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

[Singuy]

The current house prices and interest rate completely negated my financial lectures to students who will make 120k a year with student loans. I am not even sure what to say when a typical mortgage nowadays are hitting 4k easy. As house prices explode, so does property tax and home insurance. Now I am lost for words and simply telling people to save their way financial freedom is no longer a choice. The only way anyone can get anywhere is to start living in undesirable places in the middle of nowhere.

[crazyliblady]

Personally, I would tell anyone who has student loans or other large debts to not buy a house. Get that paid off first and then save up some money for a down payment. Also, unless you buy a new house or one newly renovated, save up money for maintenance.

[disneysteve]

The current house prices and interest rate completely negated my financial lectures to students who will make 120k a year with student loans. I am not even sure what to say when a typical mortgage nowadays are hitting 4k easy. As house prices explode, so does property tax and home insurance. Now I am lost for words and simply telling people to save their way financial freedom is no longer a choice. The only way anyone can get anywhere is to start living in undesirable places in the middle of nowhere.

4K mortgage payment? Sure, if you're buying a $700,000 house.

Advice hasn't changed. Buy a house that fits your budget. Maybe that isn't the house you could have afforded 4 or 5 years ago. So be it. Go smaller or older or a little farther from your job. Maybe a townhouse or condo for now. Around here, you can still buy plenty of house for $300-400,000. If you're making $120,000/yr, that should be within your reach.

[Singuy]

4K mortgage payment? Sure, if you're buying a $700,000 house.

Advice hasn't changed. Buy a house that fits your budget. Maybe that isn't the house you could have afforded 4 or 5 years ago. So be it. Go smaller or older or a little farther from your job. Maybe a townhouse or condo for now. Around here, you can still buy plenty of house for $300-400,000. If you're making $120,000/yr, that should be within your reach.

A 4k mortgage at 7.5% interest rate can only get you a house in the 420k range (once you factor in property tax and insurance)...which was overkill 3 years ago. However today central FL where my parents paid 389k for a 3800 sqft house 7 years ago, 450k now can only get you a 1.6k sqft starter home or you need to start looking at bad neighborhoods. Any houses under 400k are snatched up quick and virtually zero houses in the 300k range unless you are dealing with very old houses, poor neighborhoods, or live in the middle of nowhere. Old houses in FL also now deal with INSANE insurance cost, that almost rival property taxes.

Before I can recommend houses in the 250k range all day and night, now those are the prices of a condo which has pretty hefty HOA dues.

[ua_guy]

Now is the time more than ever for young people to be strategic about their house purchase decisions. One doesn't need to be a professor or rocket scientist to do these things. These strategies aren't new. Examples are:

-Buying the cheapest home in the nicest neighborhoods (downturns hit these areas to a lesser degree, and are some of the first areas to rebound, and often see the highest growth during market upturns).

-Buying a home on developable/subdividable land in advantageous locations. These properties typically need to be held over time.

-Buying in up/coming locations in general. This would be like bedroom communities surrounding major areas of commerce, or where commerce will soon be based on tech or market trends.

-Buying where ADU/attached dwelling or DADU/detached dwellings are permissible, to sublet to a renter, which would subsidize any mortgage on the property

-Buying within reasonable commute distance of a major city core, but maybe farther out than normal. There are still areas around big cities which are turning over, or developing as populations grow.

Buying "in the middle of nowhere" can actually be disadvantageous. These areas are the first to tank in a market downturn. They don't see the rate of growth compared to more desirable areas during upturns. Until major services and infrastructure, or job centers, reach those areas, I'd say forget it. Not that it can't be done. Remote work is a thing, but young families have to be careful. Remote jobs aren't guaranteed and they do change. What happens if suddenly you're jobless and searching for jobs in the middle of nowhere, and hoping to land a remote job (while a bunch of other people are looking, too?) Better have a seriously in-demand skill, or a lot of savings...

[Singuy]

Now is the time more than ever for young people to be strategic about their house purchase decisions. One doesn't need to be a professor or rocket scientist to do these things. These strategies aren't new. Examples are:

-Buying the cheapest home in the nicest neighborhoods (downturns hit these areas to a lesser degree, and are some of the first areas to rebound, and often see the highest growth during market upturns).

-Buying a home on developable/subdividable land in advantageous locations. These properties typically need to be held over time.

-Buying in up/coming locations in general. This would be like bedroom communities surrounding major areas of commerce, or where commerce will soon be based on tech or market trends.

-Buying where ADU/attached dwelling or DADU/detached dwellings are permissible, to sublet to a renter, which would subsidize any mortgage on the property

-Buying within reasonable commute distance of a major city core, but maybe farther out than normal. There are still areas around big cities which are turning over, or developing as populations grow.

