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To your point, a lot of people buy as much as a lender will lend them....which can lead to bankruptcy are at least stressing over paying bills. Better imo to buy something less you can afford, continue saving and eventually getting what you want. My current house cost less than my income the last few years...so I've been able to pay cash for 3 rental houses.
It depends so much on where you live. In my area, if you wanted to limit your HHI to 2.5x the purchase price, you would have to wait until you were in your 30s making a HHI of $200,000+ to afford a no-frills home in a far-flung suburb.
I live in a working class homeowner/young professional renter urban suburb outside of Boston. Housing prices there are fairly low for the region because the schools aren't great and there is no subway line into town. There are only a handful of properties for sale under $300,000 and they are all either foreclosed 1 or 2 bed condos (often boasting "charming 1980s kitchen"), studio apartments, or 2 very small single family homes that "need a lot of work." By needing a lot of work, the descriptions say there is no functioning electricity, faulty plumbing, mold, etc. Of course these are also in particularly bad areas of town.
Where I grew up in the suburbs of Atlanta, $300,000 was a McMansion that you strove to afford as a 2nd or 3rd home as you moved up. Here in Boston, it is difficult to get on the property ladder at all for under that amount. You see lots of people start their careers here because of the wonderful opportunities presented, only to lose middle income earners (like myself) who can't imagine living with roommates until they're 30 and renting until they're 40.
People are idiots. Why would you pay 3 to 4 times your household income for a home in this interest rate environment? Unless you have NO PLANS to move and are 100% assured of your income it will end badly. Home pricing is a function of interest rates and payments. People buy the payment.
We are in a period of historically low rates. A 200,000 mortgage @ 5% is only 1074 per month. If rates rise to the historical norm of 8.5% that same home would cost 1538.00 per month.
Good luck selling the home to someone else if life events force you to make a change. The pool of qualified buyer shrinks with every tick rise in interest rates. The rise in interest rates will result in a decreasing valuation of your "investment".
The "icing on the cake" is that household income in the United States has been DECLINING over the past ten years which further reduces the chances of home appreciation.
Buy a house today and you had better LOVE it. You should be 100% positive you will want to live there for the next 30 years as well.
People are idiots. Why would you pay 3 to 4 times your household income for a home in this interest rate environment? Unless you have NO PLANS to move and are 100% assured of your income it will end badly.
It also depends on one's income and on their other assets. Some people are financially secure enough to be able to buy a home that others may consider to be too expensive, that can afford a large downpayment, that have enough in the bank that they won't be in default if they lose a paycheck. There are a lot of factors that come into play here.
Quote:
Originally Posted by todd00
I hate this sheep like materialistic obsession people have.
I hate this obsession some people have with how others choose to spend their money.
It also depends on one's income and on their other assets. Some people are financially secure enough to be able to buy a home that others may consider to be too expensive, that can afford a large downpayment, that have enough in the bank that they won't be in default if they lose a paycheck. There are a lot of factors that come into play here.
I hate this obsession some people have with how others choose to spend their money.
I worded it wrong. People are stupid to take out a MORTGAGE that is three to four times their income. If you have a sizeable downpayment that reduces the mortgage to 2.5 times income it makes sense.
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 down payment (saved over 11 years when making a salary between $20K and $50K).
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...
Savings/CD rates in the late 70s or early 80s were high but nowhere near 19%.
Savings/CD rates in the late 70s or early 80s were high but nowhere near 19%.
My Dad had several CD's in the 80's at Pomona First Federal (a CA savings and loan) at 18%.
(PFF was absorbed by US Bank during the '09 banking debacle)
Savings/CD rates in the late 70s or early 80s were high but nowhere near 19%.
Yes they were. It was either late 70's or beginning of 80's. I remember. I was in real estate at the time and interest rates went over 17% for mortgage. I don't remember exactly how high CD's went but they were up there also, but only for very short durations as I recall, as I know we purchased some.
Yes they were. It was either late 70's or beginning of 80's. I remember. I was in real estate at the time and interest rates went over 17% for mortgage. I don't remember exactly how high CD's went but they were up there also, but only for very short durations as I recall, as I know we purchased some.
Ok, if you all say so. I remember being a kid with savings/CDs at the time. I don't remember the exact interest rate. I know it was in the double digits, but I sure as heck don't think I got anywhere close to 19%. It didn't last long, in any case.
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