Paycheck to paycheck

[disneysteve]

As far as housing is concerned, there is a prevailing idea that middle class family is supposed to be able to own a house.

The whole "American Dream" crap is just that.

Not everybody can afford a house. Not everybody needs a house. Not everybody's situation warrants buying a house. Sometimes renting is the best option financially and situationally.

The problem is when it is time to buy, people ignore the guidelines. And society has fed into this. Homes built today are more than double the size of the homes built a generation ago even though average family size is smaller. I'm as guilty as everyone else. The house we own, with one child, is hundreds of square feet larger than the home where I was raised with 2 kids and many of our neighbors had 3 kids in those same size homes. The difference at least in our case is that we spent less than 2 times annual income to get our house so it wasn't overspending our means. But I know many, many people who spent 3 times income or more to get a house that is huge relative to the number of people living there. But people want all of the amenities and space they think they somehow deserve.

[disneysteve]

Over the next six months, I can earn an additional 15K, but I don't see the upside if I have to pay more money on the student loan payment bc it is income driven.

Let's say you earn an additional 15K. How much extra will you need to pay on your loans?

I'm sorry but I have a problem with the whole income-based repayment and wiping out of debt after 10 years. I repaid 100% of what I borrowed. We scrimped and saved and lived frugally for 12 years to make that happen. Today, people are borrowing mid-6-figure amounts that they will never repay because of the system in place today that allows much of it to be wiped clear after 10 years.

This is contributing to the rising costs of education. People are borrowing wildly because they know they won't ever have to repay the money. It's a truly broken system.

[Nika]

The problem is when it is time to buy, people ignore the guidelines. And society has fed into this. Homes built today are more than double the size of the homes built a generation ago even though average family size is smaller. I'm as guilty as everyone else. The house we own, with one child, is hundreds of square feet larger than the home where I was raised with 2 kids and many of our neighbors had 3 kids in those same size homes. The difference at least in our case is that we spent less than 2 times annual income to get our house so it wasn't overspending our means. But I know many, many people who spent 3 times income or more to get a house that is huge relative to the number of people living there. But people want all of the amenities and space they think they somehow deserve.

People ignore guidelines because guidelines tell them they can't have it.

As far as housing inflation, part of the problem may be that it is far more profitable for a developer to build luxury housing than entry level housing, so almost no entry level housing is being build, especially in nice areas, where price of land is very high. People buy what's available.

And the government policy is to make cheap credit available. That does not make housing more affordable. If you can borrow more, so can everyone else. So more money is now chasing same houses. Not enough is build. And this arrangement continues to be endorsed politically, because lets face it, current homeowners benefit from rising prices.

[disneysteve]

People ignore guidelines because guidelines tell them they can't have it.

Bingo! People want what they want whether they can afford it or not.

almost no entry level housing is being build,

I agree completely. But it's a chicken and egg thing. People want bigger and bigger houses so builders build bigger and bigger houses. Who is at fault? The smaller homes that are being built - condos and townhomes - tend to be luxury units that cost as much as modest single homes so that doesn't really help the problem.

[creditcardfree]

We're currently renting and I can't believe how many people were shocked that we would make that choice. Well, when you move every 2-3 years it becomes costly to sell a home. We did make money on 2 of the last three houses we sold, but not every market is a money maker. Renting is going to give us more choices and less outlay for the period of time we are here.

I think the people that were shocked had never run the numbers on the costs of selling. They also knew nothing about home market of the area we were moving to. And of course, they were most shocked that we who had owned homes before weren't doing it again.

[docstudent]

The point of the PSLFP is to increase the percentage of people entering the public service sector, which traditionally has low starting and mid level salaries.
The program does come with a 10 year commitment to work in the public sector and you must make 120 on-time payments which fluctuate with your income. There are some holes which force you to adjust your year to year earning potential. Case in point, you make 100K in 2015...your 2016 payment is based on that amount, what if your salary drops considerably in 2016, you're on hook for that amount. That's why I balance from year to year because of those shifts.

