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

[ua_guy]

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.

I could write volumes about my observations...here's my $0.02 summarized. Prices skyrocket around job centers. Home prices in the area outpace everything else because the geographical area around those job centers which is considered "reasonable commute distance" is now all developed, and/or available land goes for a steep premium. Prices fall sharply outside of those boundaries. Homes within those areas are exclusive to a) the highly qualified, b) homeowners who have lived in similar areas and who have also seen exponential increase in equity. c) Those from lower-priced areas willing to convert significant equity into a down-payment on a much larger mortgage. Junior buyers are priced out until they save long enough for a requisite downpayment, and/or they reach career maturity which affords the astronomical cost of entry-level home ownership in these areas. Low-income for life: They're out.

In the rest of the US, home prices have more closely followed income and inflation. However, an increase in population over the last 50 years constrains existing inventory, and so home prices can still outpace rises in income and other factors.

Consider the above two points with the fact that:
-Initial loan size is higher than ever, roughly 25% higher than in 2008. Loan to value is also up significantly. People are extending themselves and/or prolonging payoff higher and longer than ever.
-Interest rates and relaxed borrowing requirements have enabled higher prices in the worst way (most mortgagees are payment shoppers...)
-Wealth concentration continues; home ownership in the US is down another 5% since 2004.

These last couple stats were the result of me asking questions to google and reading results. I found a decent simple and graphical explanation here, which also cites its primary sources:
https://www.magnifymoney.com/blog/mo...atistics-2018/

[disneysteve]

home ownership in the US is down another 5% since 2004.

I think this is really the key to my question. How can people afford the higher prices? The answer in many cases is they can't. Fewer and fewer people are able to own homes. Sad but true.

[Singuy]

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.

You know what they say, software ate the world. As low margin manufacturing jobs disappeared, the decent wages were replaced by people working on software and technology. However this requires massive brain power in which the majority of people are not cut out for such job. This is why we have an explosion of low wage workers, a gap between low wage and high wage, and then high wage workers. High wage workers taking up all the houses while low wage workers are forced into a lifetime of pain(dat income inequality movement we have today).

See manufacturing jobs were decent paid and required no brain power. However those are low margin stuff that companies would rather outsource. Software is super high margin therefore the value each software engineer brings is 2-3x the worth of a mindless assembly plant worker as a return on investment.

[rennigade]

I think this is really the key to my question. How can people afford the higher prices? The answer in many cases is they can't. Fewer and fewer people are able to own homes. Sad but true.

People need to wake up and move to lower cost of living areas. Thats the bottom line. Homes are affordable, depending on where you live. In major metro areas...not so much. Thats the reality that people need to come to terms with. You're not going to find screaming deals in manhattan and san francisco. We have friends that work in both of those cities. They commute in like the rest of the average joe's. The wealthy people that own in the heart of the those cities have extremely high paying jobs. Everyone else hops on public transit for an hour or more.

[bjl584]

I feel like I can't afford to buy a house. Here are my current stats:

43 years old, no kids, not married
Credit Score ~770
Zero debt of any kind
$90,000 annual salary as a software developer
~$80,000 in retirement savings
$5,000 emergency fund
$15,000 in various other liquid savings

Monthly take home is about $4,000
$800 of that is savings ($300 auto, $500 home)
$250 of that is money I budget to blow on whatever
$1000 of that is rent on a small one bedroom apartment (market is CRAZY where I live, this is actually pretty much the going rate for decent, no frills housing)
$1950 is my other expenses like food, utilities, gifting, insurance, taxes, etc.

For whatever reason, I just feel like I can't afford to buy a house. Yet when I look at my budget, it just seems unreasonable to buy a house. I would like to have a house because I enjoy playing music and doing shop projects. I also feel like paying rent is kinda just throwing money away, especially since I could probably have a mortgage for just a couple hundred more dollars a month than what I'm paying in rent. In case you are wondering, the $90,000 a year is a recent thing. Prior to 3 years ago I was probably averaging about $35,000 a year for most of my adult life.

Am I crazy or overly cautious or both? Also, any general financial advice would be greatly appreciated.

If you feel like you can't afford a house, then maybe you can't.
Maybe the math says that you can, but there is some intangible that says that you can't.
Might be best to listen to your instinct.
There is something that you need to do or accomplish first, then you can revisit this idea.

