With The Current House Prices, How Are You Guys Giving Any Saving Advice?

[Singuy]

Seems like the advice is

"Go back in time and buy a house that cost 120k in 1994 and you'll be fine...because my interest rate was even higher than today's!".

My parents' first house in 1996 was 2400 sqft in a prime neighborhood that cost 135k @8% interest.

Today this same house is worth 530k @7.5% interest. The down payment+closing cost supersedes the total cost of the house from 1996, the interest payment alone is 1.5x the entire mortgage of this house from 1998.

When Ua_guy was complaining about cost of living supersedes wages, that was when this same house was being sold for 300k@3% interest. Most people's wages did not double in the last two years. However when you add the cost of the house + doubling of interest rate, essentially mortgage doubled, and we know lots of inflation happened with essentials as well in just 2 years time.

[ua_guy]

Seems like the advice is

"Go back in time and buy a house that cost 120k in 1994 and you'll be fine...because my interest rate was even higher than today's!".

My parents' first house in 1996 was 2400 sqft in a prime neighborhood that cost 135k @8% interest.

Today this same house is worth 530k @7.5% interest. The down payment+closing cost supersedes the total cost of the house from 1996, the interest payment alone is 1.5x the entire mortgage of this house from 1998.

When Ua_guy was complaining about cost of living supersedes wages, that was when this same house was being sold for 300k@3% interest. Most people's wages did not double in the last two years. However when you add the cost of the house + doubling of interest rate, essentially mortgage doubled, and we know lots of inflation happened with essentials as well in just 2 years time.

Exactly. The cost of living has outpaced wages. Home prices have increased over 27 years since your mom and dad bought their house. It wouldn't be an issue if wages kept up, now, would it?

[Singuy]

Exactly. The cost of living has outpaced wages. Home prices have increased over 27 years since your mom and dad bought their house. It wouldn't be an issue if wages kept up, now, would it?

It was absolutely fine 2 years ago. People could make it work. Like I said, when mortgage was half what it is today it's much easier to live. There were many houses under 250k to choose from(in my area) and at 3% interest rate plenty of people can get by making the wages from 3-4 years ago hence my disagreement with you back then. Today like I said has merit to this argument because at 7.5% interest rate PLUS the inflation we see in housing, wages truly have not kept up in the slightest. Wage inflation is also not the answer.

The answer is to get the supply chain shorted out and encourage more trade. Globalization and automation kept inflation in check for decades and will continue to keep inflation in check. High interest rate just siphon money into banker's pockets while completely killing the housing supply during a time when there's supply chain issue.

High house prices+ low interest = people who own houses get to benefit
Low house prices + high interest = banks get to benefit
Either way the buyer is paying the same mortgage

High house prices+high interest rate = fed F-ed up by rising rates too fast breaking the system.

[LivingAlmostLarge]

Exactly. The cost of living has outpaced wages. Home prices have increased over 27 years since your mom and dad bought their house. It wouldn't be an issue if wages kept up, now, would it?

I respectfully agree about cost of living, but i DISAGREE that it's only a wage issue.

A bigger issue that hasn't been addressed by Singuy is that the houses he thinks these people should or want to buy that are not starter homes. 4000 sq is not a starter home. Nor is it reasonable for an average salary to buy a 4000 or $750k home. You want a median home and median wage correct?

So what is a median home? $350k. Then median wage of $78k. And yes the 7% interest doesn't help. And yes the purchasing power is down because wages haven't kept up. But maybe the answer is rent longer, maybe get a smaller "starter" home. I hate that we've had 2 moveups and I would LOVE another move up. It's not feasible though.

So i have very little sympathy that Singuy's parents bought a house bigger than my 1st condo for less money. And their 1st home is STILL bigger than the home I live in now. So what does that tell you? That MANY people live in their final homes that are smaller than 2400 sq ft.

[Like2Plan]

Singuy,
You are missing the point. Economic conditions change. Didn’t you purchase your home at a very good time - just after the mortgage crisis where housing values went down and it was more of a buyer’s market with excess inventory. (And you also-saved a good down payment).

There are other folks who bought their homes at the peak just before the mortgage crisis unfolded. Crazy stuff was going on. I saw a ARM type mortgage where the home owner only paid the interest (no principal), expecting the value of the house to continue to rise. When housing prices started to drop, there were lots of folks (not just the ones who had such a crazy interest only mortgage) that couldn’t sell their homes because they owed more than what they could sell their house for…. But, the 2008 mortgage crisis was not the first time this (housing values dropping) has happened.

We had to wait to buy our house and save up some money until we could make the numbers work. That’s all. Sometimes that is what you have to do.

The point I was trying to make is you sometimes have a lot of headwinds to a home purchase and you are better off waiting until you are ready.

I totally agree with you about the interest rates being raised too fast.

[Singuy]

Here is a good video explaining the situation. I think this is a FL specific situation where the situation is unprecedented. The median house price to median wage ratio is over 10, which only match by the bay area in California. However the house price increase is much faster and more violent than back in the days in California. This literally happened in a span of 12 months when everything doubled, not giving a chance for local wage to catch up..not that local wages can afford to make this up as we are still primarily a service/tourist economy...not high tech.

[Like2Plan]

The video stated that new listings dropped 33% while prices increased 8% (not surprising with a drop in inventory). But I wouldn’t expect that situation to last forever or be the new normal. It’s a rough time to buy.

Also, current homeowners in FL have even less incentive to sell their homes with property tax increases being capped at 3% (and possibly having more favorable mortgage interest rates than they would be able to get n a new home).

But, don’t you think supply/demand will eventually catch up and prices adjust accordingly if most folks can not afford to buy at the present levels?

