How do young people in pricer real estate markets do it???

[Anonymous]

Ok, so my wife and I recently took a vacation to the west coast and cascadia.  We loved it of course!  How do people manage to afford and purchase homes in excess of 300k?

San Franisco, of course being a very pricey city, the houses must be well over 500k.  How do average people afford houses that expensive?  Are their incomes really 4x more than I make?

For comparison sake, we live here in DFW and have a combined gross income of over 70k per year.  We're young and haven't bought our first house yet.  It blows my mind when I watch these crazy house shows on TV.  People my age buying 750k houses...  Are they all interest only or what?

[jaybird201]

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@Anonymous wrote:

We're young and haven't bought our first house yet. It blows my mind when I watch these crazy house shows on TV. People my age buying 750k houses... Are they all interest only or what?

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The fact that people on TV are buying these houses doesn't mean everyone your age is. Young people right out of college can definitely make six-figure salaries. Even if they aren't making that much, they could have a partner whose income was taken into consideration when applying for the mortgage.

It's a bit surprising how much people can qualify for when applying for mortgages -- some, if they were to pay in full and on time, would have to be putting the vast majority of their after-tax salary towards their mortgage payments.

The reason we're in this mortgage mess right now is because of these interest only mortgages and balloon mortgages, etc. that let people take out mortgages they can never pay back.

Keep saving and eventually you'll be able to afford a mortgage on a house that you'll be able to KEEP! That's the idea right? Not to borrow money you can afford and get foreclosed on? Right!

[Anonymous]

One possibility is help from the parents. If the parents have also been in the same housing market for 20-30 years, they likely bought their homes when the market was more "reasonable" and if they haven't cashed out their equity for consumption spending, they will likely have significant equity in their homes which they could use to help their children buy a home. I'm sure there are a lot of possible explanations, ranging from the reasonable (help from parents) to the absurd (living beyond means).

[DallasLoanGuy]

There is no loan magic to make these affordable.... They just make more money or commit way more of their income to housing.

[Anonymous]

It just seems so unreal.  I can definately understand parents already being in the market for 30 years.  Must be nice to have houses like these half way handed to you.  And they definately spead more disposable income on mortgage payments.  I saw plenty of junker cars in front of nice houses in the Queen Ann part of Seattle.

For our part, living well below our means is the only way to roll.  We save nearly half of our income every month.  We're going to downsize our home purchase to something we can afford on my income alone.  We'll definatey be purchasing sometime around a year from now.

[DallasLoanGuy]

kube.... we did the same. if one of us cant work, the othe can over the bills.

it will be more beans and less steak... but covered.

[Anonymous]

In our case, my parents bought a $600K home about 7 years ago. They've been throwing money at it like mad and now owe about $100K (they did plunk down a sizeable DP with the proceeds from their older, paid-off home).

(Okay, now here's the creepy part)

They've also gone so far as to get life insurance to pay the loan off in the event of their death. They're doing that so I or my kids can inherit the house with no problems. :/

My dad calls it "utter equity" since we'd own it outright and have no payments other than property taxes on it (which is outrageous in their area -- housing in THAT area became REALLY ritzy AFTER they moved there -- not a single home selling for a penny less than $700K even NOW).

FTR, a lot of homes in the UBER pricey Keys area of FL has gone that way, too. Handed down from family to family. There are people that have been there for 10 generations. People that bought the land for pennies and are now sitting on multi-million dollar parcels.

[Anonymous]

BTW, I hope no one took that as bragging ... unfortunately, my parents' successes are not my own!! As though anyone seeing our scores below would believe differently!!

Too, my parents deserve oodles of credit (no pun intended) for their financial situation: they were the thriftiest people I think I've ever known!

FWIW, my Gramma (on my mama's side) raised her kids with stories of the Depression (during which she was a teenager and saw several of her friends' fathers commit suicide over the "plunge"). She taught my mom that if you could live without it, live without it. And my mom always did.

On my daddy's side, they were farmers. So I think 'nuff said, there.

So if I didn't turn out right, it wasn't because their fault!!!

[Anonymous]

My wife and I fall into this category.  Mid-30s, two good professional incomes after 15 years of work.  Houses in our area -- suburban NYC -- range from $450k to millions.  Most "decent" houses (i.e., some land, little work needed) in a start at $520k-$600k.  Taxes are $8k-$13k. 

So you're basically looking at over $100k if you really had 20% to put down, AND a monthly mortgage over $3,000. 

We make good money, and it's tough just to save the down payment.  If we can save $3k-$4k per month, that's still would take years, and that's the money we make NOW.  Not the lower salaries we've made in years past.

Of the friends we have that have done it, most have taken one or more of the following routes:

-- Bought closer to 2000, when prices were cheaper (some housing in the NYC area is 2x as much now, so they sold at a profit)

-- Lived at home for a few years, saving money they would have spent on rent

-- Taken jobs in which housing was paid for (home aide, college advisor, etc...)

-- Leveraged money from family

-- Put their wedding gift money towards a house

-- Moved out of the area to less desirable, cheaper neighborhoods (more crime OR more rural, longer commute, etc...)

-- Chosen jobs that pay much higher wages (medicine, finance)

We lived in Manhattan for awhile, so everything went to rent.  We're late starters, but trying.  We literally track every single dollar we spend now in a spreadsheet to save.  Getting rid of credit cards and debt is key. 

Message Edited by FICOScott on 07-29-2008 08:56 PM

[Anonymous]

Oh - and by the way - obviously, from the foreclosure mess, it's clear that many people CAN'T afford their houses. 

Here's a good graph (supposedly from Wells Fargo) that shows how prices have doubled, but wages haven't:

http://www.burbed.com/wp-content/uploads/graph-ny.png

In my opinion - real estate in our market has become similar to out-of-control IPO valuations, where everybody wants to get-rich-quick in a collective push.  People smelled blood in the water.  "If the Jones family got $400k for their house, well, we can get $420k since our house is nicer."   And up it goes as the real estate market continuously nudges the bar higher.

Eventually, it has to end in a correction - and here we are.   In the meanwhile, it's the children of the baby boomers who are left to struggle with huge college debt, high housing costs, etc...

Message Edited by FICOScott on 07-29-2008 09:15 PM