How do people afford homes in city centers?

[sethmachine]

I live in suburbs near some famously expensive cities on the East Coast. The homes in the city centers start in the millions. I've also spent a lot of time exploring these places, and I know that most of the people living there aren't retired seniors or students renting apartments--they appear to be relatively young people even as young as late 30s to mid 40s as homeowners.

According to this calculator (https://dqydj.com/income-percentile-calculator/), I'm in the 90th percentile of income (make more money than 90% of the U.S. population), yet on my six figure salary there is no way I could ever purchase any of these homes with a mortgage without giving up raising children or ever retiring.

What is the story about how these people have afforded these homes, while raising families? I don't find it believable that every homeowner somehow developed their own million dollar business, or is that really the case? Or perhaps it's affordable if a couple both make six figure income?, e.g. 200K each for 400K total income?

[~bs]

In my state, the average single family home is 700k. Condo is 350k. The way most people do it is getting assistance from parents for the downpayment, then shacking up with multiple roommates.

Normally in high COL states, the incomes are also higher (not in my state), so low 6 figure incomes are the norm and not the exception. Your salary may sound impressive, but for your area, it may be at the lower end of what people make. In other words making 6 figures in LA is not the same thing as 6 figures in hickville nebraska.

[Gailete]

I wonder the same thing, only not necessarily in city centers. I live in a small town about 15 miles from the city, so I guess for some a bedroom community. Currently I think we only have two areas that active home building is going on. NONE of the homes are in the $150K and below, generally they are $250K and above. NO 1000 sq ft ranch homes like I started married life in 40 years ago, only the house at that point was around $36K but they are now selling in the low $100K. Most of the new homes are in subdivisions with rules such as all must have attached garages, none below 1500 sq feet, none below a certain price point. So in my area all the newly built homes are for the mid- to upper-middle class. There are not that many jobs in our town to support the families that live in these homes. So it is a head scratcher as to who is buying them. I haven't seen a new subdivision in years that caters to to low-middle class where both people would be working to the bone to support their 1000 sq foot house. Even going in and out of the city, I see no subdivisions of those types. All you see being built are the mini-McMansions. We have little in the way of apartment complexes either, so most poorer people live in apartments that are part of a house conversion into apartments. If it keeps up, eventually there will be no place for the poorer, but working citizens of the town to live.

I too wonder who can afford these homes. At one point years ago we would watch some of the home decorating shows and one hoe, owned by a fairly young couple, was absolutely palatial, with a Steinway grand piano. Apparently the parents had chipped in to help these kids get their home and then they were decorating with this huge budget that I would have had to work for years just to have the cash after taxes to pay for what they were doing to just the living area of their house! Makes you feel like you are living in a different world!

[Joan.of.the.Arch]

I don't know who they are. 5%-ers? 1%-ers? If you want to live there, you best chance might be to hire yourself out as a nanny.

[Singuy]

You know what I wonder? Where are all these people coming from who can afford 500k-1.5million dollar houses? I live in this area North of Disney that is just BOOMING with new housing development. I was looking for a small single family home for my wife's brother. Talked to the new home builder and he said with a budget of 320k max, you need to look at a town home. This is FLORIDA.

My parent's first 2400 squareft house in a very good neighborhood in 1998 was 130k.

Now the average new home prices around me is 450k. Are people all making 200k/year or something now? Last time I checked, the average household income is 58k in my small city.

[Joan.of.the.Arch]

Singuy, I wonder whether the area has a lot of foreign investment by people with really big money. They could be renting out their houses at rates that don't bring a profit. But the houses could just be a way of securing some of their money.

It does always make me feel bad (and after our last recession, worry!) when home prices are so out of sync with incomes.

[TexasHusker]

The traditional multiples of debt to income / mortgage payment to income are really for middle income folks:

For example, someone making $25,000 a month isn’t going to have much trouble making payments on a $1 million note or even higher. That borrower is paying the same for a box of Cheerios as someone earning $2500 per month. There are a LOT of folks pulling in $250K or more per year these days.

That’s not to say there aren’t folks who are house poor with a $2 million home.

[msomnipotent]

Singuy, I wonder whether the area has a lot of foreign investment by people with really big money. They could be renting out their houses at rates that don't bring a profit. But the houses could just be a way of securing some of their money.

I was researching buying a rental property near Disney and read that most of the rentals are owned by the Brits. I'm sure they will buy more if our exchange rate swimgsin their favor.


All the people I know that have houses they seemingly can't afford started out young. They stayed with their parents until they had a down payment instead of paying rent, and their parents helped them out with furniture and cash. They also got a lot of good advice and sold their starter homes for a profit. I'm hoping to be able to do this for our daughter. At 13 yrs old, she already has a savings account for her car and our next bonus will start funding her wedding/down payment account. I wish my parents had given me the advice I have already given my daughter, but they just were not money savvy back then.

And then there are the people that buy more house than they could afford and struggle every month, or wind up losing the house.

[TexasHusker]

I was researching buying a rental property near Disney and read that most of the rentals are owned by the Brits. I'm sure they will buy more if our exchange rate swimgsin their favor.


