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my buddy and I were talking the other day about how home prices have sky rocketed. For example my parents bought a two family and I think they payed $50k at that the time. Now fast forward that same home is worth past $1 million. Not only that people are re modeling their homes installing new bathrooms, new kitchens, expensive shades, etc...my buddy and I were scatching our heads where are these people getting the money...I dont get it....
Simple, They had parents in California. They had the house paid off. They die .. leave to kids. Kid has 1 million dollar cube home. They sell it . Go to Texas, and pay cash.
Or...
My builder of my duplex said that a guy in California had a rental property worth one million. He sold it . Got all the cash, and came to my block and bought 4x duplexes all cash.
Basically the same house sold in my neighborhood..in one day..for cash....for 600K a few weeks ago.
Now, we are having an influx of people fleeing New York City post covid/BLM/Asians getting beat up whatever you want to attribute it to. However, a house I could have bought in Suburban places in the south that would have been 250K at the same time I bought mine (we looked)..is now $400K. So while I may have made out a little bit all things being relevant, it isn't by all that much. You can sell, but you still have to pay for rent or purchasing a home someplace else as well, and it's gone up in most places where you'd want to live.
I think we have lost all rhyme or reason on home prices or what we need in a home. My first house cost $25,000 in 1976, brand new but smallish, garage, 3 bedrooms, split foyer, with a nice corner lot on a cul-de-sac. I have no idea what that would go for now but inflation alone would put it at $115,500. But it would likely be near $175k probably (this is the rural Midwest). That was a "starter" home then. That house was no frills and would cost $250k or more where I live now (desert SW) and likely 2 times that in some places.
I am the 4th owner of my current house built around 1995 as a custom build for a young family. He was a utility company worker. They added things to the house like a built-in vacuum system, intercom system, surround sound, high-end plumbing and appliances, walled courtyards, a large fish pond with waterfall and a stream. The house is 1600 sq. ft. and it seems odd putting those upgrades on a middle-sized house. The lot is over an acre. The pond and landscaping ran over $20k alone. Two subsequent owners added a few changes and I added an office. I can see room for some increase in price over inflation.
But now, our locale has seen a sizable increase in jobs and has been discovered by California so property values are rising fast. Houses are sold in a matter of hours or a day or two with multiple offers. I have weekly phone calls and contacts from realtors wanting my house. This has been a reasonable housing market until recently. Many builders are not building "starter" homes but are building large custom homes at $500k or more catering to the new arrivals. My guess is that they are building for cash buyers. This seems very odd now but the folks that have lived here for a while and paid a reasonable price will sell their homes for an inflated price and then buy yet a higher priced house, because they can, and the market will adjust and push first-timers and young families out of competition.
Interest rates are so low that buyers might be encouraged to overspend beyond what they need. I'm retired and kept a small mortgage on my house that costs me less than rent on a small apartment. I got a (generic) refinance offer yesterday that cuts that payment almost in half.
I'm not sure, OP. My husband and I make right around the six-figure mark and we purposely spent less than $200K on a home. Could we afford double that? Of course. But why spend all that money on a house? We can afford our home on one income if needed, which was very reassuring last year... he was furloughed for two months last spring, then I had to take a temporary cut for the third quarter last year. We still managed to put money away and we always pay a couple hundred extra toward our mortgage. We would have been panicked if we couldn't afford our mortgage and other bills on one income. Not worth the stress and aggravation.
I live in a tough area for affordable homes. I don't know how a young family can afford a home when the average one is $400,000 and up and that was before houses for sale were plentiful. The only jobs that can potentially support that big mortgage are in the trades and medical fields. Working retail is not going to get you there and that is why we have so many young families moving away. The older retired folks that are coming from larger homes that they sold and dripping in equity.
Inheritance or a really good job is the only way young people can afford an average sized home and still have some money left over to feed the kids.
Of course there has been talk from the Biden Bunch to raise taxes across the board which will hurt these families and there has also been chatter of increasing the taxes on inheritance, estate taxes, because there are people that will never get left property so they need to take it away from the people that do. They might as well call it "estate equity".
I have a small project to do and was shocked that a 2x4x8 has gone from $3.50 to over $7 ! Thanks Biden. Building a home now comes with a 30% increase in price.
How do people afford it?
