Average home price vs. average income

[RedRosesForMe]

So I saw one of those birthday gifts where they tell you about what important events that occurred on the day you were born, how much a loaf of bread cost the year you were born, etc. This was for my mother, born in 1945.

It listed both the average income and the average price for a 3 bedroom home in 1945. The income was aroud $4600, and the home just over $4000, IIRC. Now, the price of homes and the average income has gone up, but it doesn't seem that income is keeping up with real estate prices. The average (family) income is what, maybe $75,000? But the average home is more than $200,000.

So what gives? Are homes really that much more expensive to purchase today, or am I missing something?

[Broomstick]

No, you're not missing anything.

[RedRosesForMe]

Well, then, Mr. Smarty Pants, why are they so much more expensive? ;)

[Fear Itself]

Because they aren't making any more land.

[Fear Itself]

The average (family) income is what, maybe $75,000? It's worse than that. The median household income in 2005 (http://www.census.gov/prod/2006pubs/p60-231.pdf)(PDF) was $46,326.

[Jman]

I'll never understand how people can afford these super expensive homes, (aside from the shady sub-prime lendings) on meager salaries. My house was a shade under $140,000. My wife and I comprise a very average, white collar income. We certainly don't have tons of spare cash. After the mortgage, two car payments, insurance,property taxes (which for me are pretty high), food, and a little bit for fun (eating out a few times a month, maybe a movie here or there), we don't have a whole lot left over. Then I see people on HGTV making what we make, or maybe $10,000 a year more, and they're buying $400,000 houses. How? How can you net $5,000 a month, and afford to spend $3,000 on your mortgage / property taxes? Do you have no furniture? No life? No cars?

[pool]

I can't believe the money some people spend on houses especially in places like Florida. I mean a $200,000 home in Florida is pretty average, that same money here buys a pretty damn nice house.


Average $75,000 Haha you've got to be kidding!

[RedRosesForMe]

It's worse than that. The median household income in 2005 (http://www.census.gov/prod/2006pubs/p60-231.pdf)(PDF) was $46,326.

Well, median and mean (average) are two different things. This article (http://www.usatoday.com/money/economy/income/2006-02-23-fed-incomes_x.htm) lists the average family income in 2004 as $70,700.

[Common Tater]

It's a bit of everything, as usual I suppose.

Mega-McMansions weren't all the rage then as they are now, somewhat cramped houses were de rigeur then so it's tough to make comparisons. Official government inflation figures are horribly suspect as well, so that makes it even tougher.

[A.R. Cane]

The rule of thumb is two and a half times annual income. I've watched, for the past decade or more, people buying homes costing 3-4 even 5 times their income. I've thought it was a bit insane and had to end in disaster eventually.
Yeah, $75K is way high, unless maybe you're thinking about a two income family.

[RedRosesForMe]

Yeah, $75K is way high, unless maybe you're thinking about a two income family.

I am, that's why my OP stressed family income. Merely to point out that in 1945, a single income was roughly the same as the price of a 3 bedroom house, but now a couple's income is 1/3 the cost of an average house.

But even a tiny, below-average house (in my area) will set you back at least $100,00. A friend of mine spent roughly that on a 2 bedroom house in a less-than-stellar neighoborhood- the house is smaller than my old apartment, and not much bigger than the one (1 bedroom) I've got now.

[Fear Itself]

Well, median and mean (average) are two different things. Good point. Was your 1945 reference mean or median? We need to compare apples to apples.

[elmwood]

Really, I wonder how singles with middle-class incomes similar to mine seem to lead a luxury-filled life, and claim to have little or no debt. I know people who make about as much as I do, yet they live in $200,000 townhouses, vacation overseas a couple of times every year, own large-screen plasma televisions, and so on. I haven't been on a vacation in four years, I don't own a large-screen television, I don't have debt except for the mortgage, and I'm struggling just to save a few thousand dollars for some remodeling work I want to do.

[RedRosesForMe]

Good point. Was your 1945 reference mean or median? We need to compare apples to apples.

Mean. Or at least, I assume so, it was listed as average income and average cost.

