Nothing Inbetween (Pittsburgh, Indiana, California: mortgage, equity, appraise)

[CaptainObvious]

Originally Posted by likepgh

Um, It's "Silver Spring" not "Silver Springs." I hate to be pedantic but speaking as a former Montgomery County, MD resident, I can tell you that folks down there get as touchy about that one as Pittsburghers do when out-of-towners leave off the final "h."

I don't get "touchy", nor do I know anyone that would get touchy about accidentally misspelling a word. Leave the "h" off the end of Pittsburgh to your heart's content...doesn't bother anyone I know. If you hate to be "pedantic", then don't be...not writing a post to specifically mention my misspelling of a word would have been the best way to go about that.

Regards,
O

[kettlepot]

Originally Posted by CaptainObvious

The whole real estate market just bugs me... I just keep thinking about my parents- when they retired they built a brand new home in an exclusive part of town on a half-acre lot. 2 story, 4 bed, 2.5 bath, about 2,500 sq. foot...and they did it all for $130,000. Granted, this was in 1986, but it just is difficult to wrap my head around the fact that that home is now worth $350,000. The only other thing I can think of that has TRIPLED in value in the last 20 years is auto fuel. I wish all of life was this way...buy a 1986 Honda Civic for $8,000 and put 100,000 miles on it to sell it 20 years later for $24,000

If you adjusted the value of the house your parents built in 1986 for 130k, for inflation and real income growth, it would sell for 325k today. If you factor in the decrease in the cost of funds for a mortgage, it's value rises probably another 25%. The fact that your parents house is only worth 350k and not 400k plus probably reflects the Pittsburgh area's subpar population and economic growth over the past 2 decades. There is nothing out of whack with a 350k valuation. As other posters have said, Pittsburgh is CHEAP!

And regarding the Honda metaphor, cars depreciate, land doesn't. Land won't go down in price until the population of the US starts to decline. While the structures on the land probably reflect a majority of the value of a property in Pittsburgh, in other parts of the country, the building itself is almost incidental to the purchase price. That's why movie stars will buy multi-million dollar properties with mansions on them, only to tear the mansion down and build something else more to their liking.

Which leads me to ask this question, are you NAH under a different screen name?

[CaptainObvious]

Originally Posted by kettlepot

As other posters have said, Pittsburgh is CHEAP!

I don't argue the fact that Pittsburgh is cheap relative to the rest of the country. I also don't argue that my parents' house is "worth" $350,000... I don't argue that a Porche is "worth" $70,000 or that a pair of Nike shoes is "worth" $90. Things are worth whatever the market will bear. If nobody was buying Nike shoes at $90, they would have to lower their price to entice new buyers to the market. I understand all of this. What I cannot understand is, WHO are the people buying $300,000 homes? Who can afford this? I understand California residents would laugh, and say, "That same home would be worth a million bucks here- you have it good!" Ok, then who can afford a million-dollar home in California? Prices of homes, in general, have risen at a much much much greater rate than has income or the rate at which interest levels have decreased. This means that the mortgage has risen to eat up a much larger chunk of personal income over the years. What I "can't wrap my head around" is the people, like in previous posts, making less than $100,000/year with kids with car payments, with going out to eat, etc. etc. making $2,000/mortgage payments. Probably $2,500 with taxes and insurance. What's the after tax take-home on $100,000 salary...$5,000/month? How do people spend 50% of all their income on a home and still afford to do anything else? And, ok, maybe someone can swing paying HALF of what they make on a mortgage, but what about these people in California? Their incomes are only very slightly greater, on average, than anyone else's. Let's say you've got two fairly high wage-earners...pulling in $8,000/month after taxes (that's two people making somewhere around $75,000 each). A $800,000 home (California prices) would mean a $6,000/month mortgage with taxes and insurance. There's no way anyone can actually afford to pay 75% of their income toward a mortgage...

can they?

People must just be making way more than I think. I suppose there are tons of people affording these homes making $250,000/year. I just can't believe there are as many as there are expensive homes.
These are the things that make me lose sleep at night. It wouldn't bother me if you saw a $300,000 or $400,000 house pop up now and then...I'd say, "Oh, they must be doing well" But it is almost all new construction (and a whole lot of old too) nowadays...Hummer Homes and McMansions abound!

