How are you affording 350-500k home? (mortgages, loans)

[Juliemac]

" As a life long sports fan I can recall only one team ( The NFLs '72 Miami Dolphins ) having a perfect season...." Hey our Detroit Lions were perfect in 2008!!!

[LisaCACO]

we never viewed our house as an "investment" but as a place to live. the fact that we made a profit off our houses was a fluke, nothing that we did particularly. we saved and had help from the government because in CA, esp in the bay area, housing prices were skyrocketing quicker than any normal person could save (and we were saving 10% of our pay and my husband was an engineer). Thank goodness the government was there to help us with a mortgage interest credit, which allowed us to put 5% down on our first home. the requirement? we had to take a class (a few hours) on home ownership, affordability, etc, and had to qualify, plus we had to plan to be in the home for 9 years. if we left before that we had to pay a penalty. The goal was to establish home ownership and allow people in certain high cost neighborhoods to afford a home.

we still don't view our current home as an investment. it's just a place to live and a place for memories. middle class people who think otherwise are just fooling themselves. it's like viewing your car as an investment. it's not, it's transportation. your home is a place to live.

[Bob from down south]

Originally Posted by Mathguy

Bob, one thing to note is that lower interest rates have made homes more "affordable" in recent years.

A 300k mortgage at 8% has the same rough monthly payment as a 460k mortgage at 4% just as an example.

Personally, my first house cost 155k....sold it for 195k. House #2 cost 245k, had a mortgage of about 195k. I've now paid it off and it's worth around 300k.

If some person making 125k a year bought had a 400k mortgage and a 2k a month mortgage cost they could cover that as long as they didn't go too crazy with other expenses.

Were all the other variables to have remained the same, I might agree, but the trends towards no/low down payments (making the loan-to-value ratio much higher than before), and kamikaze banksters willing to make mortgages with front-end DTI ratios approaching 80%, affordability (i.e. the likelihood that you can keep paying your mortgage when faced with routine fiscal ups and downs) isn't enhanced at all. The exploding foreclosure and bankruptcy rates bear grim witness to that effect.

The point isn't so much what responsible people can manage, it's what the average person is trying to reach for--too much for what they earn. Median incomes and median house prices are still horribly out of balance. The days of carrying a $400,000 mortgage on a $40,000/yr salary are pretty much over. Lots of people haven't grasped that reality yet.

[BuckeyezRule]

Originally Posted by Bob from down south

That's my sense of dismay reading this thread...the underlying idea that to get that nice house you have to have some kind of windfall from a property bubble elsewhere, or an inheritance, or lottery winnings etc--rather than the idea of getting rich slow through savings and frugal living and reaping the rewards once you've earned them.

That instant gratification urge leads the average American to do all manner of stupid things in his financial and personal life. So few people will wait and plan for tomorrow, when confronted with the realization they can't afford the nice house they'd like today. Instead they create a nightmare for tomorrow so they can pretend today that they can afford the things they can't.

And Wiz--a nice pet python is a low-cost way of dealing with an expensive cat food problem.

Perfect. I'm not saying the OP does, since I feel like that sometimes, but, overall, in the US too many have a sense of entitlement & don't want to work for it.

I'm not gonna lie & say I did. My parents paid for my college & really spoiled me. More w/ love than $$$. They were poor, but saved like mad to help me & my sis. Good, but bad. Hubby paid entirely for his own college & worked his way up through the 'ranks' & we have a nice home in a nice neighborhood on a 1 income salary (his) . Of course, this is in Utah, so, cheaper. lol

We finally went on a vacation this year to Disney w/ our kids. & my parents. It felt great to be able to & not be in debt for it. Finally, we are doing it. & love it. =) My kids are boy, 7 3/4, & girl, 6 3/4. lol

[Bob from down south]

Originally Posted by Axiom

But knowing the attitudes you've mentioned ARE prevalent, do you honestly believe the majority of folks buying $350-500k homes have household incomes of $100-143k year* and/or have been scrimping to save up down payments of $70-100k*?

No, but if you can't come up with the $70K down payment, you have no business buying the $350K house until you can. Otherwise you are injecting a lot of risk into the system--and the taxpayer ends up shouldering way too much of that risk through subsidization of fraud vehicles like Phony Mae and Fraudie Mac.

Originally Posted by Axiom

The income numbers I've seen certainly don't support the idea that houses in that price range are affordable for very many households, even in Douglas County, which consistently ranks in the top 10 highest income counties in the US. (2011 rank of #7 with an estimated median household income of $99,522)

BINGO!! Then prices must fall, or wages must rise until there is a balance. When real valuation is taken into account (i.e. inflation-adjusted prices/wages) then real values of housing must still fall a good long ways before people can afford those houses. There is, and always has been a fundamental relationship between wages and house prices.