[A.R. Cane]

I think you might get a better picture if you used the mid fifties vs. now. Right after the war was the onset of mass production homebuilding. There were gov't. incentives for G.I.'s and a big marriage boom. By the fifties things had settled out and would provide a more equal basis for comparison.
In 1952 my parents bought a brand new 7 room house, although considerable smaller than today's houses, for about $14K. At the time he was making right at $6K a year and my mom was a housewife, although she had worked full time during the war.

[LionelHutz405]

Really, I wonder how singles with middle-class incomes similar to mine seem to lead a luxury-filled life, and claim to have little or no debt.

I can think of a couple reasons:
Inheritance. Maybe their parents died and left them some money. If they had a house, some savings, and a nice car it could easily be a few hundred thousand dropped in their kid's lap.

No retirement savings. They are ignoring that and spending every penny they earn. I'm saving for my retirement, but could easily afford vacations and big-screen TVs if I forgot about it and just spent that money instead.

Or, they are lying about the no debt part :D

[elmwood]

I can think of a couple reasons:
Inheritance. Maybe their parents died and left them some money. If they had a house, some savings, and a nice car it could easily be a few hundred thousand dropped in their kid's lap.

No retirement savings. They are ignoring that and spending every penny they earn. I'm saving for my retirement, but could easily afford vacations and big-screen TVs if I forgot about it and just spent that money instead.

Or, they are lying about the no debt part :D

Every time I get a raise, I add whatever increased pay I have into a deferred compensation account, on top of the normal retirement fund. Relative to the rate of inflation, my take-home pay has declined quite a bit because of retirement savings.

[drachillix]

I can think of a couple reasons:
Inheritance. Maybe their parents died and left them some money. If they had a house, some savings, and a nice car it could easily be a few hundred thousand dropped in their kid's lap.

This is what I was going to post, I have some fairly well to do grandparents still alive, in theory I stand to inherit somewhere in the $300K-$500K range when they pass on. That could make for either a nice investment income boost of $20-30K/year and or pay off alot of bills so I am never paying interest on anything.

There are a few people I have met who never finance ANYTHING. They do without until they have the cash in hand, they seemed to do pretty well for themselves. I know my wife and I are paying out about $700 a month in interest on car loans, credit cards, etc. Not an insignificant sum and could make a pretty big difference in lifestyle esp WRT durable goods like furniture or nice TV's

[wevets]

Good point. Was your 1945 reference mean or median? We need to compare apples to apples.

You're right. We should also keep in mind that the median is more appropriate than the mean for talking about large numbers of households since the mean is easily swayed by outliers - like the very few Bill Gateses out there making $10 billion a year pushing the mean up out away from the large body of the population.

[Fear Itself]

Mean. Or at least, I assume so, it was listed as average income and average cost.Apparently so. The median household income in 1945 was $2,379 (http://www2.census.gov/prod2/popscan/p60-002.pdf) (PDF).

[Fear Itself]

Here is an interesting graph (http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif), that plots median home prices over time in inflation adjusted dollars, from 1890 to the present. It would be useful to add a plot of inflation adjusted median incomes, but I would bet there is a widening gap between incomes and home prices since WWII.

[Balthisar]

I know my wife and I are paying out about $700 a month in interest on car loans, credit cards, etc. Not an insignificant sum and could make a pretty big difference in lifestyle esp WRT durable goods like furniture or nice TV's
Wow! I don't see "mortgage" among the interest-paying goods. That's truly an amazing amount of interest.

[Hampshire]

Count me in as one of the head scratchers.
Combined gross income of myself and wife is about $120K. I'm thinking we are both very lucky to be making that much.
My mortgage is $150K on a house valued at $220K. Built in 79' it sits in your typical 70's neighborhood surrounded by typical split level homes. Being from the 70s all the homes are aging and needing things like roofs, furnaces, driveways, siding, interior updating, etc. so they are anything but McMansions.
I drive a 97 Corolla and we splurged on a RAV4 ($20K loan) for my wife so we could haul bigger items and take trips out of state to our parents with our son.
Our income covers what we have and allows a tad to cover bigger purchases but we do have to plan ahead and budget for it.

So I'm feeling pretty lucky to have what we have.