They can't. Prices are so high because supply is low. Supply is low because of restrictive zoning practices, like requiring minimum lot sizes, and requiring one single family home per lot. If you can artificially limit supply (zoning rules are artificial, they can be changed), then the value of everyone's home increases. It's a feedback loop that rewards homeowners at the expense of anyone else trying to break in.
The answer is to open up zoning rules, allow townhomes and condos to be built where single family homes would normally be built. This would increase supply, and then decrease the average home value in the area, which makes such a rule unsavory for towns. Plus, when a town's tax base increases, the need for services to match the increase in population increases too. More people in town often means higher property taxes. When you combine lower property values with higher property taxes, it makes development a huge no-go in towns.
The way to achieve this fairly is, (and I'm going to lose you at this point) the government needs to step in and address this problem. State/federal government needs to provide targeted aid to towns that need more affordable housing. There needs to be grant funding available to towns for education when towns allow more affordable housing options. Towns need incentive to ease restrictive zoning rules, or else nothing will change.
Last edited by midnight_thunder; 04-06-2021 at 12:23 PM..
Reason: added some words for clarity
Most were not just handed the cash. They flipped homes. They bought the crap home in the good neighborhood, the crap home in the gentrifying neighborhood and fixed it up and made a handsome profit. Or they could have a good paying job and didn't succumb to buying all the bling to show off their financial status; they saved instead.
It takes some incentive to get off your butt and actually do some work to make good money.
Simple answer, they are up to their eyeballs in debt.
I have close to AAA credit rating, you would not believe some of the crazy insane offers I get by mail/email!...we are starting the whole 'subprime'mortgage scam all over again. LOL
Quote:
Originally Posted by notnamed
Yeah we are in process of building a new house. The mortgage officer was telling us with our credit we could put less than 20% down and yet not have to pay PMI...
Well, "subprime mortgage" and "great credit" (which wouldn't be AAA but more like 800+ FICO) are opposite ends of the spectrum. Subprime = borrower credit-worthiness is below good.
Yes, anyone that is getting a 5 yr ARM at this time is ill-informed. If they're getting it because that's the only way they qualify, then we do have real problems - because that's only $10 less/month per $100K. Meaning, even on a $400K house, that's $40/mo or $1,600 of annual income (at 30% DTI).
And yes, you can get > 80% loans with no PMI, though they usually cap at 90%, and almost always then involve taking a 2nd mortgage (2 loans) of some type at a higher rate.
Ive always wondered why more people are not selling their super expensive 'dumps' in SoCal and moving to a place like I like, (KY), for $275K, they could live in a very nice house, nice area!!
** I suspect its due to CLIMATE, it gets pretty cold in KY, SoCal on the other hand, has close to perfect climate year round.
That's my plan, to move to AZ or somewhere in the southwest and pretty much pay cash for a place or have a small mortgage, haven't decided that yet. I'd be gone yesterday but we have an elderly parent here that needs some help and we can't leave her at this point.
Most were not just handed the cash. They flipped homes. They bought the crap home in the good neighborhood, the crap home in the gentrifying neighborhood and fixed it up and made a handsome profit. Or they could have a good paying job and didn't succumb to buying all the bling to show off their financial status; they saved instead.
It takes some incentive to get off your butt and actually do some work to make good money.
Try reading "The Millionaire Next Door".
Good post.
My husband bought his first house at age 23, for $60K. We have since bought and sold numerous times, always buying a home with “potential” (hidden gems, so to speak), and have put in a lot of sweat equity making them nicer. Many people do not have the imagination to see the potential in a house that is outdated. It helps also when you have corporate relocations and realtor fees are covered as part of the deal.
My parents told us (they are millionaires due to savvy real estate investing), “always buy the most house you can afford”. We lost our behinds in 2008, but otherwise have done very well.
The flip side of that is: we drive older cars (luxury German brands but older with high miles and my husband can do most repairs himself), no clubs, no cable TV, we don’t eat out a lot, I find bargains for home furnishings, etc.
Our only other luxury has been travel, which I am now very glad we have done.
mortgage calculator shows a home at that price would be 1800 a month payment
If two people are working - they can afford it.
If they were single, they would probably be paying over 1K for an apartment.
Today's low interest rates have a lot to do with it. As you said, $1800 per month will get you a $400k mortgage at 3.5%. But at 5%, it only buys a $335k mortgage.
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