But seriously. Those housing prices! How do you do it?

[Rhea]

I chat with my friends who live in high price housing markets and I am stumped on how this works.
Do y’all mind sharing your stories?

Take California, with their million dollar small homes. (Also NYC, Austin, Seattle, etc) How does a family afford that? Do you never take vacations? Are you able to save for retirement? Is the house the retirement? Do you ever pay off the mortgage?

I have friends with similar incomes, and they pay $4K -$5K per month for a 2-3 bedroom house, not huge and small yards (if any). That seems INSANE to me and I can’t figure out how they budget.

What’s the deal for you?

Context: I live rural and you can buy a 4BR house here with 2000sq feet and 10 acres of land for, say, $150,000 ($300K if you want it to be manager-level fancy). You can get one that needs some updating for $60,000. You can get a nice (brand new) singlewide and 2 acres to put it on for $50,000. So I am used to prices that are not higher than 1 year’s income for most professionals.

 

[bigfield]

https://www.census.gov/quickfacts/fact/table/CA/PST045221

Here's what I'm using for a bit of context:
Median household income: $78,672
Median value of homes: $538,500
Median monthly owner costs with mortgage: $2,422

$4K a month alone is $48,000 a year, which to me is a staggering amount of money to pay on a mortgage. You could maybe manage that on a median CA household income, but I bet it's unusual. I'm guessing that your friends have a household income much higher than the median, and I'm guessing that there aren't many people who can afford these million dollar homes.

(I've heard that some people do interest-only repayment plans, but I can't see how that is anything other than financial suicide unless you are aggressively building a real estate portfolio.)

I've watched a fair bit of HGTV and the variation in house prices from one TV show to another is incredible. It looks like you can get some absolute bargains if you are willing to live outside of a big city, although it isn't at clear whether those are good places to live (and get a job) overall.

 

[DBT]

I tend to assume that the point of societies and economies is the benefit to be had from the arrangement, individually and collectively, that with progress life becomes easier for all its members.....yet considering developments in recent times, that doesn't seem to be the case.

 

[Jimmy Higgins]

https://www.census.gov/quickfacts/fact/table/CA/PST045221

Here's what I'm using for a bit of context:
Median household income: $78,672
Median value of homes: $538,500
Median monthly owner costs with mortgage: $2,422

$4K a month alone is $48,000 a year, which to me is a staggering amount of money to pay on a mortgage. You could maybe manage that on a median CA household income, but I bet it's unusual. I'm guessing that your friends have a household income much higher than the median, and I'm guessing that there aren't many people who can afford these million dollar homes.

(I've heard that some people do interest-only repayment plans, but I can't see how that is anything other than financial suicide unless you are aggressively building a real estate portfolio.)

I've watched a fair bit of HGTV and the variation in house prices from one TV show to another is incredible. It looks like you can get some absolute bargains if you are willing to live outside of a big city, although it isn't at clear whether those are good places to live (and get a job) overall.

My understanding is living outside of LA is called "living in Phoenix".

HGTV pisses me off. Talk about ungreen. Yeah... we're taking this otherwise decent looking house apart, spending $200,000 to improve it, and then flipping it for a $100,000 gain. The amount of trash we are producing and resources we are wasting for vanity will be intense! Granite countertop, GONE! 15 year old cabinets, GONE! Hey, let's needlessly replace this door with a $12,000 door! SMASH!

 

[rousseau]

For many in my generation, the answer is that you can't afford these homes, and have to put off getting married and having children indefinitely. Some of our friends still live with their parents, many have moved to outlying towns where homes are cheaper (and now face rising costs for fuel).

My younger acquaintances who just finished up with school are trying to hold on to a glimmer of hope.

 

[rousseau]

I tend to assume that the point of societies and economies is the benefit to be had from the arrangement, individually and collectively, that with progress life becomes easier for all its members.....yet considering developments in recent times, that doesn't seem to be the case.

Things can't be perfect for everyone, all the time.

 

[DBT]

I tend to assume that the point of societies and economies is the benefit to be had from the arrangement, individually and collectively, that with progress life becomes easier for all its members.....yet considering developments in recent times, that doesn't seem to be the case.

Things can't be perfect for everyone, all the time.

They can't, but that's not what I was suggesting.