Then I see these neighborhoods popping up with one house after another after another after another all priced at around $400K. And in the driveways sit Ford Expeditions, Lexus', Infinitys, top dollar extended cab 4x4 pickups, both his & hers.

Then I just sit and scratch my head and ask 2 questions:

1) What kind of incomes do these people have to afford that stuff?

2) Where did I go wrong in my choice of career that I don't have that income?

[Lunar Saltlick]

Low interest rates and aggressive banks help. I don't know what the interest rates were in 1945, but they've been close to historic lows for quite a while now. When we bought our house, we were looking for something in a very specific and modest price range. The bank kind of laughed at us after looking at our finances, and said they'd pony up mortgage money that would let us buy a house three times the cost we were considering. They figured we were a good risk. We stuck to our original price range, but some people follow orders when the bank tells them to go for it.

There's nothing a bank likes more than to get solid, dependable, hard-working people to borrow money.

[ZomZom]

Throughout your lifetime it is important to continually trade up if you expect to increase your wealth significantly. Cash flow and wealth are not the same thing.

Buy a starter home, cash in your equity after it appreciates and trade up. Buy a mid-level fixer-upper, put in a new kitchen and master bath, sell it at a profit and trade up again.

You get the idea.

The worst thing you can do, in terms of building wealth over your lifetime, is to buy a place and stay put. You don't need to move every year, but every 6-10 years is a good amount of time to build equity and then sell. With the market in the current doldrums, this is a particularly good time to trade up.

[ZipperJJ]

People don't buy things based only on how much they cost/are worth. Lots of people buy things based on monthly payments. They're not buying $300k homes they're getting a $2000/mo mortgage.

I've heard tell that a lot of the bigger homes in our area are empty - people get huge houses and can't afford much in the way of furnishings. They deal with it now and then move on to something cheaper when they run out of dough.

I agree about inheritance and lack of retirement savings, too. I have a couple friends who make more than me combined (they're married) and while they don't live the jet-setting lifestyle they have waaaaaay more disposable income than I could ever wish to have because of a nice little trust fund.

[DustyButt]

I can't believe the money some people spend on houses especially in places like Florida. I mean a $200,000 home in Florida is pretty average, that same money here buys a pretty damn nice house.


Average $75,000 Haha you've got to be kidding!

A 200k house in FL is actually pretty nice because you can get an 1800 sq ft new home with a lanai pool.

Just for kicks and grins try looking at what 200k gets in the MD/DC/VA area. You cant't even get a 750 sq ft ,1 bedroom condo without roaches for that much.

[Malthus]

Throughout your lifetime it is important to continually trade up if you expect to increase your wealth significantly. Cash flow and wealth are not the same thing.

Buy a starter home, cash in your equity after it appreciates and trade up. Buy a mid-level fixer-upper, put in a new kitchen and master bath, sell it at a profit and trade up again.

You get the idea.

The worst thing you can do, in terms of building wealth over your lifetime, is to buy a place and stay put. You don't need to move every year, but every 6-10 years is a good amount of time to build equity and then sell. With the market in the current doldrums, this is a particularly good time to trade up.

I disagree. This it seems assumes that residential real estate is the *best* investment for wealth creation. However, while residential real estate has indeed done very, very well recently, this isn't necessarily the case.

The reason is that, in looking at the value of residential real estate, one must look not only at the percentage increase of the value of the house and tax treatment, but also at the very real and considerable costs associated with such an investment - namely, the larger the house, the more costs one must pay, each and every year: property tax, repairs, furnishings, heating, cooling, not to mention mortgage payments ... the list goes on.

Living in a mansion can be a cash hole as well as a cash cow. Certainly, a real estate component may be a good part of a well-balanced portfolio - after all, you gotta live somewhere. But it is not a one-size-fits-all solution.

[BlinkingDuck]

by elmwood
Really, I wonder how singles with middle-class incomes similar to mine seem to lead a luxury-filled life, and claim to have little or no debt. I know people who make about as much as I do, yet they live in $200,000 townhouses, vacation overseas a couple of times every year, own large-screen plasma televisions, and so on. I haven't been on a vacation in four years, I don't own a large-screen television, I don't have debt except for the mortgage, and I'm struggling just to save a few thousand dollars for some remodeling work I want to do.