[disneysteve]

People need to wake up and move to lower cost of living areas.

That ignores the problem, though. We NEED service workers everywhere including HCOLA. If all of the folks who can't afford homes in a particular area decide to move out, what would happen? Who would run the shops and restaurants and gas stations and hospitals and nursing homes and supermarkets? Who would collect the trash or mow your lawn or clean your pool or teach your kids? Just saying there are not affordable homes here so move somewhere else doesn't work.

[rennigade]

That ignores the problem, though. We NEED service workers everywhere including HCOLA. If all of the folks who can't afford homes in a particular area decide to move out, what would happen? Who would run the shops and restaurants and gas stations and hospitals and nursing homes and supermarkets? Who would collect the trash or mow your lawn or clean your pool or teach your kids? Just saying there are not affordable homes here so move somewhere else doesn't work.

In all fairness, you just took a snippet of everything I said and made it a glaring headline like mainstream does. The answer was in there.

They're not moving out, they're just commuting further. All major cities have public transportation. Those people will have to deal with it and use it.

If you want an affordable house, you're not going to find one in any big city. Its why we moved out of the DC area to rural PA. Also, our commutes were around 45 minutes, and we lived in a very average apartment.

THere has never been affordable housing in high cost of living areas, or any major city. Its supply and demand. You can only have so many places for people to live. This isnt a new concept. The wealthy will have short commutes, the rest of us will be bused in or will take the train. Im not sure why this is even a debate?

[disneysteve]

In all fairness, you just took a snippet of everything I said and made it a glaring headline like mainstream does. The answer was in there.

They're not moving out, they're just commuting further.

And that works to an extent. I know numerous people who work in NYC but live in New Jersey or Connecticut. We have people in our town who work in NYC. I think they're nuts as we are 90 miles from the city. It's got to take them at least 2 hours each way. Who really wants to commute 4 hours a day to work 8 hours a day? A lot of Atlantic City casino workers commute from our area and Philadelphia. There's a train that runs from Philly to AC so it's an easy commute but still takes an hour or so each way.

I don't know what I'd do if I found myself in that situation. I don't know that I'd be willing to spend half my day on a train. And at that point, why even have the house if you're never there to enjoy it?

[ua_guy]

People need to wake up and move to lower cost of living areas. Thats the bottom line. Homes are affordable, depending on where you live. In major metro areas...not so much. Thats the reality that people need to come to terms with. You're not going to find screaming deals in manhattan and san francisco. We have friends that work in both of those cities. They commute in like the rest of the average joe's. The wealthy people that own in the heart of the those cities have extremely high paying jobs. Everyone else hops on public transit for an hour or more.

This is an aging concept though. A 2+ hour commute (one way!) to work in a big city is nothing anymore. People who do that are competing with the other 90% of workers doing the exact same thing. There are no longer huge gains in affordability until one is well outside of the boundary of an economically feasible or personally tolerable commute zone, and then, what's the point?

Something's got to give. I think remote work is one such answer. Imagine being able to live 4, 6, 10 hours from the office where homes cost 1/4 of what they do near a big city. This unlocks the next step of growing small communities and restoring opportunity for the working class.

[disneysteve]

This is an aging concept though. A 2+ hour commute (one way!) to work in a big city is nothing anymore. People who do that are competing with the other 90% of workers doing the exact same thing. There are no longer huge gains in affordability until one is well outside of the boundary of an economically feasible or personally tolerable commute zone, and then, what's the point?

Something's got to give. I think remote work is one such answer. Imagine being able to live 4, 6, 10 hours from the office where homes cost 1/4 of what they do near a big city. This unlocks the next step of growing small communities and restoring opportunity for the working class.

I think COVID accelerated the WFH concept by a decade or more. So if those who can work remotely do so, will that bring down home prices so that those who can't work remotely can afford them? Of course, a lot of people who live in major metro areas do so because they want all that comes with that as far as shopping and dining and recreation and culture so they don't necessarily want to leave the cities and go live in the middle of nowhere just to get a lower cost of living.

[ua_guy]

I think COVID accelerated the WFH concept by a decade or more. So if those who can work remotely do so, will that bring down home prices so that those who can't work remotely can afford them? Of course, a lot of people who live in major metro areas do so because they want all that comes with that as far as shopping and dining and recreation and culture so they don't necessarily want to leave the cities and go live in the middle of nowhere just to get a lower cost of living.