 

[Politesse]

I chat with my friends who live in high price housing markets and I am stumped on how this works.
Do y’all mind sharing your stories?

Take California, with their million dollar small homes. (Also NYC, Austin, Seattle, etc) How does a family afford that? Do you never take vacations? Are you able to save for retirement? Is the house the retirement? Do you ever pay off the mortgage?

I have friends with similar incomes, and they pay $4K -$5K per month for a 2-3 bedroom house, not huge and small yards (if any). That seems INSANE to me and I can’t figure out how they budget.

What’s the deal for you?

Context: I live rural and you can buy a 4BR house here with 2000sq feet and 10 acres of land for, say, $150,000 ($300K if you want it to be manager-level fancy). You can get one that needs some updating for $60,000. You can get a nice (brand new) singlewide and 2 acres to put it on for $50,000. So I am used to prices that are not higher than 1 year’s income for most professionals.

I live in an apartment.

 

[rousseau]

I tend to assume that the point of societies and economies is the benefit to be had from the arrangement, individually and collectively, that with progress life becomes easier for all its members.....yet considering developments in recent times, that doesn't seem to be the case.

Things can't be perfect for everyone, all the time.

They can't, but that's not what I was suggesting.

I guess what I was getting at is that economies do work for their members, but a perfect, linear idea of progress isn't entirely realistic. Maybe that's what you meant too?

 

[rousseau]

I have two friends with homes around the million dollar mark. One is a doctor who makes 350k/year, the other bought before the market was hot, sold at a profit, and now owes 600k on his Toronto home. One way or another the dots have to connect.

My wife and I are also in the 'bought at the right time' camp. She and her sister bought our home in 2005, and we got a good deal when buying her sister out in 2017.

 

[Jimmy Higgins]

I tend to assume that the point of societies and economies is the benefit to be had from the arrangement, individually and collectively, that with progress life becomes easier for all its members.....yet considering developments in recent times, that doesn't seem to be the case.

Things can't be perfect for everyone, all the time.

There is usually the generational whining. I tried to explain to Boomers that the stock market has exploded during their life time. College was affordable. Housing wasn't too expensive. Health care not too nutty. So yeah, you better have done well you lucky fucks!

The latest generation has a stock market that just yo-yos like madness, college is through the roof expensive, health care costs continue to increase, and housing gets expensive. I feel like my generation, Late Z'er were the last ones to get out into the old world where you went to college (worked hard... well some did), graduated and got a job, and things work themselves out. I graduated, got a house in '03, and since then the Great Recession and a global pandemic. It isn't WWII, but there were blue collar jobs back then too.

 

[rousseau]

I tend to assume that the point of societies and economies is the benefit to be had from the arrangement, individually and collectively, that with progress life becomes easier for all its members.....yet considering developments in recent times, that doesn't seem to be the case.

Things can't be perfect for everyone, all the time.

There is usually the generational whining. I tried to explain to Boomers that the stock market has exploded during their life time. College was affordable. Housing wasn't too expensive. Health care not too nutty. So yeah, you better have done well you lucky fucks!

The latest generation has a stock market that just yo-yos like madness, college is through the roof expensive, health care costs continue to increase, and housing gets expensive. I feel like my generation, Late Z'er were the last ones to get out into the old world where you went to college (worked hard... well some did), graduated and got a job, and things work themselves out. I graduated, got a house in '03, and since then the Great Recession and a global pandemic. It isn't WWII, but there were blue collar jobs back then too.

I got very lucky as well as I finished up with school in a booming job market, and managed to become a homeowner just before prices exploded. A few years ago I thought it was a matter of making good decisions, but these days a lot of my peers are hopelessly buried.

My acquaintances mostly fall into two camps: those who are making the best of it and those who play the blame game. It's genuinely awful for some, but blaming doesn't pay the credit card bill.

Those getting hit the hardest are friends who rejected modern values outright and never even attempted to find a career. Living paycheque to paycheque and barely getting by.