I was so wondering about this that I became quite determined to find out what was up. I found a probable answer...but you're not going to like it.

When I moved into my current neighborhood, my wife and I were in our mid-30's....we had scrimped and saved for a long time. We owned a condo that had appreciated some but was a burden for awhile. We managed (barely) to have the 20% downpayment and no debts (including cars). We had a little money in the bank but we lived frugally to save for retirement and our lifestyle. The house we bought was worth roughly $300,000 at the time and was new construction. So, we all in the neighborhood moved in roughly the same time.

When we got to know some neighbors:

- One was a guy, mid 30's....wife was stay at home mom. They had 3 kids....2 SUV's and a boat. He worked for Pepsi driving truck which (I know someone working there) makes at most $40K a year. $40K a year cannot afford a $300K house plus all his other expenses...something is amiss....

- A young couple, just out of college and just married. She didn't work and was pregnant. They drove 2 NEW cars (not hugely expensive...but not cheap either). He was looking for a job, found one as (I think) and archetictual (spelling?) assistant...which probably paid less than $30K and definitely less than $40K. Something was amiss....

- Couple in their 40's with 2 kids. HE worked full time and she worked part time at Home Depot...on the floor. Not crappy jobs, but not high paying either. They had 2 SUV's, brand new.

Over the course of a couple years I got their stories.

The Pepsi guy? his wife's GRANDMOTHER left them her house when she died, which they sold for $400K ish. They bought their house (competely, no mortgage, plus their 2 SUV's)

The young couple out of college? Their house was completely paid for by her parents...as a wedding present. No mortgage.

Couple in their 40's? Not as well off, but had been left a couple hundred thousand dollar inheritance a few years ago.

This was discouraging. I knew these things happened. As someone who paid their way through college and has never been given a red cent of help...and will most likely inherit little or nothing...I was irritated.

It is a small sample size...but my conclusion was that a LARGE number of people out there are given significant amounts of money by relatives.

[aktep]

The worst thing you can do, in terms of building wealth over your lifetime, is to buy a place and stay put. You don't need to move every year, but every 6-10 years is a good amount of time to build equity and then sell. With the market in the current doldrums, this is a particularly good time to trade up.

I don't know that it's that big of a difference. It can be a benefit if each move is to a hot market, but if you're not getting lucky picking the good places to live, it doesn't help. In fact, it might make you come out behind.

(grossly simplified numbers to follow. Assuming about 3% annual appreciation in all markets. I will make the assumption that this property ladder is designed to keep the house payment at the same per-month cost since we're trying to increase wealth without increasing cash flow. I'm ignoring the costs of buying and selling houses [commissions, closing costs, inspections, etc], which will really ruin the return)

You buy house A for $100,000.
Option 1: you hold the house for 30 years and at the end of 30 years you have a house worth $230,000, from a $100,000 investment and no mortgage payments.

Option 2: You sell 10 years later for $130,000. You trade up to a $150,000 house. You've now increased your base investment to $120K, but since you only owed $80K on your first house, you get a new 30-year mortgage for $100,000 and you keep making the same payment you're used to.
-You sell another 10 years later for $200,000. You've paid the mortgage down to $80K again so you buy a $220,000 house to keep that same house payment you are used to. You've now invested $140,000.
-You sell another 10 years later for $290,000. Once again, you've paid the mortgage down to $80K, so you buy a $310,000 house to keep that same mortgage payment. You've now invested $160,000

At the end of 30 years, option 1 leaves you with assets of $230,000 and no liabilities. Your $100K investment is now worth 230% its original value.

At the end of 30 years, option 2 leaves you with assets of $310,000. Your $160K invested has increased to only 194% of its original value. In addition, you have a $100,000 liability, so your net worth is only $210,000 and you still have to make mortgage payments. But you do have a bigger, nicer house.

[Colophon]

It's even worse in the UK. Average house price is over £210,000 (http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm). The latest figures I could find for average income per person (after tax, NI etc) was £13,300 (http://www.statistics.gov.uk/CCI/nugget.asp?ID=1552&Pos=1&ColRank=1&Rank=224) per head.

I know people whose mortgage payments take up two-thirds of their income. It's clearly not sustainable. I rent at the moment and wouldn't buy at the moment even if I could afford to.

