High Housing Payments: The New American Nightmare

[novaman]

The Statistics highlighted in this article absolutely blew me away. I'm pretty sure none of these people visit this forum

'High housing payments the new 'American nightmare' | - Business - The Orange County Register

 

[Ally]

If I had to live in Orange County, I'd probably live in my car. That's crazy!

 

[NW-Bound]

Houses in Calif. have always been expensive. In 1985, I received a job offer from a company in Santa Monica. It represented a 25% raise over what I was making. They flew us out for a visit. I stayed over a weekend and spent time with a realtor to see what was available. I ran away scared, because house prices were 2x that in my area.

Would not be able to pay off our home, and even to buy a 2nd home, if I took that offer.

 

[Midpack]

I've never understood how anyone could afford to live on much of the west coast, much of the northeast (excluding well inland in both cases), near DC or Hawaii. Lots of absolutely wonderful places that I live to visit and would enjoy living near, but out of reach for ordinary Americans it seems.

 

[Notmuchlonger]

I guess it depends on the job you get in CA. Nursing pays quite well to afford the housing. However, I'm sure some of the other professions not so much. The state reminds me of a sinking ship anyways

 

[NW-Bound]

Even for good paying jobs, the salary may not quite make up for the higher housing cost. I doubt that there are many engineering jobs that pay $200K+ in Silicon Valley or in Southern Calif. And then, one may not have that much left after the higher taxes.

 

[Notmuchlonger]

Yeah Southern Ca and Silicion Valley are totally different worlds. Supply and demand I guess. No way in hell Id live there.

 

[NW-Bound]

Yes, it's demand all right. As I have friends and relatives there, we have been visiting often. Traffic was bad 35 years ago, and it is still getting worse. Lots of people like to live there. In my last visit, my aunt said that if it weren't for the poor economy, there would be even more people out on the streets, shopping, going out to eat, to the movies, etc...

My nephew, a pharmacist, is packing up to move to Manhattan. He will be renting a small studio, somewhere close to the UN. The rent will be $2K/month. We asked how large, and he said he did not know yet. We joked that perhaps it's the size of a closet, and the realtor did not want him to know.

Still, he wanted to experience life in big city. His pay will be just a tad better than it is now, and that is because he will be working night. Still looking to sell his fancy German sport sedan, as he will not be needing it, nor able to pay to park.

 

[clifp]

Somewhat ironic that there are running this article now when home prices across the country are at the most affordable levels in generations. Having to spend 45% of your income or more is pretty much the the upper limit. I do know folks who have managed to successfully pay over 50% for several years before raises or marriage made the situation easier.

While it is true that buying a house in California, or Hawaii is very difficult on a below median income it isn't out of reach in today due to the lower prices and much lower interest rates. Even in the most expensive places like San Francisco, Orange County, or Honolulu it is possible to find ok house for 500K (like the 480K place Ms Knight bought) and if you can put up with a longer commute $400K is possible.

At 3.5% interest, payments per 100K of loan are $450/month. So 100K down on a 500K house your payments on 400K would be $1800, taxes and insurance would run about 1% a month (less in Hawaii). Your total house payments are $2300 with a 40% limit on house payment, you'll need income of $5750/month or 69K/year. 69K is only slightly above household median income in most of these place. But not out of reach for many two income families.

 

[NW-Bound]

In town or close to town, the houses tend to be quite old. And then, even if one goes further out and suffers 3 or 4 hours of total daily commute to get a newer home, it tends to be smaller than what one can get elsewhere.

The climate is a lot better than in other parts of the country, certainly. It is all about what one wants to trade for it.

 

[FIREd]

I am paying more then $60K annually in rent for my lil' 1,100 sqft apartment in SF. Yes, I don't live in the 'hood but still, this is far from being one of the most expensive neighborhoods in the city either.

Is it expensive? You betcha. But lots of people must be able to afford it 'cause rents keep going up.

 

[clifp]

In town or close to town, the houses tend to be quite old. And then, even if one goes further out and suffers 3 or 4 hours of total daily commute to get a newer home, it tends to be smaller than what one can get elsewhere.

The climate is a lot better than in other parts of the country, certainly. It is all about what one wants to trade for it.

In addition lower (none in my case) heating or cooling cost for most of California cause of the better climate. But you are right in general you have smaller old house for more than twice the money in the most popular places in CA or HI as compared to the south, midwest, or north west.

But what I don't get is why people are willing to pay almost as much for house (more for NYC) in places like the northeast and DC. You don't even get a nice climate.

 

[NW-Bound]

I can venture a guess about the DC area. Beltway bandits. Better job security?

In the northeast, perhaps these are old-money people. They may inherit their houses instead of paying out of their salaries like you and I would have to do. Just guessing.

 

[NW-Bound]

But lots of people must be able to afford it 'cause rents keep going up.

I am sure a lot of people make a lot of money (like you do). But I'd rather be a landlord there.

Kaching! Money comes in every month. Good economy? Let's raise the rent 5%. Bad economy? Hmm... Let's cut them some slack and delay it a month or two. Nice, nice...

 

[FIREd]

But I'd rather be a landlord there.

Hum, I'm not so sure. In many ways, this is not a landlord-friendly city.

 

[clifp]

I am paying more then $60K annually in rent for my lil' 1,100 sqft apartment in SF. Yes, I don't live in the 'hood but still, this is far from being one of the most expensive neighborhoods in the city either.

Is it expensive? You betcha. But lots of people must be able to afford it 'cause rents keep going up.

Have you looked at buying?

I just did a Trulia/Zillow search for San Francisco houses in the 400-600K range I was pleasantly surprised to see how many (339) were available. Now I am not that familiar with SF neighborhoods anymore but some of them didn't look awful. However for 5k in rent you could buy a house near 800-900K and come out ahead I would think.

