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Back in the early 1980s interest rates were in the mid to high TEENS for a while. Imagine that. I wonder if some people then thought interest rates might stay that high forever (just like some people today might think sub 4% rates might stay forever).
But I think the high rates would drive housing prices down. Low rates like now probably affect the buoyancy of today's real estate prices.
In Indiana, you could get a nice house for $250,000. And the secret is to stay in it long enough to build equity in it. Moving a lot (and thus paying the real estate commission) really cuts into any profit you might make.
We were lucky when we lived in a suburb of Chicago. We bought a house for $100,000 and then, within 3 years, sold it for $190,000. The reason was that the area was becoming "gentrified" and so lots of houses were purchased, torn down, and a new house built on that land. We went back a few years later and found that was what happened to ours. I miss the old Victorian turret we had.
The rule of thumb about 2.5 times your income applies to the amount that you borrow for your mortgage, not the total cost of the house. The place I am in now I was able to put down 2 times my annual gross income due to the sale of my second house which I had been in for 16 years and it had appreciated a great deal. In addition I took a mortgage of 2.75 times my income.
I also knew that my income would increase by about 25% when I began collecting social security.
Good luck, you will buy a junky house and/or have to live in a nightmarish area.
Thank Big Brother for continually attempting to artificially hyper-inflate the cost of housing......thank many citizens because they think housing price inflation is a great thing.
Location: Chapel Hill, NC, formerly NoVA and Phila
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The key is to save and sacrifice for several years before buying so you can save up a good down payment. I didn't buy my first house until I was was 33 years old. I was out of college and working for 11 years at that point. For eight of those years I lived with roommates and finally the last two I rented an apartment by myself. So I was able to stash away a decent amount of money. In that time I saved approximately 6K per year for the down payment on a home (that number includes investment returns). I bought a home for $290K putting down $70K. My husband and my salaries were each in the $50K range at that point (the downpayment was all my money, though). Neither one of us is a doctor, lawyer, accountant or engineer. He is an insurance underwriter and I worked in the educational field.
The bottom line is that I sacrificed in the earlier years in order to get that house. I could have lived in an apartment on my own fresh out of college for $600 per month, but I moved into a 3-bedroom with 2 friends and paid $250 per month. And I gradually increased my standard of living. We then moved into a townhouse in a better neighborhood and I paid about $350 per month for a few years. And then I moved to condo with just one friend and paid her $500 per month (she owned it). Finally I moved on my own for a couple of years and paid $800 per month.
So that's how we did it - bought a $290K house with a combined $100K salary with a $70K downpayment (saved over 11 years when making a salary between $20K and $50K).
Back in the early 1980s interest rates were in the mid to high TEENS for a while. Imagine that. I wonder if some people then thought interest rates might stay that high forever (just like some people today might think sub 4% rates might stay forever).
But I think the high rates would drive housing prices down. Low rates like now probably affect the buoyancy of today's real estate prices.
If interest rates were 19% why not just save up and pay cash for your house? Your savings would double every ~4 yrs on top of what you add every month...
I hear this rule of thumb all over. Use 2.5x your HH salary as a rule of thumb. If you are a single person in this economy, making $50,000 per year, then the maximum house you could afford is $125,000. That doesn't buy much. How do couples do it when one parent stays home? I really don't understand how we can have so many houses priced $250,000+ in the US? That would be an income of $100,000. That's doable for a couple in their mid to late 30's, but anything younger than that you're probably not going to break $100,000 take home pay as a couple unless you're either a lawyer, doctor, or engineer.
I think it's very feasible in many areas, especially since most people buying a house as opposed to a condo are married, so it's dual income.
However, here in the bay area, it's ridiculous. 2.5 times for a house means your income would have to be about 250-300k.
How do people do it on one salary? The couple doesn't have huge payments on 2 new vehicles, or high credit card bills and payments on stuff they don't really need anyway. They are not buying 5 buck cups of coffee everyday and overpriced lunches at some trendy but mediocre chain restaurant. People don't need a high priced huge Mcmansion type house. Very few baby boomers grew up in giant houses and some how most got along just fine. 125k will buy a decent house in midwest cities such as Omaha, Des Moines or Wichita. In small towns outside the metro of say Omaha, one could get a house for much less. For some, the small town schools and commute is worth it. Geez I hate this sheep like materialistic obsession people have.
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