[Singuy]

The video stated that new listings dropped 33% while prices increased 8% (not surprising with a drop in inventory). But I wouldn’t expect that situation to last forever or be the new normal. It’s a rough time to buy.

Also, current homeowners in FL have even less incentive to sell their homes with property tax increases being capped at 3% (and possibly having more favorable mortgage interest rates than they would be able to get n a new home).

But, don’t you think supply/demand will eventually catch up and prices adjust accordingly if most folks can not afford to buy at the present levels?

Conventional wisdom points to a scenario where the price should correct. But then people in California was waiting for that correction to happen for 2 decades now. Most new buyers in the coastal area couldn't afford to buy a house...ever.

[riverwed070707]

I won't dispute housing costs have skyrocketed, along with other costs of living, but my I'm side eyeing this whole concept that a 2300 sq ft house is a starter home or that anyone would ever need 3700 sq ft unless they were raising a basketball team. I've lived in 625 sq ft - it was cramped but our family of 3 now happily resides in 1,400 sq ft and only 1 full bathroom and its plenty spacious. We even have an entire bedroom that goes unused. Could we afford more? Sure. But our priorities aren't in having a big fancy home, they are in living comfortably but modestly so we can save for an early retirement. Your "my parents had" argument and talking about new grads making $120k screams of privilege.

[ua_guy]

Even posting evidence to the contrary that home prices haven't actually doubled, on average, in the area of question (Houston) seems to fall on deaf ears.

Home prices have risen here too (Seattle) and no, they were not affordable even two years ago, same with many other areas surrounding large cities. I've had this argument with someone else about how supposedly horrible the fed is for raising interest rates. As opposed to lending free money, aka quantitive easing? So are we saying we should go back to that or let the economy run away into even worse hyperinflation?

Now, I will say that single family home square footage for a "normal" sized home varies pretty wildly across the country. The average home size has been ballooning over time and sometimes in communities developed in the last 30 years except in niches like 55+ or affordable housing units, it's actually difficult to find a modern family home under say, 2200-2500sqft.

[ua_guy]

Here's a quick search of Houston, TX, MLS listings under $200k, single family homes. How is a $200k home not affordable for someone making $120k/year?

[Singuy]

Here's a quick search of Houston, TX, MLS listings under $200k, single family homes. How is a $200k home not affordable for someone making $120k/year?

My example of 170k for a 2700 sqft house was just an example of someone who can move to a major city that is LCOL when you were making your argument a few years back. (BTW this was an airbnb I stayed at last year in Houston and was surprised it was listed for 170k in 2016 and was unlisted because no one wanted to buy it)

The area I am talking about is FL, even posted a video about FLORIDA. Specifically I live in Central FL.

https://redf.in/qpkSnt

[Fishindude77]

Now, I will say that single family home square footage for a "normal" sized home varies pretty wildly across the country. The average home size has been ballooning over time and sometimes in communities developed in the last 30 years except in niches like 55+ or affordable housing units, it's actually difficult to find a modern family home under say, 2200-2500sqft.

These thoughts reinforce what many have been saying. These first time buyers in the hunt for a new home in HCOL areas are simply looking at homes that are over their head at the present and out of reach. They can't afford a "modern" 2500 SF home and neither could I or many others for a first home. If they truly want home ownership they are going to need to lower their expectations and buy something smaller or a "fixer upper" rather than walk right into a nice move in ready, modern home.

Just about everyone I know and grew up around started out with crappy little homes in second or third choice neighborhoods. We remodeled the places ourselves, pay as you go, a room at a time, added decks, dressed up the landscaping, replaced the old with new, etc. and over a few years had a pretty nice home we could sell and turn a profit on, getting us a rung up the ladder into a bit better home and neighborhood. Several friends first home was a mobile home which is way in their rearview mirror now, but it provided a cheap place to live when they needed it. We never had a place with two bathrooms until our two kids were raised and had moved on.

One of my kids is in a HCOL area and is now on their third home, started with a cheap condo and now just about have a $500k home paid off. They did this by buying smart, aggressively paying off the loans, and stepping up when it made sense. The other is in a lower cost area and are quite content with the simple little 1200 SF $62k home they bought and have been fixing up a little at a time.

And just because you can afford the mortgage on a nice modern, large square footage home does not mean it's the smart way to go when you start looking at things like; insurance, taxes, cost to replace a roof, HVAC system, etc. Will also likely have a lawn, drive and garage to maintain which requires $$, work and tools. Many modern homes are also in home owners associations which requires more $$.

[ua_guy]

My example of 170k for a 2700 sqft house was just an example of someone who can move to a major city that is LCOL when you were making your argument a few years back. (BTW this was an airbnb I stayed at last year in Houston and was surprised it was listed for 170k in 2016 and was unlisted because no one wanted to buy it)

The area I am talking about is FL, even posted a video about FLORIDA. Specifically I live in Central FL.

https://redf.in/qpkSnt

Well maybe you should tell your students to move to Houston Although, that's not exactly the middle of nowhere.

[Singuy]

Well maybe you should tell your students to move to Houston Although, that's not exactly the middle of nowhere.

Did you actually clicked on all the houses you posted in Houston? Many with bars on windows, require lots of work, and some are manufactured homes. Price history shows that they were half the price 5 years ago. I am posting a terrible one, a nice but manufactured house, and the third house I posted is okay, however the schools zoned are terrible, meaning it's probably in a bad area. Notice how the zestimate value of the house was half the price just in 2018. With that said, I do agree that Houston is now the new FL for affordability.


7024 Avenue E, Houston, TX 77011 | MLS #75584455 | Zillow
9348 E Avenue K, Houston, TX 77012 | MLS #30048760 | Zillow
5855 Hirondel St, Houston, TX 77033 | MLS #36742492 | Zillow