Why do I feel like I can't afford a house?

**Jluke** · 06-27-2020, 04:20 PM

If you had a house you would be throwing money away on PMI, interest and property taxes. Though they might be deductible.

with 20k cash savings you don’t have enough for a 20% downpayment and still keep an emergency fund.

if the housing market is hot, now may not be the best time to buy.

keep saving

**disneysteve** · 06-27-2020, 04:25 PM

When your say $800 savings, do you mean you are saving $300/mo for your next car and $500/mo for a house down payment?

You've got 20K in savings so you have a 6-month EF. Great. You've got no debt. Also great.

On a 90K income, you should be looking to spend 180K-270K max on a house (the less the better of course). When we bought our house, we only paid about 1.5 times income. If you could get a place closer to the 2X income level that would be great. Is that realistic where you want to buy? If so, then you need to really tighten your belt, get the spending down as much as you possibly can, and start socking money away for the down payment. It might take you a while to get there, but as you pointed out your current income is relatively new.

Your spending went up significantly when you started making more money. Do your best to get it back closer to where it was when you were earning 35K and focus hard on saving up the down payment and you'll be in good shape.

**disneysteve** · 06-27-2020, 04:26 PM

The other thing is to look at any possible opportunities to earn extra money. Can you do any computer work on the side? Do you have any other skills or hobbies that you can monetize? Every extra dollar you can earn gets you closer to that down payment.

**kork13** · 06-27-2020, 04:35 PM

Based on the numbers you gave us, your feeling is likely correct. You'll want to have at least 20% of your purchase price for a down payment, plus at least 3-6 months of average monthly expenses as your emergency fund. From what you're saying, sounds like you need to focus on saving a fair amount more cash before trying to buy a home.

Also keep in mind that the costs involved with owning a house well exceed simply the mortgage payment. Taxes, insurance, maintenance/repairs, lawn care, HOA fees, and so on... Many folks compare renting directly to owning, but it's apples to oranges in many respects.

**scfr** · 06-27-2020, 05:14 PM

In the "up to $270K" price range, are there houses in your area that you would be happy with?
If yes, then keep saving. If you are looking for ways to trim your budget, you'll get lots of great advice here.
If no, then think about alternatives to buying a house that would allow you the space to do the things you like to do (music, shop projects).

**Fishindude77** · 06-28-2020, 05:38 AM

I don't see where you live?
The cost of houses varies wildly from one locale to another.

In some of the west coast areas, DC or NYC you are poor with a $90k income. In the rural midwest or south you would be high income.

**ua_guy** · 06-28-2020, 07:05 AM

Lots of good advice about general rules of "affordability" pointed out. These are guidelines for being in good and promising financial shape going into home ownership. What you can afford according to a mortgage lender is very different from what you can afford and also keep yourself true to your financial plans and goals, long term. Mortgage lenders will give you plenty enough rope to hang yourself. Keep that in mind if you ever talk to one to see what's possible.

If you feel like home ownership is un-obtanium, it's because in many populous areas, it has become so. The price of homes has outpaced the rise of everything else. So, try not to feel like you don't measure up, or don't make enough, etc - the market has become increasingly insane, and things like average incomes and personal savings have not followed. It's a real problem.

Home ownership is tough if you go at it alone. No judgement. It's just harder. If you are planning to eventually settle in with someone, it's less risky to share the financial burden together.

Retirement planning should be in picture. A 30 year mortgage will put you at 73 when you make the last payment. How does home ownership help or hurt your retirement plans, and would you choose to pay it off sooner? Those are things worth considering.

Home inventory is also a bit ridiculous. It seems like 99% of what's been built in the last 40 years has been family-style homes with exponentially increasing square footage on vanishingly small lot sizes. Do you need a 3, 4, 5 bedroom home with a formal living and dining room, if it's just you? You mentioned your hobbies, shop projects. Maybe consider looking for a cheap piece of property in an area where zoning and building code would let you put up a steel building where you could have a shop with living space above it? There are many ways to get creative.

**deadgoon** · 06-28-2020, 11:26 AM

OP here, thanks to everyone for the advice so far. Sounds like renting might be my best bet for at least a couple more years. I think I need to work my numbers and come up with an actual plan.

I'm currently living in Nashville, TN where the housing market is "insane" as at least one other person has put it, I'm completely priced out of the market here. But I am not planning on staying here. I'm thinking of moving to New Mexico for a drier, sunnier climate.

A house I would be considering would be small or smallish since it's just me and I don't really have any plans to get married at this point. I have been married before and got divorced last year and owned a home with my wife, so I am familiar with home ownership in general. Definitely not looking to spend more than $200K and would rather spend much less if I can get what I want for less.

From what everyone is saying here, sounds like I need to tighten up my current budget and save some more money for a few more years. Unfortunately I cannot work more than I do now because I have a fairly low burnout threshold.

**disneysteve** · 06-29-2020, 05:06 AM

Originally posted by ua_guy View Post

If you feel like home ownership is un-obtanium, it's because in many populous areas, it has become so. The price of homes has outpaced the rise of everything else. So, try not to feel like you don't measure up, or don't make enough, etc - the market has become increasingly insane, and things like average incomes and personal savings have not followed. It's a real problem.

Sorry to go off topic, but this is something I've never quite understood. How can the local home prices keep rising when the income doesn't? Who is paying those prices if the folks who live there can no longer afford them? Is it investors buying and renting them? Is it people from some distance away moving in from an even more expensive area and commuting farther to their jobs? Somebody has to be buying those houses and paying those prices or else prices couldn't keep rising.