I'll pay $699 a month in '16, and I'm scraping to make my payments like many of you have done in the past. I've seen an increase of high quality applicants in the field because of these programs. I have friends that work in the legal field (public defenders) and they benefit as well. Yes, they could make 175K and up working in the private sector. This program is not a handout by any means....in my particular field, there is no 401K, social security...I can work in the private sector, but that's not where my passion is....don't bash programs because you don't see the systemic impacts...better inner-city schools, better legal representation for the underserved.

My case is not the norm because I opted to earn a terminal degree, but I would have pursued the degree with or without the program. Steve, you bring up several interesting points...I can't relate because I've mastered the art in living in less than 450 sq feet. Again, it's relative to where I decided to live. I've been lucky enough to find a space well under the average rate in a very nice neighborhood. For example, my unit is less than 450 square feet and is valued at 380K and I owe 238K. Its more about knowing the trends and focus on border cities..I focused on Beverly Hills as a border...two block radius is almost as close as you can get to a bulletproof investment. Though, you must have stellar and a low income to debt ratio. I bring home about 5600 per month, but I operate on 4160.

It's seems the previous poster did not fully understand the structure and functionality of the IBR program, YOU must work full-time like every other worker. It might be less beneficial to work overtime because it will dramatically increase one's overall payment. It's all relative---some people get write-off because the have kids, is that fair? Just take care of your kids....write offs for mortgages, just pay for your own house...we all benefit from the government in different ways...some breaks you get and others you don't. Though, I'm a lost interested to hear the interesting viewpoints shared...the beauty of a democracy.

FYI, the policies are so stringent now I don't know how anyone will be able to get a mortgage or refi with proper docs and financial statements.

[LivingAlmostLarge]

No but housing is taking a larger bite for even those 3 bd 2 ba homes for families who are "middle class". I saw that where we lived that people were struggling to get into condos 2 bd/2ba for $450k and that wasn't the highest I saw. So how do people afford it when the "starter" condo is so expensive? And crushing student loans.

[bjl584]

almost no entry level housing is being build

I'd argue that new construction housing isn't geared or intended for the first time homebuyer. The houses are too big and expensive. They are usually a house that people "trade-up" to.

First time homebuyers (if they don't want to be saddled with a huge debt load) should be looking at older smaller homes or fixer-uppers. But, we all know that doesn't really happen. Banks give the loans, and consumers take them on.

I don't know of any, but it would be interesting to see if there are any builders out there that build smaller less expensive homes. It would be more interesting to see if there is a sustainable market for that type of home.

[disneysteve]

I'd argue that new construction housing isn't geared or intended for the first time homebuyer. The houses are too big and expensive. They are usually a house that people "trade-up" to.

First time homebuyers (if they don't want to be saddled with a huge debt load) should be looking at older smaller homes or fixer-uppers. But, we all know that doesn't really happen.

Very true. We bought our first (and only) home in 1994. I was less than 1 year into my career. We bought a house built in 1964 that definitely needed some work - new roof, new heater, new AC, new siding, etc. That's what was in our budget. We paid less than 2x annual income. The bank had preapproved us for a lot more than what we spent but we knew that the number they gave us was ridiculous and found a house that we could actually afford.

[Fishindude77]

First time homebuyers (if they don't want to be saddled with a huge debt load) should be looking at older smaller homes or fixer-uppers.

This is the direction I pointed my kids.

My own first home (in 1984) was $25,000. We fixed it up real nice, added a small addition and deck, did everything pay as you go, then sold it turning a nice profit which allowed us to get into a better place with a hefty down payment.

[ua_guy]

I'd argue that new construction housing isn't geared or intended for the first time homebuyer. The houses are too big and expensive. They are usually a house that people "trade-up" to.

First time homebuyers (if they don't want to be saddled with a huge debt load) should be looking at older smaller homes or fixer-uppers. But, we all know that doesn't really happen. Banks give the loans, and consumers take them on.

I don't know of any, but it would be interesting to see if there are any builders out there that build smaller less expensive homes. It would be more interesting to see if there is a sustainable market for that type of home.

Land is the big expense contributing to home prices. Anywhere within striking distance of plentiful jobs and a big tax base equates to ridiculous home prices, especially in land-locked areas.

Our first home was small, old, a real "fixer-upper". The structure was valued at just less than $100k, but the 1/3 acre of land it was on was valued at almost $350k.