 

[FIREd]

Have you looked at buying?

I just did a Trulia/Zillow search for San Francisco houses in the 400-600K range I was pleasantly surprised to see how many (339) were available. Now I am not that familiar with SF neighborhoods anymore but some of them didn't look awful. However for 5k in rent you could buy a house near 800-900K and come out ahead I would think.

We thought about it. We have seen condos comparable to the one we are renting in the $700K-$900K price range. Still, once you factor in property taxes, insurance, and HOA/co-op fees, it's still several thousand dollars going out each month. Plus we already own enough real estate IMO, so I am not in a hurry to add more. And at this moment, I enjoy the freedom that comes with renting. But I still keep an eye out for deals. There is this building in particular that I like very much, but little turnover.

 

[yakers]

A few years back I was working on a Habitat For Humanity project in the hood in LA: Watts. The team which had come from all over the country were rehabing old, run down housing which were still occupied by financially challenged owners. Talking to the volunteers from out of town all had houses with lower valuations then the ones we were working on.

 

[novaman]

But what I don't get is why people are willing to pay almost as much for house (more for NYC) in places like the northeast and DC. You don't even get a nice climate.

I live in Northern Va just outside of DC and the housing prices are almost as bad as parts of CA. While we don't have as nice a climate, overall the weather here is not bad- fantastic Spring and Fall, winter that isn't too harsh, although it does snow and ice up. Summers are hot and humid. WHat we do have in the Dc metro area is an economy that is relatively recession proof thanks to the Federal government, a highly educated populace, fantastic schools, museums, the arts and entertainment.

 

[NW-Bound]

Oh, but the traffic, the traffic... The last time I drove on 495 was more than 15 years ago, when we visited a friend in Silver Spring. The traffic jam on that Friday night drove me insane.

Just looked at some condos in SF in the $800-900K range. They look good and may be affordable for professional workers, but that's because the mortgage rate is low now. What would the prices and the monthly payments be if the mortgage was as high as when I was looking for a house in Southern CA in 1985?

Back then, I remember looking at houses in Thousand Oaks, where the houses were newer. The typical 1,800 sq.ft. home that I was looking for was $150-180K. They could be up in the $700-800K now too. But what really made me decide to refuse the job offer was when I realized it would have taken me more than 2 hours each day to commute to work. And this was in 1985.

 

[plex]

I'm in N. Virginia near DC too. Would never ever buy anywhere near DC. One co-worker said the commute he had was so bad he partially ended up getting divorced over it. 1-person apartment rents are insane. Luckily 2-3+ person apartments are reasonable, so I'm only paying $800/month for rent+all utilities, with a 10 minute commute.

Once I can telework though, I'm planning on moving to an area with even better internet, better utilities, better weather, less costly food, non-insane driving conditions, $8k less in taxes, at least as safe an area, if not safer, and where I can get a decent house for $100k. Being chained to a particular area by a job is the worst.

 

[Nords]

I've never understood how anyone could afford to live on much of the west coast, much of the northeast (excluding well inland in both cases), near DC or Hawaii. Lots of absolutely wonderful places that I live to visit and would enjoy living near, but out of reach for ordinary Americans it seems.

Buying a run-down fixer-upper on Oahu in 1989 took every nickel we had, but dual income helped for a while. In the meantime we put a lot of sweat equity into it.

Buying again in 2000 meant another run-down fixer-upper, but this time the market was down at the pits. The home is in a much better neighborhood with a great school. Lots more sweat equity was required. It's doubled in value over the last decade and we couldn't afford to buy it today.

The bargains are here for the finding. Commutes are problematic but I did a lot of bicycling... and when you're deployed for six months you don't care about a commute.

 

[novaman]

I'm in N. Virginia near DC too. Would never ever buy anywhere near DC. One co-worker said the commute he had was so bad he partially ended up getting divorced over it. 1-person apartment rents are insane. Luckily 2-3+ person apartments are reasonable, so I'm only paying $800/month for rent+all utilities, with a 10 minute commute.

Once I can telework though, I'm planning on moving to an area with even better internet, better utilities, better weather, less costly food, non-insane driving conditions, $8k less in taxes, at least as safe an area, if not safer, and where I can get a decent house for $100k. Being chained to a particular area by a job is the worst.

You are right. The traffic here in the DC area is horrid. I'm fortunate to have a home office so that is a non factor for me. The only thing I really hate about this area is the weather.

So what area are you planning on moving to?

 

[plex]

You are right. The traffic here in the DC area is horrid. I'm fortunate to have a home office so that is a non factor for me. The only thing I really hate about this area is the weather.

So what area are you planning on moving to?

Currently thinking near Chattanooga TN. My only absolute criteria are low-taxes, including no income tax, and fiber optic internet being in the area. That actually limits it quite a lot.

The other matching areas are Tampa FL, Seattle WA, and most of Texas. However, municipal fiber is starting to catch on, so more areas might pop up in a couple years before I move. Not happy about Verizon, the only commercial fiber provider, killing their fiber network.

 

[bo_knows]

I'm in Northern VA (outside of DC) too. When my friend was looking into moving to the area, I mentioned that the biggest downsides to the area were traffic and housing prices. But, I also told him, that you just need to think of it as putting more of your Asset Allocation toward housing. It's an investment.

Wife and I bought a 40-yr-old townhouse back in 2008 for $380k. It's probably worth roughly the same today, and we've been hammering at our mortgage with double payments. But, we both have relatively high incomes. As someone said earlier, the Federal Government has made this area recession-proof when it comes to employment.