I think what it does is free the necessity of living within that expensive commute boundary of a large city for employment- for many types of jobs, not all. I don't think it will affect home prices in metro areas much--plenty of people who desire that life, and who can afford to live there. But what I think it does is create opportunity in smaller communities which would never see development otherwise. It will attract employed people with good income. They'll need houses, commerce, schools, professional services, etc. This, in turn, creates jobs. Kind of a "new deal", if you will. Obviously, I'm not talking everyone, but what if 10% or 20% of workers were suddenly free to roam beyond those commute boundaries? Wow.

[disneysteve]

I think what it does is free the necessity of living within that expensive commute boundary of a large city for employment- for many types of jobs, not all. I don't think it will affect home prices in metro areas much--plenty of people who desire that life, and who can afford to live there. But what I think it does is create opportunity in smaller communities which would never see development otherwise. It will attract employed people with good income. They'll need houses, commerce, schools, professional services, etc. This, in turn, creates jobs. Kind of a "new deal", if you will. Obviously, I'm not talking everyone, but what if 10% or 20% of workers were suddenly free to roam beyond those commute boundaries? Wow.

Very true, and I think the recent/current WFH conditions kind of forced that issue. Now, people have had 3 months working from home and seeing how nice that is. I know a few people who are already working on making that permanent with their employers. None of them have talked about moving (due to kids, family, etc.) but for some it could be a fantastic opportunity.

[Petunia 100]

And that works to an extent. I know numerous people who work in NYC but live in New Jersey or Connecticut. We have people in our town who work in NYC. I think they're nuts as we are 90 miles from the city. It's got to take them at least 2 hours each way. Who really wants to commute 4 hours a day to work 8 hours a day? A lot of Atlantic City casino workers commute from our area and Philadelphia. There's a train that runs from Philly to AC so it's an easy commute but still takes an hour or so each way.

I don't know what I'd do if I found myself in that situation. I don't know that I'd be willing to spend half my day on a train. And at that point, why even have the house if you're never there to enjoy it?

In my former city, there are tens of thousands of people commuting that long and longer each day to San Francisco and San Jose. They do it because of the home prices. 400k will buy a fairly nice 2000+ sq ft subdivision home in my former city; what can you buy in SF or SJ for 400k? Nothing at all.

Edited to add: OK, I just Googled. There are some homes in SJ currently for sale for less than 400k. I see several previously owned mobile homes in parks in the 200s and 300s. Wonder how much the space rent is.

[Fishindude77]

It's not that people can't afford a home. It's just that they can't afford the homes in Nashville.
Get outside of the city and there are a whole lot of cheap homes available in the state of Tennessee. You might have to commute to work?

[~bs]

I feel like I can't afford to buy a house. Here are my current stats:

43 years old, no kids, not married
Credit Score ~770
Zero debt of any kind
$90,000 annual salary as a software developer
~$80,000 in retirement savings
$5,000 emergency fund
$15,000 in various other liquid savings

Monthly take home is about $4,000
$800 of that is savings ($300 auto, $500 home)
$250 of that is money I budget to blow on whatever
$1000 of that is rent on a small one bedroom apartment (market is CRAZY where I live, this is actually pretty much the going rate for decent, no frills housing)
$1950 is my other expenses like food, utilities, gifting, insurance, taxes, etc.

For whatever reason, I just feel like I can't afford to buy a house. Yet when I look at my budget, it just seems unreasonable to buy a house. I would like to have a house because I enjoy playing music and doing shop projects. I also feel like paying rent is kinda just throwing money away, especially since I could probably have a mortgage for just a couple hundred more dollars a month than what I'm paying in rent. In case you are wondering, the $90,000 a year is a recent thing. Prior to 3 years ago I was probably averaging about $35,000 a year for most of my adult life.

Am I crazy or overly cautious or both? Also, any general financial advice would be greatly appreciated.

4k/month take home seems low for a 90k salary. I'm guessing this is after 401k deductions.
1k rent is pretty cheap. Perhaps it may be better to not buy a house if market prices are cheap and will stay that way for the forseeable future.
$1.95k on other expenses seem really high.

It probably would depend on what your housing market looks like. If it's 300k or something, you're probably well enough on your way towards buying. You should start focusing on saving more though, perhaps chopping your other expenses in half.