 

[Elixir]

Real estate is risky.
My advice: get lucky.
You can’t get lucky without facing risk, but real estate DOES appreciate on average, and the longer you can hold onto it the better your chances of ending up in the black.
Right now I am facing the prospect of “losing” on a long term (15 yr) real estate deal. But it’s only a loss in terms of “today dollars” spent on the purchase plus taxes, insurance, upkeep, travel etc. AND a major remodel it will need to be marketable. Most of the purchase price was re-couped in rent over the time I’ve owned it and it would yet be profitable if I held it a few more years… and will be close to break even if I sell it this spring.
Every other property I ever got into was a clear winner in the end.
So I say go for it, esp if you are young and flush enough to hold for 10+ years.

 

[rousseau]

Real estate is risky.
My advice: get lucky.
You can’t get lucky without facing risk, but real estate DOES appreciate on average, and the longer you can hold onto it the better your chances of ending up in the black.
Right now I am facing the prospect of “losing” on a long term (15 yr) real estate deal. But it’s only a loss in terms of “today dollars” spent on the purchase plus taxes, insurance, upkeep, travel etc. AND a major remodel it will need to be marketable. Most of the purchase price was re-couped in rent over the time I’ve owned it and it would yet be profitable if I held it a few more years… and will be close to break even if I sell it this spring.
Every other property I ever got into was a clear winner in the end.
So I say go for it, esp if you are young and flush enough to hold for 10+ years.

The problem for most of us is the initial down payment, and before that our student debt, and before that even finding a well paying job. I have a young cousin who's in this predicament right now. She wants to leave her boyfriend and get her own place (to rent) but is struggling to secure stable employment.

Needless to say I'm already thinking about how to help our boys out with property, and one of them isn't born yet.

 

[bigfield]

Real estate is risky.
My advice: get lucky.
You can’t get lucky without facing risk, but real estate DOES appreciate on average, and the longer you can hold onto it the better your chances of ending up in the black.
Right now I am facing the prospect of “losing” on a long term (15 yr) real estate deal. But it’s only a loss in terms of “today dollars” spent on the purchase plus taxes, insurance, upkeep, travel etc. AND a major remodel it will need to be marketable. Most of the purchase price was re-couped in rent over the time I’ve owned it and it would yet be profitable if I held it a few more years… and will be close to break even if I sell it this spring.
Every other property I ever got into was a clear winner in the end.
So I say go for it, esp if you are young and flush enough to hold for 10+ years.

I'm not going to get lucky then, because I can't afford risk. I have a responsibility to keep a roof over our heads, and that means buying a house I can afford to pay off, even when interest rates inevitably rise, regardless of its potential to appreciate in value. I'll stay here as long as I can, not because I care about the investment or because I particularly like this house, but because I can't afford to re-enter the housing market in the foreseeable future. Any equity I gain is purely a side-effect of having a family home.

 

[Jimmy Higgins]

Real estate is risky.
My advice: get lucky.
You can’t get lucky without facing risk, but real estate DOES appreciate on average, and the longer you can hold onto it the better your chances of ending up in the black.
Right now I am facing the prospect of “losing” on a long term (15 yr) real estate deal. But it’s only a loss in terms of “today dollars” spent on the purchase plus taxes, insurance, upkeep, travel etc. AND a major remodel it will need to be marketable. Most of the purchase price was re-couped in rent over the time I’ve owned it and it would yet be profitable if I held it a few more years… and will be close to break even if I sell it this spring.
Every other property I ever got into was a clear winner in the end.
So I say go for it, esp if you are young and flush enough to hold for 10+ years.

I'm not going to get lucky then, because I can't afford risk. I have a responsibility to keep a roof over our heads, and that means buying a house I can afford to pay off, even when interest rates inevitably rise, regardless of its potential to appreciate in value. I'll stay here as long as I can, not because I care about the investment or because I particularly like this house, but because I can't afford to re-enter the housing market in the foreseeable future. Any equity I gain is purely a side-effect of having a family home.

My Dad bought a house in the South Shore of Massachusetts in 1983. The house was sold for 5x what he bought it for in 2003. No intent of his own was he trying to make a ridiculous sale profit. Zillow thinks the house is about 1.5x its sold price today, nearly 20 years later. And oh my goodness has the front yard garden over grown!

