Posted on 04/07/2023 12:35:23 PM PDT by outofsalt
"To afford a $500,000 home, a person would typically need to make about $140,000 a year, said Realtor.com economic data analyst Hannah Jones." “For each of these price points, the minimum income required to stay in line with affordability recommendations is well above the national median,” Jones noted. "Real median household income in the U.S. was $70,784 as of 2021, according to the latest figures from the Census Bureau."
(Excerpt) Read more at msn.com ...
They are assuming a 6.32% interest rate, less than 2% of the house value for taxes and insurance and 30% of the gross pay available for housing expenses.
I bought the most expensive house ever sold in town. 7800 sq ft, 12 acres, in town, $320k and that price was too high but it was a family squabble.
Reminds me of my first house that was built in the 60’s that I bought in the 90s. They had put carpeting all over beautiful oak flooring. I had them sanded and stained and then my house had beautiful hardwoods for almost nothing.
Then in the great room, I took the paneling off they had painted and drywalled it. The studs underneath were pristine, and of incredible quality compared to now.
That house today is worth 6 times what I paid for it in 1996 - I paid $124K for it (spent about $15K on it doing the aforementioned and some kitchen work).
Great quality in that construction. Comes up on Zillow for about $740K now. Should have kept it longer, but I sold in 2009 to take advantage of the down prices to buy a much larger home.
-PJ
I paid $100,000 for my 3 BR 3 Bath home in 1990. The tax appraisal was almost $500k this year.
Some people never get past the “Need to Impress” phase of social being. I gotta sister who is single and just bought a place in cocoa beach for 500K. smmfh... and it isnt even on the water...
You are not correct.
Assumptions:
* $140,000/year income
* 30% income taxes
* $5,000/year property tax
* $3,000/year insurance
* 10% down payment
At 6.5% interest rate and a 30 year term, you have a monthly payment of $2,844 which is 38% of your take-home income toward the mortgage, prop tax and insurance. That’s higher than the desired 33%, but not much higher. That 33% rule has been relaxed quite a bit the past couple of decades. I think the “experts” now suggest 40%
So your payments are right in line with what you should pay for housing and It is very doable.
It’ll be tight the first few years, but it will get easier when the raises come (assuming the couple is 30-35 years old before peak earning years). If rates come down, they can refi and save a bunch of money.
We refi’d multiple times at no costs over the years. We did our last refi about 18 months ago and got 2.5% 30 year fixed rate which I doubt we will ever beat.
Our first few years after buying our house were very tight. Our first kid was born three years after buying the house. Things were really tight then and we can laugh about it now. You need to have confidence in your future.
Of course, when the Republic finally collapses, all bets are off...and that isn’t far away.
one of two things WILL happen:
either rents are about to go WAY up
or
the price of homes is about to go WAY down
Right now we are in a real estate inversion where rent can no longer pay the loan. This situation can not last. Only investors who can pay cash can afford rental property now. Anyone with a loan will go negative on cash flow.
But prices of homes don’t easily go down. A LOT of people would have to go bankrupt and have their homes foreclosed on for that to happen. Because short of that, most would never sell their home for less than they owe.
Which leaves only the OTHER option.. rents are about to SKYROCKET soon.
“It is very doable.”
until...life happens...stretching your budget to the max is just asking for trouble.
No. You are exactly right. The middle class is being wiped out by design. It’s the top 20% living incredibly well, while the rest are being pushed down to a government dependent poverty status. I am glad I am older and was able to accumulate enough to be fairly immune from this intentional economic destruction (for now).
Buy the home 30 years ago.
The only problem is that $500K is barely a starter home in many markets, so I am not sure you would roll the equity from your current home into a starter home, unless you are downsizing I guess.
You forgot the impact of this inflation. Not long from now a $3000/month rent will be the same as an inflation adjusted rent of $700/month from about 10 years ago.
After reading the posts on this thread, I feel particularly blessed.
I always used 10% of my gross pay as my ceiling on a 30 year mortgage (P&I only in my 10% calculation). I guess I am weird. It worked out very well for me. The only awkward thing is you tend to be in an income class well above your neighbors when you use that formula, which can feel odd at times.
The benchmark for top 20% is only about 130k these days-I can remember when breaking that 6figure mark was a big deal but thanks to inflation it’s not that big a deal anymore
I can remember getting out of graduate school hoping to get at least $28K/year. LOL - seems so long ago. $130K is barely scraping by in some markets these days. I think you need about $300K/year to be the equivalent of $100K of a couple of decades ago.
-PJ
40% for housing allows enough for living expenses and saving 10% to cover life’s unexpected events.
Just don’t get in the habit of having to drive a new car every couple years. Buy used with 20,000 to 30,000 miles and keep it for 10 years.
Now, if you bought this home during the Obama administration you might have got it for 220,000 and if you paid that same 50k down it would have doubled in value under Trump and you’re paying a mortgage payment at a third of what you will under Biden (or the 2024 Hillary term).
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