Um yeah. Im not going to spend $875,000 on a stupid house, ok?

[brandonbull]

Originally posted by: 5150Joker
When I'm ready to build a house I got an empty lot waiting for me so I'll just have my cousin (contractor) build it for me for cheap. Otherwise buying a house here in California is next to impossible unless you have AAA credit + $100k+ income. With a measely bio degree I'll be lucky to make $50k.

Where in Cali?

So how would a $80k/ year job be around the L.A. area? Isn't that some what in the middle of the salary range?

 

[batmang]

80k a year in LA? your going to be renting lol
friend of mine lives in san francisco, and he pays $2k a month for RENT. i wonder what a house payment would be in that same area. prolly 2x that.

 

[GasX]

Originally posted by: PrinceofWands

Originally posted by: dullard

Originally posted by: PrinceofWands
Definitely ridiculous.

When my father bought his house he was making 24k a year (lower middle to middle class at the time) and the house cost $55,000. Moreover that was a time of mostly one income households. When I turned 18 (20 years after he bought the house) the house appraised at about 90k and lower middle was up to about 30k. Now (16 years later) the house is at 160k and lower middle is about 36k. So house prices are up 300% while income has increased by a mere 50%. And that's in a very cheap area.

If I looked somewhere else right now a nice place might cost me 300-500k but earning potential for the vast majority is still under 50k a year. So instead of a few years total salary you can expect to pay 10+ years salary (not even counting increased interest costs).

Earnings have not kept up with costs is what I'm driving at, making the prices outrageous.

So using your numbers, that home price went up at an average of 3.01% per year over 36 years.

$55,000 * (1 + 3.01%)^36 = $160,000

That is a pretty pathetic price increase. Why? Because over the last 36 years, inflation has been 4.70% on average. If the house price increased with inflation, it would be worth $287,000. And if he got a 10% return on that $55,000 in the stock market, it would be worth $1,700,000.

True, he saved 36 years of rent, got many years of tax savings, and had 36 years of the joys of owning a home. But that doesn't change the fact that the home price increase was very small over that time.

I don't know income data back that far. But are you certain that the lower middle class was $24,000/year in 1970? That seems way too high, but I'm just going by my gut feeling.

Just a couple comments.

You seem to be arguing based on inflation, while I'm arguing based on home buying power of an average income. My point was that 36 years ago a years salary would buy a certain percentage of a home, while today it will buy a substantially smaller portion of a home. Home prices have increased out of proportion to wage increases.

You talk about the house purely in terms of value, but to many a house is not an investment, it's a home. The important part isn't how much it's worth, but rather if a new homebuyer today could hope to buy the same quality of home as one 36 years ago. It doesn't matter how small the value of the home compared to inflation is, it matters how much smaller the increase in personal income versus the cost of that home is.

One VERY important thing that gets overlooked is the difference between single and multiple income households. One person could provide a certain portion of the cost of a house from an average yearly salary. Today two people working generally provide the same, or even a smaller percentage of those costs. That's how out of step the cost of housing is to incomes.

I think you're right about the income level, it was closer to 16-18k. 24k was probably pure middle class at the time. Even so you're talking about a 100% increase in income versus a 300% increase in costs.

Mind you, my numbers are from memory, and probably not exactly accurate. But the general IDEA of what I'm saying is completely true. One person can do less with their money today (in terms of home buying) than could a person of equal class and circumstances 36 years ago. Substantially less. I'm not talking about inflation overall, just pure housing costs.

What was the average interest rate on a mortgage in the 70's?

Few people pay cash for a house - they mortgage up to a percent of their income. Your purchasing power at 15% is very different than it is at 5%. Interest rates are WAY lower than they used to be and this is a big reason for the price inflation as buying power has increased dramatically.

 

[brandonbull]

Originally posted by: batmang
80k a year in LA? your going to be renting lol
friend of mine lives in san francisco, and he pays $2k a month for RENT. i wonder what a house payment would be in that same area. prolly 2x that.

I had a job offer to relocate to outside of the LA area. I didn't think $80k would really do much for me.

 

[MaxDepth]

I'm still trying to tell people how scary it is to live in Durham, NC. Please, please, please! You will be so happy living in Cary or Raleigh.
And just think school is back in session at Duke and those lacrosse players are running loose through the streets!


Dammit, not everyone is listening. Some joker has decided to flip a house across from campus and honestly believes his 2 story, 3 bedroom house is worth $668 K. Frikk'n busybodies and anal retentives running a fascist quasi government too.