 

[Elixir]

Real estate is risky.
My advice: get lucky.
You can’t get lucky without facing risk, but real estate DOES appreciate on average, and the longer you can hold onto it the better your chances of ending up in the black.
Right now I am facing the prospect of “losing” on a long term (15 yr) real estate deal. But it’s only a loss in terms of “today dollars” spent on the purchase plus taxes, insurance, upkeep, travel etc. AND a major remodel it will need to be marketable. Most of the purchase price was re-couped in rent over the time I’ve owned it and it would yet be profitable if I held it a few more years… and will be close to break even if I sell it this spring.
Every other property I ever got into was a clear winner in the end.
So I say go for it, esp if you are young and flush enough to hold for 10+ years.

The problem for most of us is the initial down payment, and before that our student debt, and before that even finding a well paying job. I have a young cousin who's in this predicament right now. She wants to leave her boyfriend and get her own place (to rent) but is struggling to secure stable employment.

Needless to say I'm already thinking about how to help our boys out with property, and one of them isn't born yet.

The down payment thing has to be overcome by hook or crook. My first house purchase was an owner -carry situation, and the old lady who sold me the property was a real gem. She let me negotiate the down payment in favor of a five year balloon payment. That gave me time to get it together even if I was going to need a bank to help out with the balloon. As it turned out, I was able to cash her out, having scrimped and saved for five “hard years” (that were really some of the best of my life).
The person who let me know about the property had been on the brink of buying it himself, until he discovered a much higher end property that he bought instead. A few years later, he was upside down on that high end property and ended up taking a big loss, while I was free and clear on a property that eventually sold (with improvements) for 20x what I paid for the initial purchase plus interest.

So again… get lucky, don’t be greedy, and lower your sights as needed. Be ready to turn it over when conditions warrant, even if you don’t want to. Also be ready to hold; keep reserves to make sure you can.
I like to remind myself that they’re not making any more real estate when things look iffy. That dynamic always prevails eventually!

ETA the student debt thing is horrible. That is a societal abomination that needs to be made to go away. Certainly limits your options, and that sucks.

 

[southernhybrid]

My sister and her husband bought a very small house in a small town in New Jersey about 10 years ago. Their house payment is about 2500 per month. They paid about 400K for the house but they put about 200k down, money from the equity in their previous home. Their real estate taxes are about 10K per year, which is actually low for northern NJ. She told me recently, that they could get over 500K if they were to sell their home. My sister is 70 and the reason she still works is so they can pay their mortgage. Her husband is retired other than for some occasional work he does doing photos for local realtors. I know that's not nearly as high as the OP is talking about, but it's still difficult for people like my sister and her husband to afford a home like the one they have. They both collect SS so that helps too. I don't know my sister's salary, but it's probably at least in the 80K range. I guess their total income is in the 125K range. Maybe a little bit higher, but most everything is more expensive in NJ compared to most parts of the country.

We paid off our mortgage about ten years ago, but it was only about 900 per month. My home is twice the size of my sister's home, has a 3/4 acre lot, a large swimming pool and it's all brick. If we were to sell it, it would still be for less than my sister paid for her tiny frame home which hasn't been updated. But, here's the thing. Even in my small southern city, home prices are rising drastically. Some of it may be due to what we commonly call Atlanta sprawl. We are also seeing many people from the northeast moving here as well, including several of my newer neighbors. A few years ago, one could buy a very nice small home on the town's most sought after street for about 120K. The same home now would be about 300K. People can probably afford these homes now due to the unusually low interest rates, but as the fed increases rates this year, these homes will become unaffordable for a lot of people or the values might decrease.

I sometimes read the real estate section of the NYTImes. In New York City, a. tiny starter condo usually goes for about 6-800K. But, a lot of New Yorkers don't have cars and that is one thing that helps lower their expenses. Still, it's mostly working couples who buy real estate in New York City. I assume they make higher salaries compared to the rest of the country. I can't imagine paying so much for housing, but it's becoming more common all over the country. Condo fees are also becoming insane. I've owned two condos and our fees were never more than 250 a month. I've seen condo fees that are well over 1000 per month in places like NY City.

Even the exurban areas near me are appreciating quite a bit. Plus, homes that have been updated, usually sell within a day or two, especially if they are in what is considered the best locations. But, they sell fairly quickly even in areas that were once considered less desirable.