All the people I know that have houses they seemingly can't afford started out young. They stayed with their parents until they had a down payment instead of paying rent, and their parents helped them out with furniture and cash. They also got a lot of good advice and sold their starter homes for a profit. I'm hoping to be able to do this for our daughter. At 13 yrs old, she already has a savings account for her car and our next bonus will start funding her wedding/down payment account. I wish my parents had given me the advice I have already given my daughter, but they just were not money savvy back then.

And then there are the people that buy more house than they could afford and struggle every month, or wind up losing the house.

Good stuff, but we are assuming that kids take all of our advice. They rarely do. I often subconsciously try to shield my kids from the potholes of life - financial and otherwise. But we humanoids typically only learn lessons the hard way, through our own experiences. That actually isn't a bad thing - experiencing ups and downs is part of the fabric of a rich life.

[LivingAlmostLarge]

Singuy, your valuations for mortgages are way to conservative for HCOLA. Most easily can afford 2-3x mortgage. But things are looked at slightly different in terms of budget.

That being said TH hit the nail on the head. You aren't in the same budget category for spending when you make 95% category = $160k. You make more than that it's easier to afford the house because everything else is a smaller percentage of the budget. I'm not say there aren't people who stretch it's just easier.

And to the OP, well I hate to tell you but making $100k and 90% income level isn't enough to buy but you aren't considering that most are making $200k+. Each spouse is making $100k+ minimum 30-something who are both working paying for daycare for the short term (5 years) then they suddenly have more disposable income.

Now people in those same areas with just one spouse working, those people are making probably minimum $200k so multiple 6 figure incomes. I see the incomes and I can honestly tell you most people I see are $200-300k family income with both spouses working minimum. Most making $150k so $300k is more average.

Now Monkeymama will also agree there are the oddities like she and I. Who bought right out of college and had super low incomes and flipped our way up to homes we probably could never afford if we had bothered saving. We're out of leagues as far as housing goes because we both had single income families in HCOLA and we traded down to cheaper places to make it even more comfortable.

So starting out with my $15k investment in 2002 it's multiplied a lot and turned into a down payment on our current property. Should we be able to afford what we have now? Yes easily we could but we're even more comfortable and not just equity rich. Instead we've spent the past 15 years investing instead and our home equity has grown and become what it is.

And with MM I'm pretty sure they also started early saving 10% for retirement at 22. They far outstrip at 40 (we're about the same ages) what comparable aged couples with kids and incomes have saved. I know for a fact that my DH and I far outstrip pretty much everyone in our income bracket/age. And we didn't do the heavy lifting, the stock market and housing market did it for us.

[disneysteve]

You make more than that it's easier to afford the house because everything else is a smaller percentage of the budget.

This is something that people often forget/ignore. Most day to day expenses are regressive. If your income goes from 50K to 100K, you don't spend twice as much to put gas in your car. If you make 200K, the price of a gallon of milk doesn't quadruple. Your kid's PTA dues are the same for you as for the person making a quarter of what you make.

So your budget can comfortably absorb a bigger piece going to housing.

[TexasHusker]

This is something that people often forget/ignore. Most day to day expenses are regressive. If your income goes from 50K to 100K, you don't spend twice as much to put gas in your car. If you make 200K, the price of a gallon of milk doesn't quadruple. Your kid's PTA dues are the same for you as for the person making a quarter of what you make.

So your budget can comfortably absorb a bigger piece going to housing.

The college football program I follow just hired a new coach, paying him $7 million per year. The joke was that he might not be able to move because he can't find a home that's 2.5X his annual salary.

[AJ444]

I live about 75 mins outside of Chicago and a lot of the people I know that own homes there are pretty house poor and their retirement saving suffers.

There aren’t a lot of people or families making 200k plus, the average income in Staten Island NYC is only 70k a year.

http://www.slate.com/articles/business/moneybox/2014/01/new_york_city_census_data_manhattan_and_brooklyn_are_much_poorer_than_you.html

[GoodSteward]

I like watching those home buying shows, and people flipping homes. I think it's absurd that people are spending 400k-500k+ on a house, often no bigger than they had. What gets me is when I see that for a family with kids, and the mom doesn't work. I'm thinking, what?!

It's all in relation to where you live. I couldn't stomach a $250k house, myself. I make a little under six figures, but I only paid $79k for my house financed.
The house isn't big(1300 sq ft) but it is nice for us. We've added some things here and there, and the value should be around 110k (Owe 65k). I'm in a very LCOL area with a rare higher paying job (for around this small town anyway), but there are plenty of 150k-250k houses around here, as well. Buying a 400k-500k house here would literally get you a mini-mansion.

[Gailete]

I'm in a very LCOL area with a rare higher paying job (for around this small town anyway), but there are plenty of 150k-250k houses around here, as well. Buying a 400k-500k house here would literally get you a mini-mansion.

Same thing in my town. I see those mini mansions and wonder what the people do that live in them to be able to afford them. We are only about 15 miles from the city with the high paying jobs, so for those working in the city, not a bad commute to get home.