 

[dullard]

Originally posted by: PrinceofWands
Just a couple comments...

You have some truth to your arguments. In the last 5 years, housing prices HAVE substantially increased out of proportion to wage increases. People took money out of the stock market and dumped it into the housing market. So, the stock market plunged and finally leveled while the housing market soared. Irrational exubberance moved from one market to another. Housing prices will decline to fix this problem.

But, you have some problems with your posts. Yes housing prices have increased over 36 years. But housing sizes have also increased. Source. In 1973, 56% of new homes were under 1600 sq ft. In 2005, only 20% of new homes were under 1600 sq ft. Even the components within the houses have improved. In 1973, 49% had air conditioning, in 2005 that number became 89%. Plus the efficiency has soared, better AC/furnace, better insulation, etc. So, we aren't really comparing apples to apples. We are comparing apples to oranges. Yes, some McMansions are bucking those quality trends, but you can't really compare prices directly without the caveat that you aren't comparing the same average house.

You are correct, that a two earning family has fueled the ability to buy bigger/better houses. In many ways that is a positive (better quality of life while at home, more gender equality). In many ways that is a negative (less attention on child rearing). But, a two-income family is not a requirement. For better numbers, here is a link. In 1970, the median incomes were $7,108 for males and $2,801 for females. In 2003, the numbers were $32,175 and $22,254 respectively. Male income went up 352% in 33 years, female income went up 695%. Compare that to your parent's home going up a mere 191%.

 

[Rubycon]

My home has a replacement cost of $785,000,000.00. :Q

:laugh:

Everything's expensive now - unless it says MAID IN CHINA.

 

[HeroOfPellinor]

Originally posted by: j00fek
wait to buy a house, the housing market is deflating as we speek

Yeah wait. I already own a house worth double what I paid 4 years ago. And guess what, if prices ever fell back to near what I paid for this one, I'm gonna grab up a half dozen of them and then rent them off to people like you who continue to wait for these things to be free.

 

[dullard]

Originally posted by: HeroOfPellinor
Yeah wait. I already own a house worth double what I paid 4 years ago. And guess what, if prices ever fell back to near what I paid for this one, I'm gonna grab up a half dozen of them and then rent them off to people like you who continue to wait for these things to be free.

It is stupid to wait while prices increase. But please tell me why it is stupid to wait while prices DECREASE? Why buy immediately, only to see that you could have bought a similar house for thousands less a few months later?

Even in your post, you implied that you won't buy six rental houses until prices fall. Why aren't you buying them now? Why won't you take your own advice?

 

[ebaycj]

Originally posted by: FelixDeKat
Not $525,000,

Not $375,000,

Not even $215,000...

$150,000 take it or leave it. Thats right - I said $150 and your lucky I dont make it $125.

So stop thinking you can charge what-ever-the-fook you want for your stinkin' crown molding and wood flooring - 'cuz I aint payin for it, aight? I dont care if you resodded the yard or redid the kitchen or what ever. I dont care. So you can take your dream number and go jump in the lake. :laugh:

Am I crazy or what? Or do you agree that even with property values on the decline everything out there is still waaaaay overpriced.

EDIT:

EUREKA!! IVE GOT IT - THE SOLUTION TO THE MADNESS: An 85% Federal Excise Tax on Capital gaines on non primary residences purchased and then sold under 12 months! That'll put a cap on irrational housing exuberance!

I voted "yes" because there are, but you live in Texas (pretty much lowest cost of living in the country), so I don't feel sorry for you AT ALL.

 

[Slap]

You can buy my nice 2000 sqft 3 bedroom two bath with lots of nice features for $175k.

http://www.crye-leike.com/main/browsede...12&ln=9&tid=memphis&mlsnum=2647199&cid[0]=1104

 

[EmperorIQ]

Originally posted by: FelixDeKat

Originally posted by: EyeMWing

Originally posted by: FelixDeKat

Originally posted by: Geocentricity
My parents' house which I'm still living in is worth close to 950k.... either you want to live in the middle of nowhere or you're poor 😛

And Ill bet dollars to donuts that home was probably worth $450k just five years ago. Damn flippers and speculators screwed up everything.

5 years ago, my parents bought our house for $150k. They recently recieved an offer for $1.5M - and the place isn't even for sale. And the 1.5M offer involved demolishing the ENTIRE preexisting structure.