I think this has alot to do with it... Who's most at risk for foreclosure? - Buying a House - MSN Real Estate


CaptainO

[Hopes]

Originally Posted by CaptainObvious

What I "can't wrap my head around" is the people, like in previous posts, making less than $100,000/year with kids with car payments, with going out to eat, etc. etc. making $2,000/mortgage payments. Probably $2,500 with taxes and insurance. What's the after tax take-home on $100,000 salary...$5,000/month? How do people spend 50% of all their income on a home and still afford to do anything else?

The percentage of income put towards housing costs is calculated by the gross income, not the net. I called my girlfriend in MD and asked. Her mortgage payment is $2,300--that includes taxes and insurance. That's 23% of their gross. Add the utilities to the mix and they are still below 1/3 of their income for housing cost.

Here's a calculator for figuring out what you can afford in housing: : How Much House Can You Afford? (broken link)

Did you miss my post when I explained that people have more money to put down on a house when they trade up. They're mortgages aren't necessarily 50% of their income. If you buy a house for 100k and later sell it for 200k, you're going to have over 100k to put towards a down payment on your next house because you would have paid down a portion of your mortage on the 100k house for the time you owned it. You put 150k down on your next 300k house.

My sister and her husband made a total of almost 300k on buying and reselling four houses in the Brighton Heights area. They made an average of 70k on each house---some of them within less than a year's time. They built their own house on 10 acres without a mortgage. It's worth 400k today.

Almost everyone starts out in starter homes. Most families trade up at least once, and many families trade up multiple times. You have to pay your dues before moving into that brand new house, Captain Obvious. Crunch your numbers and pay down your current mortgage faster. Don't allow yourself to get into credit card debt. Don't waste money needlessly.

Originally Posted by CaptainObvious

And, ok, maybe someone can swing paying HALF of what they make on a mortgage, but what about these people in California? Their incomes are only very slightly greater, on average, than anyone else's. Let's say you've got two fairly high wage-earners...pulling in $8,000/month after taxes (that's two people making somewhere around $75,000 each). A $800,000 home (California prices) would mean a $6,000/month mortgage with taxes and insurance. There's no way anyone can actually afford to pay 75% of their income toward a mortgage...

can they?

They do it. I'm not saying it's easy. I have a girlfriend who lives in California and her husband makes less than 100k. She's a stay-at-home mother. They have a 500k home; however, their house will end up being worth a million dollars before they sell it. When that happens, they'll most likely take their money and run to buy outright in another state. Then they'll be purchasing a 400k house with no mortgage.

Originally Posted by CaptainObvious

People must just be making way more than I think. I suppose there are tons of people affording these homes making $250,000/year. I just can't believe there are as many as there are expensive homes.

You already said it yourself: Things are worth whatever the market will bear.

[MaryS80]

I find the contrary to be true. The problem is very bad in coastal areas like San Francisco, Los Angeles, and NYC. I live in Dallas and it is are catching up with the coastal areas.

My grandparents live out in Moon Township in a nice safe quite neighborhood. It's a typical suburban area, not a ghetto, but not mansions either. My dad recently bought a house near the West End. It's an older home, 2 bed one bath, two story, and he paid $30k. Granted there are some run down homes in the West End, but the vast majority are kept up. There is a nice neighborhood school, and crime is low.

In most of California the most run down shack in the ghetto is over $100,000. Your typical average family home in a decent suburb is a quarter million to half a million. Ditto for any other coastal city.

There was a big three page article is yesterdays Dallas Morning News about the lack of affordable housing here. What little affordable housing is left is often being torn down in favor of some McMansion. Most of the suburbs here are just vast oceans of huge expensive homes. There is very little in the $80-120k range. Most new housing developments here start in the $300,000 range. The cost of small older homes is pushing the six figure mark

Pittsburgh is a place where one can still get a decent house at an affordable price. There are some truly run down metros like Detroit, and DC/Baltimore.

[claremarie]

What I cannot understand is, WHO are the people buying $300,000 homes?

