, and then the bank and our realtor gave us almost identical estimates so those numbers must be right unless we're all three wrong. I guess that's what living amongst cotton fields in rural Alabama will do, it's just super affordable there - the house is out in the county on a septic system, not in a city, so the taxes are dirt cheap. Of course I will be sending my child to Alabama public schools which are funded by these extremely low taxes...I understand the schools are very crowded, although we did make sure to buy in a location that is zoned for a new elementary school opening next year and a proposed new high school that might be built by the time Caroline is a teenager...

[redav]

Those ARE dirt cheap taxes. Some of the places I saw when house hunting were taxed at rates over 4%, and I have heard of places over 5%. Imagion paying $10k every year in property taxes. Ugh.

Congrats on the interest rate :) ; it will make all the world of difference over time.

[AshleyJordan]

honestly the tipping point for me was the roach issue. in nyc it's quite bad and landlords never want to deal with it. sorry, but i'm not paying $2k+ a month to live with vermin.

It's funny because I work with some folks who own co-ops in really nice areas (upper east side, etc.,) and have to deal with mice and roaches. . . I've pretty much grown to expect critters in any really high-density neighborhood-- expensive or not.

[red]

oh i mean you get it everywhere in nyc, but in my co-op i have a share and a vote, so that means something gets done about it. we get the exterminator every two weeks.

by infestation, i am talking about like i stepped on a roach with my bare foot in my last apartment when i was getting into the tub. my landlord never did anything about it, i had to call him everyday and yell. and roaches are bad for kids, pets and people with allergies.

[and1grad]

However, buying a house for the purpose of getting a tax break is unwise since you never make money by spending a dollar to get a quarter back. (This is a fact that a couple FPs I've talked with never understood.)
You wouldnt believe me if I told you how often I've TRIED to explain this to my parents. Ugh.

[yankeeyosh]

It's funny because I work with some folks who own co-ops in really nice areas (upper east side, etc.,) and have to deal with mice and roaches. . . I've pretty much grown to expect critters in any really high-density neighborhood-- expensive or not.

That's why I could never live in New York City. I am deathly terrified of rats and mice.

[AshleyJordan]

That's why I could never live in New York City. I am deathly terrified of rats and mice.

Or work in NYC, for that matter, I suppose. . . never seen a rat inside but there have been more mice than employees in any office i've worked in.

[arrow]

That's why I could never live in New York City. I am deathly terrified of rats and mice.

Aw, come on! At least the mice are cute little vermin!

[AshleyJordan]

Aw, come on! At least the mice are cute little vermin!


They scare me too, I just don't have the heart to lay out poison or glue traps. . . they also usually move on to greener pastures than my apartment because I don't have any food lying around. . . I try to think of them as transients.

[yankeeyosh]

Or work in NYC, for that matter, I suppose. . . never seen a rat inside but there have been more mice than employees in any office i've worked in.

I went to HS in the Bronx, and while uncommon, there was one occurrence where a rat darted through the room during English class. After that point, I was always afraid of that room. Once in a while, I saw a dead mouse on the floor.

For some reason, it's not as bad in boston. I thought it was really bad around the time I first moved here since I saw a rat dart right past me in the Common at night, but I haven't seen one since, even in the 'T'. Once in a while I see a mouse on the tracks, but that's about it...and even that's a rarity.

[Xander]

Disclaimer: I hate media statistics.

Perhaps there are a few things I could sacrifice, but I'm not willing to do it, since I want to enjoy my life a bit while I'm still in my twenties. Maybe some people feel different, and home ownership is paramount...and they are willing to make the sacrifices. If that's the case, I have no problem with it anymore. It's their money, and if that's what they want, they can do it. That's just not the lifestyle I personally want.
That's a very reasonable and rational statement, Mark. *thumbsup*

The only way to address the problem is to create more affordable units [homes] - which may mean higher density units, townhouses and condos.
If she means having the government step in to create "more affordable units," I'm entirely against that. If she means let the free market dictate (by demand) what's going to be built, that's already how the system works, so I don't understand the point.

In less-expensive Chicago, the median-priced home cost $254,000, requiring an $87,000 salary.
Strange. I live in Chicago, am looking in the $250K range, don't make $87K/year, and can afford the range just fine. Granted, I have enough savings for a large down payment if needed, but do you see were stats are being skewed to support the article? They're not factoring in all of the real-world variables like being able to save before buying.

Here's an article I stumbled on while searching for median salaries. It points out how "averages" are deceiving. Having studied a major heavy in statistics, I don't trust 98.42% of statistics I read. ;)
http://www.microsoft.com/smallbusiness/resources/startups/business_plans_entities/how_to_find_americas_best_paying_cities.mspx

[MsClear]

I definitely don't think it's that 20 somethings are entitled. However, we are told that we are to do certain things, like buy a home, in order to ensure financial security. And the "good kids" among us, who try to do the "right" thing, get busy trying to make it happen.

However, the rules of the game have changed. Incomes are stagnant, and a BA is no guarantee of a good job. Let's not even get into health care and college costs.

So if the game has changed, the mindset should change. It took me a few years out of college to get this, but now that I do, I have much less angst about the home buying issue. I honestly think my emergency fund is more important, along with trying to increase education in order to gain opportunity for my husband.