**deadgoon** · 06-29-2020, 05:24 AM

Originally posted by disneysteve View Post

Sorry to go off topic, but this is something I've never quite understood. How can the local home prices keep rising when the income doesn't? Who is paying those prices if the folks who live there can no longer afford them? Is it investors buying and renting them? Is it people from some distance away moving in from an even more expensive area and commuting farther to their jobs? Somebody has to be buying those houses and paying those prices or else prices couldn't keep rising.

In the case of Nashville, TN it is a combination of tons of new people moving into the market along with investors buying and renting. When my ex and I sold our house, an investor had a bid on it before we even officially put it on the market. Also, all the houses currently being built in Nashville are either trendy condos in fancy downtown buildings, really expensive townhomes, or McMansions. No affordable housing is being constructed in Nashville right now. To get into affordable housing territory you have to move WAY outside the city which makes your commute very long. I used to work on the other side of town and my time spent in my car was about 3 hours a day. It's not as bad with the reduced traffic due to Covid, but the traffic will return as people continue to go back to work and more and more people continue to move here. As for me, I'm getting out.

**disneysteve** · 06-29-2020, 06:01 AM

Originally posted by deadgoon View Post

In the case of Nashville, TN it is a combination of tons of new people moving into the market along with investors buying and renting. When my ex and I sold our house, an investor had a bid on it before we even officially put it on the market. Also, all the houses currently being built in Nashville are either trendy condos in fancy downtown buildings, really expensive townhomes, or McMansions. No affordable housing is being constructed in Nashville right now.

But how are all of those people moving in affording the homes if the incomes in the area aren't high enough to do so? Where are they getting their money if not from their jobs in the area?

The lack of affordable housing is a big problem everywhere, so that certainly isn't unique to Nashville. Also, median family size has gotten a lot smaller over the years but median house size has nearly tripled since the 1950s. Fewer people are demanding more and more space.

The whole thing just seems unsustainable but it shows now sign of stopping.

**Singuy** · 06-29-2020, 06:25 AM

Originally posted by disneysteve View Post

Sorry to go off topic, but this is something I've never quite understood. How can the local home prices keep rising when the income doesn't? Who is paying those prices if the folks who live there can no longer afford them? Is it investors buying and renting them? Is it people from some distance away moving in from an even more expensive area and commuting farther to their jobs? Somebody has to be buying those houses and paying those prices or else prices couldn't keep rising.

Think of it this way.

Every year the amount of software engineers/health care professionals/small business owners increase
Every year the amount of service/low wage workers increase even more, like 3 or 4 to 1. Every year you look at where the most job growth is at, service dwarfs everything else and has the highest growth. So if the growth of low wage workers exceed the growth of high wage workers, then we should see flattish wage curve.

There's just not enough supply for high income earners on the new market, which spills into the secondary market. Low income earners are of course in apartment complexes in which a high volume of livable space can be added quickly to the market vs new houses.

This is why you can mathematically have stagnant average wages but still have an increase in housing prices (and it's sustainable). Looking at generalized metrics like "wages have been flat and yet housing is getting more and more expensive" are both true statements that doesn't make sense, until you break it down.

**deadgoon** · 06-29-2020, 06:47 AM

Originally posted by disneysteve View Post

But how are all of those people moving in affording the homes if the incomes in the area aren't high enough to do so? Where are they getting their money if not from their jobs in the area?

I think one factor is the number of two+ income households is going up. If I were working in the same types of jobs I was working in prior to my current profession, I'd have to have a roommate given current rent prices. People are also spending more and more of a percentage of their income on housing. Especially lower income people. They could be spending half or more of their income on housing. Anecdotally I think we have a lot of turnover as well. In the time one year I've live in this apartment, there have been 3 tenants in the next one over. People move in with dreams and aspirations, figure out it was no better than where they came from, then move out to go back where they came from or to move farther out.

**disneysteve** · 06-29-2020, 07:01 AM

Originally posted by Singuy View Post

Think of it this way.

Every year the amount of software engineers/health care professionals/small business owners increase
Every year the amount of service/low wage workers increase even more, like 3 or 4 to 1. Every year you look at where the most job growth is at, service dwarfs everything else and has the highest growth. So if the growth of low wage workers exceed the growth of high wage workers, then we should see flattish wage curve.

There's just not enough supply for high income earners on the new market, which spills into the secondary market. Low income earners are of course in apartment complexes in which a high volume of livable space can be added quickly to the market vs new houses.

This is why you can mathematically have stagnant average wages but still have an increase in housing prices (and it's sustainable). Looking at generalized metrics like "wages have been flat and yet housing is getting more and more expensive" are both true statements that doesn't make sense, until you break it down.

Thank you for this explanation. That makes more sense. So the growth in higher income folks is enough to offset the even higher growth in lower income folks. The median income may not change but the number of buyers able to afford the higher prices still increases.

Unfortunately, that means that over time, more and more people get priced out of home ownership. Nobody is building modest sized houses affordable to the average workers. I get that there's a lot more money in catering to the high income folks but it's a shame on a societal level. Why should all of the folks, many of whom we now recognize as "essential" workers, be stuck living in crowded apartment buildings?

Years ago, this wasn't the case. I grew up in northeast Philadelphia, a post-war development of row homes (like the ones shown here: http://www.jimhamill.com/northeast1.html. In fact, my house was identical to the one in the very first picture). We had 30 houses on the block, 15 on each side. And everyone had 2 or 3 or 4 kids in those homes (3 bedrooms, 1 full bath). Today, the median income in that zip code is about 48K and those houses sell for 150-175, so still affordable on that income. Where I live now, median income is about 100k and homes in our development are 250-300K, so again, still affordable. But in so many other places, the numbers are just totally out of whack.

Why do I feel like I can't afford a house?