People mentioning " fancy $400k houses" depresses me, because it's a lot of money but in my area that would buy you, well something like this (http://www.dezrez.com/DRApp/Search.ASP?WCI=Particular&WCE=00949467). (£199,950 = $407,440). And that isn't even in a particulary desirable town.

[aktep]

Oh, and back to the OP: Homes are more expensive today partly because land and lumber costs have increased more than wages, but also because houses today are much larger and nicer than in 1945. Your average 3 bedroom home in 1945 is less than 1000 square feet, has one bathroom and a one car garage, and plumbing and electrical that may be suspect by today's standards. Today's average 3 bedroom home is probably 2000 square feet, 2.5 baths, 2 car garage, electrical designed to handle today's electronics, multiple rooms wired for cable, telephone, etc, with upgraded floors and countertops.

It's similar to when someone says "The average car in 1975 only cost $4,000! (or whatever)" Yes, but the average car then got bad gas mileage, lacked A/C, radio, ABS, air bags, power steering, etc. If the same car where on the lot in brand new condition today, you wouldn't want it at the inflation adjusted price.

[Trunk]

Throughout your lifetime it is important to continually trade up if you expect to increase your wealth significantly. Cash flow and wealth are not the same thing.

Buy a starter home, cash in your equity after it appreciates and trade up. Buy a mid-level fixer-upper, put in a new kitchen and master bath, sell it at a profit and trade up again.

You get the idea.

The worst thing you can do, in terms of building wealth over your lifetime, is to buy a place and stay put. You don't need to move every year, but every 6-10 years is a good amount of time to build equity and then sell. With the market in the current doldrums, this is a particularly good time to trade up.
I'm sure I don't get the idea.

What you're saying is entirely predicated on housing appreciation outpacing the stock market (the money you could be investing when you "trade up"). For the 100+ years or so that we've been keeping track, housing hasn't come CLOSE to the returns of the stock market, and if you've purchased a home over the last 5 years, chances are, you're going to do worse in housing than the historical rates would indicate.

When interest rates dropped, I switched to a 15 year mortgage. I'm going to have it paid off when I'm about 44. That gives me 20 years of investing before retirement without a mortgage payment.

You'd recommend getting into a larger house and taking on another mortgage. It's crazy on so many levels.

Put your numbers into a spreadsheet. Take the money you're earning, and look at what happens to your money if you keep investing it or keep leveraging yourself more and more. It's not even close.

You do not build wealth through trading up on houses.

Anyway -- to the rest of the thread. If you ever have seen what I've written mostly in IMHO, I'm pretty bearish on housing right now, and have been for a while.

You really need to grasp the implications of the graph that Fear Itself posted.

Keep in mind the savings rate as a whole in the US is now negative.

What's this all say: people are in DEBT. You're not looking at wealth. You're looking at debt. And debt is unsustainable.

I know -- you've looked at this rosy portrait of houses and vehicles for years, and it looks like it will never end, but it will. People will eventually run out of the ability to service their debt.

Some people believe a mortgage isn't debt, or that a mortgage plus a HELOC isn't debt.

It is. It's just better than credit card debt.

[elmwood]

People mentioning " fancy $400k houses" depresses me, because it's a lot of money but in my area that would buy you, well something like this (http://www.dezrez.com/DRApp/Search.ASP?WCI=Particular&WCE=00949467). (£199,950 = $407,440). And that isn't even in a particulary desirable town.

Somewhat OT: Here's a $400K/£200K house near me (http://www.progressiveurban.com/cgi-bin/search.cgi?view_details.x=1&mls=2378170&current_page=1&minprice=375000&City=Shaker&maxprice=425000&Style=1F&searchtype=Search_ALL_Listings&listcount=&sort=&resolution=). In the 1950s Shaker Heights was the wealthiest city in the country, and it's still one of the more prestigious addresses in the United States.