Buying "in the middle of nowhere" can actually be disadvantageous. These areas are the first to tank in a market downturn. They don't see the rate of growth compared to more desirable areas during upturns. Until major services and infrastructure, or job centers, reach those areas, I'd say forget it. Not that it can't be done. Remote work is a thing, but young families have to be careful. Remote jobs aren't guaranteed and they do change. What happens if suddenly you're jobless and searching for jobs in the middle of nowhere, and hoping to land a remote job (while a bunch of other people are looking, too?) Better have a seriously in-demand skill, or a lot of savings...

Yes, however savvy buyers already destroyed the limited supply of anything with a hint of desirability. Interest rate is so high that no sane person is listing their house for sale just so they can give up their 3.5% mortgage.

[kork13]

This is always very location-driven ... Someone just graduating from college probably shouldn't be immediately buying a house anyway, for a variety of reasons -- student loans, low income, probably don't know exactly where you want to live, skewed view of "needs/wants" based on recently living in parents' mid-life family home, likelihood (nowadays) of changing jobs multiple times, .... I could go on.

I'd tell someone to wait at least 5-10 years after college to buy a home, saving up for a healthy downpayment in the meantime. Depending on location, smaller (but still decent) 2/1 or 3/2, 1000-1400 sqft homes & condos can often be had for $250k-$300k (or less). Even in Boise, where RE values exploded during the COVID exodus from CA, those prices are valid. After a handful of years in post-college jobs, folks can probably be earning $70k-80k or better. Build up a 10-20% DP, and you've got a reasonably affordable mortgage.

Will folks be able to buy big/nice houses like their parents have? No. Will they need a healthy DP? Yes. Will they need to accept smaller or further-out houses? Probably. Can a low-wage earner buy a house? Probably not. Can a young professional buy a house in a HCOL market? Probably not for a while. But none of this is new! Home prices are bigger, but so are starting salaries. Big numbers get more intimidating, but the advice remains the same -- save up, be patient, buy smart.

[disneysteve]

A 4k mortgage at 7.5% interest rate can only get you a house in the 420k range (once you factor in property tax and insurance)

Not if you have a 20% down payment, as you should. That would make the monthly cost of a 420K house about $2,700.

[bjl584]

The current house prices and interest rate completely negated my financial lectures to students who will make 120k a year with student loans. I am not even sure what to say when a typical mortgage nowadays are hitting 4k easy. As house prices explode, so does property tax and home insurance. Now I am lost for words and simply telling people to save their way financial freedom is no longer a choice. The only way anyone can get anywhere is to start living in undesirable places in the middle of nowhere.

Sounds like someone in that situation shouldn't be buying a house. Or they should be buying a cheaper house.
My financial advice would be to keep renting while paying off other debts.

[Singuy]

When I first started the class in 2015, I had a budgeting sheet of a saver vs a spender. However with current pricing of rent/food, the "spender" expense is now getting close to the bare minimum. So further advice would require the help of parents and such. When basic rent is 1400-1800 when it used to be 800-900 really eats up a paycheck. In conjunction with the other cost of living plus student loan payments, a 120k salary, or 90k post tax really doesn't get you anywhere anymore. Saving up that 20% DP is getting pretty difficult, and even if you manage to, the house you are looking at are starter homes at best. Now with all the house price increase, and I mean a 2x increase plus a 2x interest increase vs 3 years ago...property taxes also 2x, and insurance prices 3x. 500 dollars/month used to cover property tax and insurance, now this number is close to 1200/month. So even with a 20% down, we are looking at about 3400 dollar mortgage which is more than what a typical person get on a paycheck making 120k/year.

[disneysteve]

When I first started the class in 2015, I had a budgeting sheet of a saver vs a spender. However with current pricing of rent/food, the "spender" expense is now getting close to the bare minimum. So further advice would require the help of parents and such. When basic rent is 1400-1800 when it used to be 800-900 really eats up a paycheck. In conjunction with the other cost of living plus student loan payments, a 120k salary, or 90k post tax really doesn't get you anywhere anymore. Saving up that 20% DP is getting pretty difficult, and even if you manage to, the house you are looking at are starter homes at best. Now with all the house price increase, and I mean a 2x increase plus a 2x interest increase vs 3 years ago...property taxes also 2x, and insurance prices 3x. 500 dollars/month used to cover property tax and insurance, now this number is close to 1200/month. So even with a 20% down, we are looking at about 3400 dollar mortgage which is more than what a typical person get on a paycheck making 120k/year.

Aren't incomes higher today than they were in 2015?

What's your point about "starter homes"? Isn't that exactly what someone in the situation you're describing should be looking at? Someone making 120K should be shopping in the 300-360K range.

Where are you that taxes and insurance are $1,200/month. We are in NJ where we have the highest property taxes in the country and we pay $710 for taxes and insurance.

