My wife and I dropped by to check out some new homes in our area of Overland Park Kansas ( a suburb of Kansas City). Homes start at around $450,000 and go up to around $700,000 (EXAMPLE) with a couple at over $1 million. Granted, to you Californians that sounds like someones shack but around here that buys a 3500 square foot home easy.
It’s like they cant seem to build these homes fast enough.
What gets me is their are few new businesses coming in so I just dont see where these people are coming from who can afford these homes. Ex. For a $500,000 home you need a 20% down payment or $100,000 and interest of 3.97% on a 30 year loan and your talking about near $3,000 a month payment. To me that would mean a household income of over $200,000 a year and I just dont see that many jobs earning that much.
Now are people getting some huge loan from family or something to afford all this? I just dont get it.
His math isn’t that far off. The mortgage calculator linked in post #3 is P&I only. Add to that insurance and taxes, and you’re easily in the $3,000/month territory.
Re: the OP - I have the same question where I live (Southwest of Houston, TX). I’m surrounded by McMansions, and I can see how a dual-income family with professional careers can afford them. What I can’t fathom is the hundreds of houses in the $850k ++ range. Where’s the money coming from?
I live in St. Mary’s county, MD, which is very rural, except for the Naval Air Station, Patuxent River. It’s also a distant bedroom community for DC. I’m amazed at the number of McMansions going up around here, too. Not only the prices, but the sizes!
Our house has just over 1600 sq ft of living space over an unfinished basement, and while we have enough crap to fill it, we really don’t *need *this much of a house. Even if we had 2 kids, it doesn’t seem unreasonably small. [geezer] I grew up in a 1000 sq ft row house and there were 7 of us in the family. I don’t think I was too traumatized by having to share a room with my sister or not having a media room or a spa bathroom. [/geezer]
I wonder how much of the lust for big houses is fueled by TV remodeling shows?
I don’t know for sure, but it is possible that the expensive home-buyer supply was originally fueled by right/left coast homeowners. When they sold they had a huge (to many people) amount of capital that as I understand it has to stay in homes or they pay higher taxes on the money. Once they have that large downpayment, they have to keep it in houses. So when they have to/choose to move to the middle of the country, they need to find expensive homes. Which because of their cash, aren’t that expensive. At least that is my theory.
From the website of the US Census Bureau, the median value of an owner-occupied house in Overland Park (from 2009-2013) is $233,800, while the median household income is $71,094.
So these homes are aimed at higher-income earners. My theory? The builders would rather aim a new house at those with higher incomes, and leave the existing housing stock for lower-income folks.
As suggested, some are buying these homes as their second or third houses and therefore may have equity they’re cashing out. Or they’ve inherited money from parents or grandparents, allowing them to put down a larger down payment.
Also, put yourself in the shoes of the builder or the developer. Say, you decide to build homes aimed at the median-income buyer, or about $230,000. You still have to buy the land, lumber, drywall, kitchen cabinets, plumbing and fixtures. And you still need to hire the skilled tradespeople to construct the home. But you’re making a whole lot less. If a few homes take a long time to sell, you have little to fall back on. But if you build high-end homes, they will have higher margins, so if one doesn’t sell immediately, you have money from the others to fall back on. Or you can, if necessary, discount the last home without losing money. (Ideally, though, you’d presell as many as possible.)
There are plenty of people spending a third of their net income on housing*, so any of those folks could be making a lot less than $200k while owning one of those houses.
*I wonder what’s typical though. I’ve always spent less, but I see that number bandied about as “safe”.
I just noticed that the link in the OP is to a home in Leawood, KS selling for $715,000, where the median value of an owner-occupied home is $390,400 while the median household income is $135,960. So that town is much richer than Kansas as a whole, and there’s less difference between that new home’s sale price and the median value of existing homes.
I also just noticed that it’s not a new house, but one built in 1985.
Few individual jobs pay that much, but for a two professional income couple, $200k is pretty easy. A guy in middle management with an MBA and his wife the attorney. An IT professional and a financial analyst. A sales person and an accountant. Also, lots of small business owners can make that - a plumber who employs a few people and runs a couple of trucks can clear $200k - say his wife is an RN and they have a pretty cozy income. Add in a down payment via inheritance when Grandma passes or maybe a stock option that paid out well, and there are lots of people who can afford that.
Sometimes they’ve transferred from regions with much higher housing values - an old boss of mine just moved to the Midwest from the Bay Area - he really couldn’t resist 4000 square feet of faux chateau for half of what he sold his old, smaller home for. And since he had bought his smaller California home 20 years ago, he still managed to pocket a bunch of cash in the transaction, so bought the new house for cash.
Lots of the people who move into Faux Chateaus are older, their kids are often older or they don’t have any. There are not a lot of kids running around the $700k house neighborhoods around here.
I think perhaps it is naturally difficult to match statistics with real world observation. I don’t really agree with Dangerosa that 200k is pretty easy for a household to make, but that could mainly be due to our definition of easy. About 5% of households make 200k or more - to me that is a pretty elite group.
If you think about it though, even though it is a small group, their presence on the landscape is huge. If we are talking about McMansions, each mcmansion might house 4 or 5 people but the amount of space it takes up is the same as an apartment complex holding 100 people. So, Mcmansions may be getting built might just mean an increase in overall population.
According to wiki, quite a few Fortune 500 companies are headquartered in Overland Park. For example, I bet Sprint’s HQ employs a large number of MBAs and attorneys.
National numbers, which includes homes where housing prices are so inflated on the Coasts that the economics are very different. Those aren’t Kansas City numbers.