Personally, in a way I feel like I'm missing out on the boom. Home prices on my street range between $130K and $160K. There's a vacant house at the greensward, thanks to a foreclosure, and no doubt more are on the way. Because housing in the Cleveland area is so affordable, people who really shouldn't be able to afford a house period got risky adjustable rate mortgages, and bought houses in pleasant but older inner ring suburbs. They can barely afford $700 or $800 monthly mortgage payments -- which will rise far above $1000 when their rate adjusts -- and they have absolutely no financial management skills to boot. I want my new neighbors to make it, but I don't think many will.

That house on the greensward: there was a HUGE pile of trash in front of it last week, as it was cleared out for auction. Rummaging through, I found photo albums picturing a once-happy family. Clothes, photos, kid's games - so much left behind. Such a sad sight.

[Hampshire]

Buy a starter home, cash in your equity after it appreciates and trade up. Buy a mid-level fixer-upper, put in a new kitchen and master bath, sell it at a profit and trade up again.


Trade-up to what?
If you bought a house for $170K but wish you could have bought the one for $250K you don't simply wait till you house appreciates to $250K and then "trade-up". While your house may have appreciated to $250K the one you really wanted has appreciated at the same time to $350K. It's all relative.

[control-z]

The rule of thumb is two and a half times annual income. I've watched, for the past decade or more, people buying homes costing 3-4 even 5 times their income. I've thought it was a bit insane and had to end in disaster eventually.


Around here I couldn't afford a shack for 2.5 times my annual income. My current house is worth 6 times my annual income. With the equity from the sale of my old house though it's not like I'm financing the whole thing. My old house was bought in 1993 and I'm selling it for about twice what I paid for it.

When it's all said and done I'll be paying about 43% of my income for my house. And that's ok with me, I've got no other debt whatsoever. I know I'll need to get a car sooner or later but I'll get a $12K used one rather than a $24K new.

[T_SQUARE]

Oh, and back to the OP: Homes are more expensive today partly because land and lumber costs have increased more than wages, but also because houses today are much larger and nicer than in 1945. Your average 3 bedroom home in 1945 is less than 1000 square feet, has one bathroom and a one car garage, and plumbing and electrical that may be suspect by today's standards. Today's average 3 bedroom home is probably 2000 square feet, 2.5 baths, 2 car garage, electrical designed to handle today's electronics, multiple rooms wired for cable, telephone, etc, with upgraded floors and countertops.

It's similar to when someone says "The average car in 1975 only cost $4,000! (or whatever)" Yes, but the average car then got bad gas mileage, lacked A/C, radio, ABS, air bags, power steering, etc. If the same car where on the lot in brand new condition today, you wouldn't want it at the inflation adjusted price.

I think this is most of the answer. We really need to control for size (pretty easy, just measure $/square foot) and quality (not so easy, you would have to have some kind of multiplier, like the average house today is 1.3 times nicer, PER SQUARE FOOT, than it was in 1957)

[John Mace]

I have to laugh at what some of you guys consider expensive housing. In Santa Clara County, where I live in CA, the median price for a home is $700k. That includes Condos, btw. So figure that median home is probably a 3 BR/2BA starter home of about 1300 sq ft., maybe a little larger, in an "OK" neighborhood. If you want to live in one of the nicer towns in the West Valley (Palo Alto, Los Altos, Saratoga, Los Gatos), you can pretty much forget buying a house for less than $1M. The rest of the 9 counties in the San Francisco Bay area (about 8M people) aren't much different-- the median across all nine counties is $620K.

[Fear Itself]

You buy house A for $100,000.
Option 1: you hold the house for 30 years and at the end of 30 years you have a house worth $230,000, from a $100,000 investment and no mortgage payments.

...

At the end of 30 years, option 1 leaves you with assets of $230,000 and no liabilities. Your $100K investment is now worth 230% its original value.Well, sure, if you can afford to pay $100,000 cash; most people can't. You buy a house for $100,000 and 30 years later, (at 6% interest), you have paid $215,838, including interest. If you sell that house for $230,000, you clear $15,000, or 106.9% of your original investment. At least you didn't lose money, assuming you didn't have to sell in a slump, in which case all bets are off, and you could end up with less money than you paid in.

[NinetyWt]

John Mace brings up a good point. Shouldn't adjustment also be made for area?

Median income by state (2004 statistics) varied from $32,589 to $57,352. I had a bit of trouble searching for 'median home price by state'. The closest thing I found had a range of $59,000 to $720,000.