I browse homes in Indianapolis, since my son lives there and we sometimes consider relocating. Prices are rising rapidly in Indy as well, although not quite as much as they are here in Georgia. A lot of retirees are moving to my area, probably due to the climate, lower cost of living and/or this is where they have children. When people move from larger more expensive cities, it often pushes up the prices of the area where they relocate. I read yesterday that home prices in Atlanta. have risen 25% over the past year! ATL used to be considered a very affordable city, but no more due to the rise in rents and houses.

I know I'm not answering the question in the OP, but as one who has always enjoyed following the real estate market, I do think the most recent increases are due to supply and demand, largely due to the very low interest rates. Demand has increased due to younger people wanting to buy their first home too. We've owned a lot of homes and while they were all affordable for us, what we could afford, always depended on the interest rates. When we lived in NC, our mortgage rate was 13%. We refinanced when rates dropped a few years later, but they were still about 9%. The last rate we had was about 4.5% after we refinanced down from a 7.5% rate.

We lost money on every home we owned, other than the two homes in Florida. One was just a little vacation condo that we owned for 18 years and we lived in the other one for less than 3 years. We moved too often due to husband's job changes and that is part of the reason why we lost money on real estate. We've been in our current home for 23 years and after not increasing in value for about 20 years, it's now worth more than twice what we paid for it. Still that's not a great investment considering how long it took to get us here, as well as how much we've spent maintaining and updating it over the years. I love my house and dread the thought of moving, but it is way more than we need, so unless I die suddenly, we will probably eventually have to downsize. It's just so hard to find a replacement right now as homes are selling within days almost everywhere. I know damn well if we put the house up for sale right now, it would sell within days, possible even in a bidding war. I'd have to buy another home before we could sell this one.

 

[TSwizzle]

Take California, with their million dollar small homes. (Also NYC, Austin, Seattle, etc) How does a family afford that? Do you never take vacations? Are you able to save for retirement? Is the house the retirement? Do you ever pay off the mortgage?

What’s the deal for you?

Part of California are very expensive and other parts not so much. But living in the 909 is not for the faint of heart. But it really is a bit of a mystery as to how people manage in the typical LA County home. Houses in my neighborhood are at least $900k for about 1,100sf, 3 bed home, the lot size varies. A house across the street from me is on the market at $1.2m, I'd be surprised if they get that much but it will be close. Rentals in my area for a two bedroom apartment is at least $2,800. Both my kids are resigned to leaving California even though they quite like it here. I will try to help them stay if I can.
Imagine paying $800k for a modest home plus the property tax every year, you must be sitting on boxes and eating spam six days a week. But somehow people are doing it but I really don't know how, they must have saved for a significant down payment or something.

I bought my house 21 years ago for about $345k. It's almost paid off. I just need the property market to stay hot a couple more years then I will sell up and move, probably out of California.

HGTV pisses me off. Talk about ungreen. Yeah... we're taking this otherwise decent looking house apart, spending $200,000 to improve it, and then flipping it for a $100,000 gain. {snip}

Property investors are very active in LA County just now, you see their ads on TV and hear them on the radio. Parasites. Personally I would never buy a flip because you are overpaying for sure. But I read recently that there is a bill being drafted to tax house profits an extra 25% if the house sells within three years of initial purchase. I believe this bill is to specifically target house flippers. California politicians bang on about "affordable housing" but I don't think this does anything to address the "affordable housing" aspect of the housing market, it just looks like the state is going to make more money. Anyway, so when the young start to move in to areas where they can actually afford a home and the neighborhood starts to improve, there is much gnashing of teeth over the "gentrification" of the area.

 

[Tigers!]

My daughter and her fiance have brought (Nov. 2022) a house/land package in Lara (Melbourne, Australia) for ~$600k. Small block, the house will be nothing flash. When I was growing up (60s-70s) nobody wanted to live in Lara. A similar block now costs > $700k. Stupid.
At that price both will need to work for decades to pay it off. If one loses their job or is injured etc. then after about 6 months they will be in strife. My daughter is an ambo so the pay is quite reasonable provided she gets the overtime. But if she gets the overtime then she will not spend much time with fiance/hubby or any kids they might have.
I paid $14k for my land in 1991. Installed a kit home for $80k in 1993.
Housing prices in Aust. have lost any links to reality.