No offense Eye, but its well known some members are prone to exaggeration. Care to provide a Zillow listing? If not, what do you think accounts for the rapid apprecition? And why do your parents still live there? :shocked:

there is oil down there!

 

[PrinceofWands]

Originally posted by: Mwilding

Originally posted by: PrinceofWands

Originally posted by: dullard

Originally posted by: PrinceofWands
Definitely ridiculous.

When my father bought his house he was making 24k a year (lower middle to middle class at the time) and the house cost $55,000. Moreover that was a time of mostly one income households. When I turned 18 (20 years after he bought the house) the house appraised at about 90k and lower middle was up to about 30k. Now (16 years later) the house is at 160k and lower middle is about 36k. So house prices are up 300% while income has increased by a mere 50%. And that's in a very cheap area.

If I looked somewhere else right now a nice place might cost me 300-500k but earning potential for the vast majority is still under 50k a year. So instead of a few years total salary you can expect to pay 10+ years salary (not even counting increased interest costs).

Earnings have not kept up with costs is what I'm driving at, making the prices outrageous.

So using your numbers, that home price went up at an average of 3.01% per year over 36 years.

$55,000 * (1 + 3.01%)^36 = $160,000

That is a pretty pathetic price increase. Why? Because over the last 36 years, inflation has been 4.70% on average. If the house price increased with inflation, it would be worth $287,000. And if he got a 10% return on that $55,000 in the stock market, it would be worth $1,700,000.

True, he saved 36 years of rent, got many years of tax savings, and had 36 years of the joys of owning a home. But that doesn't change the fact that the home price increase was very small over that time.

I don't know income data back that far. But are you certain that the lower middle class was $24,000/year in 1970? That seems way too high, but I'm just going by my gut feeling.

Just a couple comments.

You seem to be arguing based on inflation, while I'm arguing based on home buying power of an average income. My point was that 36 years ago a years salary would buy a certain percentage of a home, while today it will buy a substantially smaller portion of a home. Home prices have increased out of proportion to wage increases.

You talk about the house purely in terms of value, but to many a house is not an investment, it's a home. The important part isn't how much it's worth, but rather if a new homebuyer today could hope to buy the same quality of home as one 36 years ago. It doesn't matter how small the value of the home compared to inflation is, it matters how much smaller the increase in personal income versus the cost of that home is.

One VERY important thing that gets overlooked is the difference between single and multiple income households. One person could provide a certain portion of the cost of a house from an average yearly salary. Today two people working generally provide the same, or even a smaller percentage of those costs. That's how out of step the cost of housing is to incomes.

I think you're right about the income level, it was closer to 16-18k. 24k was probably pure middle class at the time. Even so you're talking about a 100% increase in income versus a 300% increase in costs.

Mind you, my numbers are from memory, and probably not exactly accurate. But the general IDEA of what I'm saying is completely true. One person can do less with their money today (in terms of home buying) than could a person of equal class and circumstances 36 years ago. Substantially less. I'm not talking about inflation overall, just pure housing costs.

What was the average interest rate on a mortgage in the 70's?

Few people pay cash for a house - they mortgage up to a percent of their income. Your purchasing power at 15% is very different than it is at 5%. Interest rates are WAY lower than they used to be and this is a big reason for the price inflation as buying power has increased dramatically.

It was 8.5% in 1970 for an average according to the survey I found. That really isn't central for my specific case, since my father paid it off in about 10 years. I'm too lazy to do the math right now, but would the interest payment difference really make up for a 300% disparity in cost over income even if it was higher than 8.5%?

(rounded for computational ease)
$25,000 income
$50,000 house
10% interest

vs

$35,000 income
$150,000 house
5% interest

What's the monthly totals and final cost difference?

 

[HeroOfPellinor]

Originally posted by: dullard

Originally posted by: HeroOfPellinor
Yeah wait. I already own a house worth double what I paid 4 years ago. And guess what, if prices ever fell back to near what I paid for this one, I'm gonna grab up a half dozen of them and then rent them off to people like you who continue to wait for these things to be free.

It is stupid to wait while prices increase. But please tell me why it is stupid to wait while prices DECREASE? Why buy immediately, only to see that you could have bought a similar house for thousands less a few months later?

Even in your post, you implied that you won't buy six rental houses until prices fall. Why aren't you buying them now? Why won't you take your own advice?

You almost got my point. It was that if prices drop down anywhere close to where they were 4 years ago, demand will increase exponentially because not just first time owners will be interested, which is why they will never drop that low.