[Rusalka]

This is what I was going to post, I have some fairly well to do grandparents still alive, in theory I stand to inherit somewhere in the $300K-$500K range when they pass on. That could make for either a nice investment income boost of $20-30K/year and or pay off alot of bills so I am never paying interest on anything.


Must be nice - where I come from, the children, not the grandchildren, inherit everything. I had always thought that was the normal course of things.

I had a friend who talked about how his grandmother was going to leave him a six figure fortune - I wonder how y'all know this ahead of time?

[Voyager]

Median home prices in Alameda County, California (which includes Oakland) went from $299K to $650K since 1999. (Link (http://rereport.com/alc/annual/index.html) ) I haven't seen a $400K home in my neighborhood on the market in years.

How do people do it? Lots of them don't, and move far away from their jobs to cheaper houses. Some have good jobs . Some get help from parents. Our neighbor two houses down helped his daughter buy the house between us. And lots aren't making it. At our street fair last weekend the real estate brokerage who usually advertised to recruit agents to make a killing was this year offering a one hour class on making money off of foreclosed properties.

On preview, I'm with John. Even ten years ago an agent showed us what we could afford in Saratoga. It was a falling down shack on top of a hill, not quite as in good a shape as some cabins I used to stay in when I was a Boy Scout.

[aktep]

Well, sure, if you can afford to pay $100,000 cash; most people can't. You buy a house for $100,000 and 30 years later, (at 6% interest), you have paid $215,838, including interest. If you sell that house for $230,000, you clear $15,000, or 106.9% of your original investment. At least you didn't lose money, assuming you didn't have to sell in a slump, in which case all bets are off, and you could end up with less money than you paid in.


Well, i was ignoring all additional costs, including mortgage interest, to make the calculation simple. Since you'll pay that interest on one house or on four, it doesn't affect the comparison.

[Voyager]

Well, sure, if you can afford to pay $100,000 cash; most people can't. You buy a house for $100,000 and 30 years later, (at 6% interest), you have paid $215,838, including interest. If you sell that house for $230,000, you clear $15,000, or 106.9% of your original investment. At least you didn't lose money, assuming you didn't have to sell in a slump, in which case all bets are off, and you could end up with less money than you paid in.
You pay interest in both cases - the same amount, if I understand the example correctly. In both cases, though, you are getting the use of the house for those interest payments, so it is unfair to consider the investment a loss based on mortgage payments. If you were borrowing for something you didn't get direct benefit from, like stock, it would be a different story.

[Malthus]

Must be nice - where I come from, the children, not the grandchildren, inherit everything. I had always thought that was the normal course of things.

I had a friend who talked about how his grandmother was going to leave him a six figure fortune - I wonder how y'all know this ahead of time?

It isn't unusual for some families to discuss matters such as inheritance prior to the sad event, just so that any arguments about it can be settled while the will-maker is still alive (so as to avoid family fights).

In some cases, grandparents will leave cash to grandchildren on the theory that they need it more - where parents already have "made it" in some business or profession, have bought house, are out of debt, etc.

In the case of my family, when my last living grandparent passed on, we knew in advance what would happen with her money - she wasn't a wealthy woman, but had decades ago purchased a tiny home on a huge lot in a very desireable part of town ... when that was sold, it fetched a substantial sum, which was split between her children. Us grandkids got nominal sums - $2,500.

[Sophistry and Illusion]

The rule of thumb is two and a half times annual income. I've watched, for the past decade or more, people buying homes costing 3-4 even 5 times their income. I've thought it was a bit insane and had to end in disaster eventually.
This is what's so frustrating about living near Boston. 2.5 times my income won't buy me a fucking mud hut here. :mad: The other three options are (1) buying a cheap condo in a town with high crime and mediocre schools; (2) having my wife work, which would then involve spending more than my wife earns on childcare [day care is hundreds of dollars per week in this area], which makes option 2 a non-starter; or (3) continue to piss away $15,000 per year in rent. Boy, those are some great options. :rolleyes:

Real estate was so much more affordable in Beirut. Of course, there was the occasional war to contend with, but I'm beginning to think that the periodic outbreak of violence is a small price to pay for affordable housing.