Originally Posted by Axiom

The personal savings rate in the US is dismal and has been for years. So unless folks are stuffing cash in their matress, burying it in the backyard, or stashing it in some other non trackable way, secret Cayman bank account anyone, I have a hard time believing the building wealth slowly thing is very common either.

Keep in mind that around a third of all housing in the US is owned free and clear. People--large numbers of them--do save, and do stay unencumbered by excessive levels of debt. The averages are horrible because the magnitude of indebtedness among those on the back side of the curve has been allowed to mushroom out of control.

Originally Posted by Axiom

I'd like to believe you're right, honestly. Unfortunately the cynic on my left shoulder is drowning out Bob & Barry on my right (not calling you guys naive, just saying you're the antithesis of what I've personally seen in the housing market as a whole)

And Bob, while I respect your personal story tremendously, you have to admit you are far more the exception than the rule.

Until people that behave (financially) more like I do become much less the exception, we're in serious deep doo-doo. With the real prospect of continued housing price declines in front of us, a loan given with a puny 3% down payment has a significant chance of incurring a sizeable loss. That's bad, no matter who ends up as the final bagholder...the buyer, the bank, or the government (e.g. all the rest of us).

[Minx]

I don't believe in luck. If it falls my way, great. I'll treat it as a bonus, but I don't rely on it. Everyone has their own story. Personally I see a good education as the first step, followed by hard work and saving. If you follow these steps you can achieve these goals.

I'm a Mining Contracts Engineer, worked in Australia, earned $300K per year, only worked 8 months and got 4 months vacation per year, lived with my parents, did not spend any money and had a dream to one day live in the Rockies. After years of dedicated work, I came over to Colorado and payed $550K for my home to spend my vacation time. In the mean time I met a local girl, got married and moved here permanently. I am now retired, only 43 years old, my wife quit her job, and I'm now living my dream.

But it all started with the very first step, a good education....

[CosmicWizard]

Minx wrote:

I don't believe in luck.

LUCK ( good & bad ) HAPPENS wether one believes in it or not!

[Minx]

Originally Posted by CosmicWizard

Minx wrote:

I don't believe in luck.

LUCK ( good & bad ) HAPPENS wether one believes in it or not!

Yes, you're right. Should have been more specific. I don't believe (or rely) in luck as the means to advance myself in life (such as waiting for my lottery numbers to come up), but yes it does happen all the time, good or bad. If it's good, then I take it as a bonus. If it's bad I try to minimise its consequences.

[Ultrarunner]

Originally Posted by Axiom

But knowing the attitudes you've mentioned ARE prevalent, do you honestly believe the majority of folks buying $350-500k homes have household incomes of $100-143k year* and/or have been scrimping to save up down payments of $70-100k*?

*I went with a house price of 3.5x income for simplicity sake and since low interest rates do increase affordability

*that's bare minimum 20%, what about extra for closing costs, move in expenses, reserves, etc.

The income numbers I've seen certainly don't support the idea that houses in that price range are affordable for very many households, even in Douglas County, which consistently ranks in the top 10 highest income counties in the US. (2011 rank of #7 with an estimated median household income of $99,522)

The personal savings rate in the US is dismal and has been for years. So unless folks are stuffing cash in their matress, burying it in the backyard, or stashing it in some other non trackable way, secret Cayman bank account anyone, I have a hard time believing the building wealth slowly thing is very common either.

I'd like to believe you're right, honestly. Unfortunately the cynic on my left shoulder is drowning out Bob & Barry on my right (not calling you guys naive, just saying you're the antithesis of what I've personally seen in the housing market as a whole)

And Bob, while I respect your personal story tremendously, you have to admit you are far more the exception than the rule.

There may be more exceptions than people think...

Some are natural savers and can set a goal horizon years in the future and stick to it.

Many foreclosed property sells for cash... there is money out there.

Simply things like not having cable, car note, cell phone, the big yearly vacation and dining in can cut expenses drastically... just saying.

Another way is practiced by several couples I know... they live on one salary and bank the rest... 100%

Another factor is delaying kids... friends had saved for years for their kids education... after years of trying... they figured it wasn't in the cards... wife surprised husband with a new $80,000 Mercedes that he liked and payed cash for it... she's a nurse and he's a pharmacy tech... oh... they now have triplets at age 50...

[brightdoglover]

It troubles me that news reports about the economy continue to focus on "housing prices dropping" as a huge problem. As others have pointed out, until wages/prices are in some sort of equilibrium, then prices will go down. Something is only worth what someone is willing and able to pay for it.
Without some jobs building up, nothing is going to work well.