So a 360K home with a 72K down payment, a 7.5% mortgage, and $700/mo taxes and insurance gives you a payment of $2,700.

[Singuy]

Aren't incomes higher today than they were in 2015?

What's your point about "starter homes"? Isn't that exactly what someone in the situation you're describing should be looking at? Someone making 120K should be shopping in the 300-360K range.

Where are you that taxes and insurance are $1,200/month. We are in NJ where we have the highest property taxes in the country and we pay $710 for taxes and insurance.

So a 360K home with a 72K down payment, a 7.5% mortgage, and $700/mo taxes and insurance gives you a payment of $2,700.

Pharmacist are getting paid pretty much what they were paid in 2015. Our home insurance has skyrocketed in FL due to all the roof scams. Property taxes are reassessed when a house exchange hands. Your property tax may be low because it was based on a bunch of exemptions from old prices. However when my city's house prices have DOUBLED in 2 years, the property taxes went up accordingly. My first property tax on a 3400 sqft house here was 3.5k and my insurance was 1.1k a year. Today this same house would have a property tax of 7-8k/year with an insurance of 3.5k-4k/year.

So today I am looking at a typical person in their mid 20s with over 6 figures of student loan debt. With the current rent/food they can't pay this off for at least 5-7 years and that's being aggressive. Then it will take another 4-5 years to save up for a 20% down, by now they are in their mid 30s. Looking at starter homes when they probably have 2 kids by then is a recipe for wanting to upgrade the minute they own the house. So if they want a house that's more than a 3/2 then we are talking about another 2-3 years to save up for even a bigger down payment and then the mortgage becomes substantially more.

I just never seen the "Silicon valley house inflation" in real time before and now I'm a little lost in my recommendations.

Hopefully this is short lived as the medium salary of my city does not support such house prices. However if there's a constant influx of people with cash coming from out of state then there's nothing that can be done.

[Drake3287]

Not that it helps, but I hope you unexplained that those 2% to 3% interest rates weren't the norm, simply a once in a life time occurrence. Unfortunately too many younger people got use to these unrealistic rates. A quick Google search will quickly show the past history of mortgage rates. I remember being excited at 10% in 1986. Todays 6% to 7% rate is pretty much the historical norm. We won't see those lower rates again in most of our lifetimes.

I also believe saving for a house is still very doable, it's just that so many people won't commit themselves to what it takes to save that kind of money, new car's and boats apparently come first. And this advice comes from a high school graduate who became a millionaire simply by saving and investing a little over a life time.

[LivingAlmostLarge]

Bought our first place at 6.375% in 2002. It was a condo. It was $150k when we bought, sold in 2005 for $250k, now in 9/2022 it sold for $420k for a 1/1 572 sq ft with 1 carport. HOA is $320, That is our "starter" home in Southern california. So what's wrong with a condo? And a 1/1? Right couples "need" 2 bd. They can't live in a 1 bd. Just pointing out that many of us made massive sacrifices to get into the housing market and now it's no different.

That condo flipped 2 graduate students into the housing market and we never saved again for a house downpayment. 21 years later that $15k we put down and scrounged for turnedd into a lot more today. Yes we've lived in HCOLA places always. But we were making a combined $40k when we bought that condo in 2002. I have the paystubs to prove it. Granted it was during the "stated income" mess, but our PITI was close to our rent which we had been paying $1400 for a 1 bd together.

Even now most people buying $400k homes are close to the size we live in now almost 2100 sq ft 3bd/3ba. Ours? A lot more. So again we're sacrificing location for space. But it's not cheap. Most people would consider our home a starter home by size. But we can't afford more so we live where we live.

I don't think anyone "deserves" to have more than a starter home. They deserve what they can afford. It might be a condo because that's all that's affordable.

[disneysteve]

So today I am looking at a typical person in their mid 20s with over 6 figures of student loan debt. With the current rent/food they can't pay this off for at least 5-7 years and that's being aggressive. Then it will take another 4-5 years to save up for a 20% down, by now they are in their mid 30s. Looking at starter homes when they probably have 2 kids by then is a recipe for wanting to upgrade the minute they own the house. So if they want a house that's more than a 3/2 then we are talking about another 2-3 years to save up for even a bigger down payment and then the mortgage becomes substantially more.

Well a couple with 2 kids doesn't need anything more than a 3/2 so that point is irrelevant.

It's very possible that people graduating in your area may need to relocate. There's a great demand for pharmacists in many areas, as I'm sure you know. If the housing situation is as bad as you say, then people need to go where they can afford to live. Around here, you can buy a perfectly nice 3/2 home for $350,000. You could be my neighbor as I think there's a house for sale down the street and there's a pharmacy or two on every corner and they are all short-staffed.