Families with one good income or two OK incomes. And when we were buying our first house, we discovered that most of our friends were getting big down payment gifts from their parents. We didn't, but almost everyone we knew did.

What I "can't wrap my head around" is the people, like in previous posts, making less than $100,000/year with kids with car payments, with going out to eat, etc. etc. making $2,000/mortgage payments.

Some of them aren't going out to eat. And the others are maxing out on their credit cards.

[whereto]

Originally Posted by Hopes

They do it. I'm not saying it's easy. I have a girlfriend who lives in California and her husband makes less than 100k. She's a stay-at-home mother. They have a 500k home; however, their house will end up being worth a million dollars before they sell it. When that happens, they'll most likely take their money and run to buy outright in another state. Then they'll be purchasing a 400k house with no mortgage.

You already said it yourself:

I have to jump in here. The above comments made me laugh. It is no longer 2005. Cali housing market started to stall in spring of 2006. And it continues to sputter & drop. A 500K CALI house is considered a starter home in the "dumps" - and I'm basing this on Orange County prices and attitude. Realistically, not very many Californian homeowners can cash out any time soon.

Captn Obvious, yes some Californians have been putting anywhere from 50-75% of their incomes into their mortgages. It was do-able for them at that time. It is no longer. I know of people who personally work 4 jobs (both spouses) just to make ends meet. Have a baby, and childcare costs are as much as a mortgage payment. Unfortunately, these are the people who will be foreclosing soon.

I personally think a brand new $300-400K home in Pgh is over-priced. Families could be trading up, for all I know. But the pay scale in Pgh is no where near Cali's pay to justify an expense like that.

[Hopes]

Originally Posted by whereto

I have to jump in here. The above comments made me laugh. It is no longer 2005. Cali housing market started to stall in spring of 2006. And it continues to sputter & drop. A 500K CALI house is considered a starter home in the "dumps" - and I'm basing this on Orange County prices and attitude. Realistically, not very many Californian homeowners can cash out any time soon.

My girlfriend's home is not a dump. It was 500k when they purchased it quite a few years ago. It's already worth more than 500k. She anticipates that it will be worth a million when they're ready to retire. Regardless, Captain Obvious was wondering how people in California who earn near his income are managing to pay mortgages over 250k. My girlfriend's family is managing to do it.

[Tallysmom]

Originally Posted by Hopes

My girlfriend's home is not a dump. It was 500k when they purchased it quite a few years ago. It's already worth more than 500k. She anticipates that it will be worth a million when they're ready to retire. Regardless, Captain Obvious was wondering how people in California who earn near his income are managing to pay mortgages over 250k. My girlfriend's family is managing to do it.

Mine is!!

It's worth has dropped to around 400K... but we're here till 2009 at least. And by then we should know where the housing is going. And as I've said before, my goal of retirement at 50 is "my" goal, Brent may want to still work or start hiring people to do the hard work.

Lower end housing, starter homes -- right now those are the ones in the CA housing market that are getting clobbered. The higher end stuff, even higher end middle market, is still selling. But with so many people needing creative financing to get into this market at the low end and creative financing drying up, this is the market that's getting hosed. Depending on who you talk to, the sub prime thing isn't so much a factor here -- most loans were more creative than sub prime, but that type of financing HAS been affected by the sub prime meltdown.

Although some Chicken Little types are taking all creative financing and saying it's all subprime because it's not the traditional 20% down. I'm a little sensitive to that, because when we bought our house in 1987, we fiddled with financing -- and ended up putting 5% of our money down, got an 80% ARM and had the owner of the house carry back 15%. Welcome to creative financing 101. We also bought at the height of insanity back then, and paid 72,000.00 for a house that every one thought we were crazy to buy because house prices HAD to come down.

Well -- it's been 20 years, and they are still renting. And we're sitting on a nice tidy little pot of equity that someday we will tap.

[whereto]

Originally Posted by Hopes

My girlfriend's home is not a dump. It was 500k when they purchased it quite a few years ago. It's already worth more than 500k. She anticipates that it will be worth a million when they're ready to retire.

Best of luck to your friend. Her house will only be worth a mil if someone is willing to pay that much for it.