The size of the home is one thing...to go from 2,000 to 3,000 square feet doesn't add a whole lot of additional cost especially if the number of bathrooms, etc stays the same. Construction quality also plays into cost--most new homes are built like crap anyway.

[bjl584]

Land is the big expense contributing to home prices. Anywhere within striking distance of plentiful jobs and a big tax base equates to ridiculous home prices, especially in land-locked areas.

Our first home was small, old, a real "fixer-upper". The structure was valued at just less than $100k, but the 1/3 acre of land it was on was valued at almost $350k.

The size of the home is one thing...to go from 2,000 to 3,000 square feet doesn't add a whole lot of additional cost especially if the number of bathrooms, etc stays the same. Construction quality also plays into cost--most new homes are built like crap anyway.

I see this to an extent where I live. But, I live in a fairly rural area with lots of space and undeveloped land. You can buy acreage fairly inexpensively. The factor that makes it more expensive where I live is what school district and county the property is in. If I lived a half mile up the road I would be in the neighboring county and a different school district. Same land, same space, same trees and grass. But my house would've cost $50,000 more and my taxes would be triple what they are now. I live where I do for a reason.

[Nika]

No but housing is taking a larger bite for even those 3 bd 2 ba homes for families who are "middle class". I saw that where we lived that people were struggling to get into condos 2 bd/2ba for $450k and that wasn't the highest I saw. So how do people afford it when the "starter" condo is so expensive? And crushing student loans.

3 bedroom 2 bath is an unattainable dream reserved for multi-millionaires. But you guys see is as an entry level.
Around here, there is no size inflation. The trend is to take a studio and make it into 1br by putting in a wall, make 1br into 2 br. Square footage is tiny. And pricing increases for all housing across the board. There is nothing being build but "luxury" because this is the most per square foot profit for developer, why would they build anything else?

[Weird Tolkienish Figure]

Twice in the past few days I've overheard conversations in my office amongst co-workers that really make me wonder how these people function in life.

1. The women all agreed to support some "adopt a family" holiday gift thing. I don't know the details but basically you get a list of what the people have asked for and you pick something to donate. Apparently, they were all under the impression that they had to turn in the gifts next Friday. They found out yesterday that it's actually this Friday. The response of one woman: "This isn't a pay week. There's no way I can buy a gift this week."

2. The other day, a different woman wanted to give another co-worker money for something they were doing. The other woman said she didn't need the money yet and to wait. The first woman said: "Take it now because I may not have any money next week."

I just don't get it. How do you spend every penny you have week after week? If you can afford something this week, why wouldn't you be able to afford the very same thing next week? If you have extra money during a pay week, why don't you have extra money in the non-pay weeks? Why can't you just put that money aside and hold it until you need it?

This also reminds me of something my mother-in-law told us years ago. Where she worked, they were paid weekly. The owners wanted to shift to paying every other week, which is a pretty normal thing, as it would cut down on payroll costs. So many employees complained that they wouldn't be able to live with no money for a week during the one week transition to the new schedule that they were forced to not do it. I can't imagine going through life without even one week's worth of money set aside.

I get paid monthly. I have run into many people aghast that I live like that. But I love it, forces me to be damn careful. I pay monthly bills based on how scary they are to me.

I think that a lot of people live "intuitively" with money, they don't budget. Problem is that you have a tendency to underestimate the cost of everyday little things. I remember finding out how much money i was spending at convenience stores on bottles of "fizzy water", which I like to drink. I was amazed.

Also, lifestyle adjusts to fit budget. Happens all the time, which is how $100 million dollar basketball stars go broke in a few years.

[disneysteve]

3 bedroom 2 bath is an unattainable dream reserved for multi-millionaires. But you guys see is as an entry level.

It depends on the location. Around here, you could get a 3-bedroom, 2-bath single family house for 200-250K easily. And if that isn't in your budget, there are always condos and townhomes for less. There is a nice townhome development that we had actually looked at when we were house shopping. I just checked and those are going for about 170K.

If that's still too much for you, there are neighboring towns with less costly housing or you could go across the river to PA where there is plenty of affordable housing.