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Not counting coastal cities and high cost of living cities, how do most people not afford homes? I used a mortgage calculator, and if a couple has a income of 80k (40k a person), 600 in monthly debt, and a down payment if 10k, they could afford a home of 300k! Even 200k will get you something decent. That’s a pretty nice home in most of America, and making 40k a year isn’t hard. What am I missing?
No, they can finance (if they have good credit) a 300K home. They probably can't afford it. They can get the home and then be housepoor for decades, and be at constant risk of losing it to the bank if they have a financial setback or crisis, leaving them worse than they started.
Quote:
Originally Posted by Berteau
40k a year is like $20/hour. Minimum wage in many parts is $15 an hour. How can someone who’s halfway motivated not reach that income by their late 20s?
Firstly, your basic assumption of 40K per person being average is wrong - it's just under 80K that's average PER HOUSEHOLD, which doesn't mean two people each earning 40K. Many households are headed up by a single adult, and of those where there are a pair of adults, they may not both be working, or working full-time. So to make that per household figure, a person might need to make much more than 40K per year.
Secondly, there aren't infinite jobs, nor infinite niches for entrepreneurs. Competition for accessible living-wage work is steep. For a typical $40K, 50K, 60K per year type job there will be many more applicants than positions. The sort of highly in-demand careers and skilled trades where you can "write your own ticket" tend to require an above-average level of physical and/or mental prowess, and the average person is average. Or they require one to be on an advantageous career trajectory that isn't accessible to just any random person.
Thirdly, a significant portion of the population has various challenges that make obtaining and retaining a living-wage job an ongoing struggle, sometimes self-inflicted, sometimes just due to bad luck. Medical issues, credit issues, mental health issues, disabilities, past indiscretions, etc. If someone has a criminal record or bipolar disorder it's not like "just be more motivated!" is sufficient to result in financial success. Hard work is not in and of itself enough to make good money. In fact, lots of "hard work" positions are quite poorly paid.
Fourthly, you realize that you're basing all these suppositions on the average household, right? So you can assume about half the population would be making less than that, depending on how the data is distributed. In fact, the MEDIAN income in the US is less than the average income, because the super-rich skew the average. So most adults are actually making a less-than-average salary/wage in the US. Those are your people who can't afford to buy a nice house.
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Though a couple of years old, the data shows most people (53%) making less than $75,000. Meanwhile, the median home price is now $347,000 nationwide. With $10,000 down that requires an income of $86,000.
You'll always have your financial dummies that can't afford them because they spend their money foolishly, but then you have your fiscally responsible people who are just not ready.
Those buyers are better educated than those of previous generations, so it could also be many are waiting for the right time.
They also:
could be embracing single income homes with a the stay-at-home parent. Tons of benefits to this for the kids.
don't believe in paying PMI, so they need 20% down.
typically have student loans.
don't believe in the "1/3 income rule" and are more comfortable with 1/4 or even 1/6.
Consider what percentage of the population is single-income, first of all. More than a third. Secondly, consider what percentage of of the population has only 600/month in debt - the average individual debt is over twice that amount. A car payment would cover a huge chunk of that 600 alone, or so would a lot of people's student loans. The median individual income in the U.S. is about $31,000. If all those were in two-income households, which they're not, then we'd get to $62,000 median, not $80k. Meanwhile, the median U.S. house price is 285K for U.S., but in a lot of urban areas where jobs that pay well are, it is significantly higher. For example, the average home in Colorado is now about $475k.
Not counting coastal cities and high cost of living cities, how do most people not afford homes? I used a mortgage calculator, and if a couple has a income of 80k (40k a person), 600 in monthly debt, and a down payment if 10k, they could afford a home of 300k! Even 200k will get you something decent. That’s a pretty nice home in most of America, and making 40k a year isn’t hard. What am I missing?
Are you taking into consideration the entire monthly "nut" of principal, interest, taxes, and insurance as well as the money that it takes to maintain a house and afford repairs and furnishings? Those mortgage calculators don't take the latter two into account nor do they account for ever-rising property taxes.
In some metros like mine (Pittsburgh), it's not unusual for a modest house to be less expensive to purchase rather than rent if one stays out of the trendier areas and popular sub/exurbs, but tossing in the additional costs of homeownership plus the unhappy surprises that can and do arise with owning a house *plus* car payment(s) and the costs of raising children and homeownership can rapidly become a pipe dream (or, if the house has already been purchased, a nightmare).
Also, in my opinion, it's unwise to live up to the hilt of one's earnings be they single or dual. One of the best pieces of advice that my parents' received from their parents that they then passed along to me is that it's best to live on one partner's income and save as much as you can of the other's paycheck(s) as a hedge against job loss, emergencies and life's expenses in general.
With rising rents, it's also harder to save in order to have money for a down payment and closing costs. Not every couple can stay with family until they're ready to buy their own home and the lenders have progressively become more strict about to whom they're willing to lend money for a mortgage. For example, the difference is the quantity of paperwork between the house that I bought in the fall of '11 and the house that I purchased in the fall of '14 is astounding. When compared to the stacks of paperwork that came with the house that my ex purchased in '05 and the ones previous to that in 1996 and 1993 it's even more evident at how much things have tightened up on the lending front even when on paper a person/couple earn enough to afford to purchase a given house.
Last edited by Formerly Known As Twenty; 07-06-2021 at 03:03 PM..
In some states, like Florida, taxes are around 2% a year so that adds $500 a month to a mortgage. If you aren't putting 20% down, that's another $150 in PMI and roughly $150 for insurance. So before you've even started to pay a mortgage, you are at $800 a month at insurance and taxes.
In some states, like Florida, taxes are around 2% a year so that adds $500 a month to a mortgage. If you aren't putting 20% down, that's another $150 in PMI and roughly $150 for insurance. So before you've even started to pay a mortgage, you are at $800 a month at insurance and taxes.
Keep in mind that the PMI pays for the home insurance so the homeowner won't have to pay separately.
Not counting coastal cities and high cost of living cities, how do most people not afford homes? I used a mortgage calculator, and if a couple has a income of 80k (40k a person), 600 in monthly debt, and a down payment if 10k, they could afford a home of 300k! Even 200k will get you something decent. That’s a pretty nice home in most of America, and making 40k a year isn’t hard. What am I missing?
Quote:
Originally Posted by Frostnip
No, they can finance (if they have good credit) a 300K home. They probably can't afford it. They can get the home and then be housepoor for decades, and be at constant risk of losing it to the bank if they have a financial setback or crisis, leaving them worse than they started.
Just as a coincidence, my friend makes (or made) exactly 80K as a single parent/owner and she just bought a house a few years ago in southern NJ for ... I don't know how much but it's got 4 bedrooms and an inground pool, so I'm guessing 300K+.
I don't know the downpayment amount but 10K tops is probably a good bet as she's been in debt her whole life.
But as soon as she got a nice paying job as a RN ... boom, she bought a house.
The answer is that she's stretched to the limit and if she keeps her job for the next 30 years, it will work out. If she doesn't ... well, she'll have a problem.
It depends on how big of a risk taker you are. But the bank will give you the loan.
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