If you're suggesting to wait to see if a 300K houses is gonna drop another $10,000 over the next few months then......I don't know what to say. A fraction of a percentage interest rate increase would wipe any savings you'd have wrought. Plus, any house currently dropping isn't likely to suddenly skyrocket when things pick up a bit.

 

[dullard]

Originally posted by: PrinceofWands
(rounded for computational ease)
$7,000 income
$50,000 house
10% interest
$439/month, 75% of median male income

vs

$35,000 income
$150,000 house
5% interest
$805/month, 28% of median male income

Corrected your income to be more realistic, and did the math for a 30-year fixed mortgage without refinancing, without closing costs, ignoring taxes, and ignoring insurance for this post.

 

[PrinceofWands]

Originally posted by: dullard

Originally posted by: PrinceofWands
Just a couple comments...

You have some truth to your arguments. In the last 5 years, housing prices HAVE substantially increased out of proportion to wage increases. People took money out of the stock market and dumped it into the housing market. So, the stock market plunged and finally leveled while the housing market soared. Irrational exubberance moved from one market to another. Housing prices will decline to fix this problem.

But, you have some problems with your posts. Yes housing prices have increased over 36 years. But housing sizes have also increased. Source. In 1973, 56% of new homes were under 1600 sq ft. In 2005, only 20% of new homes were under 1600 sq ft. Even the components within the houses have improved. In 1973, 49% had air conditioning, in 2005 that number became 89%. Plus the efficiency has soared, better AC/furnace, better insulation, etc. So, we aren't really comparing apples to apples. We are comparing apples to oranges. Yes, some McMansions are bucking those quality trends, but you can't really compare prices directly without the caveat that you aren't comparing the same average house.

You are correct, that a two earning family has fueled the ability to buy bigger/better houses. In many ways that is a positive (better quality of life while at home, more gender equality). In many ways that is a negative (less attention on child rearing). But, a two-income family is not a requirement. For better numbers, here is a link. In 1970, the average incomes were $7,108 for males and $2,801 for females. In 2003, the numbers were $32,175 and $22,254 respectively. Male income went up 352% in 33 years, female income went up 695%. Compare that to your parent's home going up a mere 191%.

Ok, those seem to counter my thoughts in general terms, but once I get to the specifics it's refuted at least in my limited scope.

Parents house was built in the '50s, 1800sq'. All the updates have been added to the house now, using money that was saved by:
A) cheaper house
B) not wasting 20 extra years of interest payments
How much difference there was between adding them with money saved versus adding it to the cost of the house gets really tough, so I'm kinda skipping it for ease.

In other words, take the total cost of a $55,000 house at 8.5%, plus adding modern amenities and compare it to a house of equal size and frills that goes $150,000 at 5%. I'm curious if all the extra bells and whistles really matter all that much against that huge of a difference in price. Also remember that this is a supremely poor area. Housing prices in other areas went up a heck of a lot more than I'm suggesting here.

On the other side of it I had no idea incomes had increased that much. Either my father relates his income wrong, or I just remember wrong (either is possible). Those were medians, not averages btw, though it's not much of a big deal in this discussion. I would be curious to see a regionalized breakdown of those numbers as well sometime, just for fun. Thanks for providing the information, it gives me more to consider.

 

[dullard]

Originally posted by: HeroOfPellinor
You almost got my point. It was that if prices drop down anywhere close to where they were 4 years ago, demand will increase exponentially because not just first time owners will be interested, which is why they will never drop that low.

As prices drop, demand will increase. However, there is a massive housing glut. In other words, supply is high. Even a big uptick in demand might not be enough to stop prices from falling for a while.

If you're suggesting to wait to see if a 300K houses is gonna drop another $10,000 over the next few months then......I don't know what to say. A fraction of a percentage interest rate increase would wipe any savings you'd have wrought. Plus, any house currently dropping isn't likely to suddenly skyrocket when things pick up a bit.

Interest rates have also been dropping for a few months. Slightly lower prices plus lower interest rates. It is a win/win situation for those who waited the last few months. Most likely, in the short term, it'll still be win/win to wait A LITTLE BIT. But don't wait too long (hoping in vain for a massive price drop) and miss the boat.

 

[PrinceofWands]

Originally posted by: dullard

Originally posted by: PrinceofWands
(rounded for computational ease)
$7,000 income
$50,000 house
10% interest
$439/month, 75% of average male income

vs

$35,000 income
$150,000 house
5% interest
$805/month, 28% of average male income

What's the monthly totals and final cost difference?

Corrected your income to be more realistic, and did the math for a 30-year fixed mortgage without refinancing, without closing costs, ignoring taxes, and ignoring insurance for this post.

Very cool, thanks for the numbers.

I guess it works out, but somehow it just doesn't seem like it should. Talking with older people who had no problems buying a house on one average income of the day, and thinking about that today takes two people with average incomes and even then they barely seem to make it (commonly). Of course that isn't including all of the other increased costs, but if incomes are really growing that fast it shouldn't matter. I suppose I should be considering the debt factors too, though that's not an issue with my peeps since none of us use credit. 😎

 

[dullard]

Originally posted by: PrinceofWands
Those were medians, not averages btw, though it's not much of a big deal in this discussion. I would be curious to see a regionalized breakdown of those numbers as well sometime, just for fun. Thanks for providing the information, it gives me more to consider.

I often overlook the fundamental difference between median and average. Thanks for pointing it out. I'll correct my wording.

 

[AlienCraft]

Out here in NOR.CA., Contractors are finishing their current projects and now are selling lots, firing the landscapers and subs and finishing on their skeleton crews. Since most construction workers are independant contractors, NONE of these recently unemployed will ever show up in Federal employment statistics.

Pop, goes the bubble....

 

[dullard]

Originally posted by: PrinceofWands
Very cool, thanks for the numbers.

I guess it works out, but somehow it just doesn't seem like it should. Talking with older people who had no problems buying a house on one average income of the day, and thinking about that today takes two people with average incomes and even then they barely seem to make it (commonly). Of course that isn't including all of the other increased costs, but if incomes are really growing that fast it shouldn't matter. I suppose I should be considering the debt factors too, though that's not an issue with my peeps since none of us use credit. 😎

You are welcome. I think the problem stems from increased expectations. Back in the 1970s, people had fewer things to spend their money on. Now a days, people spend $1000/year for a cell phone. $1000/year for cable TV and Internet. $5000/year for that new SUV, etc. People aren't satisfied with a nice fridge, they want a stainless steel fridge that costs 2x more for the exact same thing. People are buying lots of electronic gadgets. People are buying $1000/year for Starbucks coffee. Etc. Those really eat into a $35,000 median income. It isn't the housing costs that require two incomes (in most areas of the country). Instead, it is the massive spending for everything else that people didn't buy in the 1970s that requires the second income.

 

[HeroOfPellinor]

Originally posted by: dullard

Originally posted by: PrinceofWands
Very cool, thanks for the numbers.

I guess it works out, but somehow it just doesn't seem like it should. Talking with older people who had no problems buying a house on one average income of the day, and thinking about that today takes two people with average incomes and even then they barely seem to make it (commonly). Of course that isn't including all of the other increased costs, but if incomes are really growing that fast it shouldn't matter. I suppose I should be considering the debt factors too, though that's not an issue with my peeps since none of us use credit. 😎

You are welcome. I think the problem stems from increased expectations. Back in the 1970s, people had fewer things to spend their money on. Now a days, people spend $1000/year for a cell phone. $1000/year for cable TV and Internet. $5000/year for that new SUV, etc. People aren't satisfied with a nice fridge, they want a stainless steel fridge that costs 2x more for the exact same thing. People are buying lots of electronic gadgets. People are buying $1000/year for Starbucks coffee. Etc. Those really eat into a $35,000 median income. It isn't the housing costs that require two incomes (in most areas of the country). Instead, it is the massive spending for everything else that people didn't buy in the 1970s that requires the second income.

Also, when women entered the workforce enmass around that time, it effectively cut their husbands value in the market place in half and ensured that every family would need both parents working from that point on.

 

[OutHouse]

hummm first i have heard of zillow.com

i just checked it out and i must say its damn cool.

 

[dullard]

Originally posted by: Citrix
hummm first i have heard of zillow.com

i just checked it out and i must say its damn cool.

I was the first to post about it on Anandtech. I think it is fun to play with. Heck, I've used it for non-housing tasks. Like when I needed a map of a nearby park. Just typed in my address and scrolled over a bit.

But there are problems with Zillow. For one, housing prices fluctuate far too much on the website. Second, in some areas the data is way out of date.

 

[Jawo]

From where I'm from (Northern VA), its not flippers and speculators, its a funny thing called supply and demand. 😉 House prices have gone up drastly over the past decade, but $150 is kinda low. Better look at living in the middle of no where or not remotly close to a large city.