How much house should we buy?

[soupcxan]

DW and I are experiencing sticker shock from home shopping in Houston. Because our jobs are on vasty different sides of town, the locations we'll consider are limited (2 hours of commuting per day is not acceptable to either of us). But housing stock in these areas is very limited, the market consists of (a) older 1950-60s homes that need +$100k of work to be modernized and (b) brand new homes on teardown lots that are probably more house than we need. No one is tearing down homes and building reasonable ones, they are all going for the top of the market.

Coming into this I wanted to spend $400-450k. But after looking around, newer homes we like are close to $600k. Seems outrageous but the market is what it is. To some extent, the new homes are bigger than we would prefer but can't control that. We don't have the time/energy to supervise a massive renovation project right now, so buying a $350k home and putting $150k into it isn't appealing.

Our financial info is in this thread. For now we are both working but that may not continue forever. I don't want to buy so much house that we both must work forever.

http://www.early-retirement.org/forums/f28/finance-house-or-pay-cash-64621.html

So, would you buy a $600k house? Or keep renting a house for $2.4k/month that is ok temporarily but not really the space we want. I'm not only concerned with the sales price and the higher ongoing property tax/maintenance/insurance bills that will accompany it.

 

[REWahoo]

I would not buy a $600k house in Texas unless I planned to live in it until they cart me off to the nursing home.

 

[Midpack]

That would be more than twice the value of our current home and over three times the Houston average (according to Zillow). Though $600K isn't unusual these days based on HGTV shows, $600K for a house would put me in a "cart" for the final ride. Especially in Texas where RE prices are generally reasonable relative to many other states.

Texas Home Prices and Home Values - Zillow Local Info

http://www.zillow.com/local-info/TX-Houston-Metro-home-value/r_394692/

 

[pb4uski]

I would suggest that you look at the after-tax carrying costs of buying a $600k home (including the opportunity cost of your downpayment) and convert that to a monthly rent and see if you can rent a bigger/better place that is convenient to your workplaces.

IIRC you were also unsure of how long you would be in Houston.

 

[meekie]

How long have you been house shopping? We had a similar dilemma last year when we decided to move. I was willing to do a remodel, but all the houses we were looking at were 700-800k, plus remodel costs. It took 6 months, but we finally found a house that a company flipped, but didn't upgrade too much, that only cost 660k. It still had granite counters, but really basic cabinets. Flooring is laminate, not hardwood, etc. the market here in San Diego was absolutely crazy, and inventory in January when we first started looking was horrible. But by summer it really did pick up, and there were a lot more options. We still had to jump on it to get this house, it went on the market on Friday night, and on Sunday we had our offer in for 5k more than asking. We had one other offer to compete with, but they were low balling it.

I am extremely happy with our house, and so glad that we didn't stretch our budget and buy something for 800k+. If I were you, I'd rather buy a 350k house and not upgrade it, rather than buy more house than you need.

 

[youbet]

So, would you buy a $600k house?

A case could be made for a large investment in personal real estate at this time. I know nothing about the Houston market, so I'm assuming it's not a bubble or other percarious situation and that the house you'd chose would behave typically in the market.

Mortgage rates are low. The prospects for moderate inflation within a few years seem high. If you'd enjoy a high tier home enough to compensate for the taxes and utilities that go along with it, I can name a number of investments less appropriate for a young couple.

We're FIRE'd boomers living in suburban Chicago. Of our circle of friends, we live in, by far, the most modest home. It seemed like a real money saver over the 3+ decades we've lived here. But our friends all seem to have made it to FIRE as well despite living in and enjoying much more expensive houses in nicer neighborhoods over this same time frame.

Even though taking the modest home route worked for us, we can see that there can be other successful paths. If you were living in a really nice place in a really desirable neighborhood, is that something you'd really enjoy? Would the expense bring a commensurate level of utility and value to your lives?

 

[jclarksnakes]

With your current income you could certainly afford to spend 600K on a house. The big problem I see with doing that is that it will get you into the habit of living in 600K houses. At some point in the future you may need to live or even retire on a much lower income. When that happens you need to already be in the habit of living more modestly.

 

[FIREd]

Yikes! I balked at paying $600K for a house in the Bay Area, so it seems incredibly expensive for a city like Houston. Unless this is a forever house, I'd keep renting.

 

[Animorph]

We were happy buying a larger house than we needed. We enjoy it, and spend a lot of time in it. But it does significantly slow your savings. So I definitely wouldn't buy more than you want, unless you can justify it as a temporary investment.

 

[W2R]

I would not buy a $600k house in Texas unless I planned to live in it until they cart me off to the nursing home.

+1

Another thought that occurs to me is that at some point, all of us have to resign ourselves to the fact that we can afford what we can afford.

Instead of "older 1950-60s homes that need +$100k of work to be modernized ", why not think of "older 1950-60s homes that have a lot of character and might give us an opportunity to work on a few small projects ourselves in a few years".

You can survive without pouring $100K into a perfectly sound home, of any age, and apparently (from what you are saying) an older home is what you can afford. Instead of "buying a $350k home and putting $150k into it", why not consider buying a $250K home and making no upgrades? Nobody ever died from living in a $250K home in Houston. I think you would save so much from living such a downsized lifestyle, that you would speed into retirement.

I wonder how many of our (often extremely accomplished and highly compensated) members live in homes worth $600K and up? Perhaps not so many.

 

[Lazarus]

There are plenty of homes in Houston for less money. I used to live there. I have owned three houses in Texas. All of them put together would not add up to $600K.
You need to separate your wants from your needs.

 

[Meadbh]

I think you must have the "granite countertops and stainless steel appliances" approach. (Or whatever the latest "in" thing is).

Confession: I do have both of those (plus a view to die for) in my paid off condo, But at a fraction of the cost you mention. And I live in British Columbia, where prices are the highest in Canada.

Watch the HGTV show Property Virgins. They start in the area where the Virgin wants to live, the realtor gives them a rude awakening, and then they search for and find a home they love and can afford in a more modest area.

Last week I watched an episode of PV in which a young lady from Atlanta was savvy enough to realize that the risk was too high for her and walked away.

 

[Katsmeow]

Which sides of town do you each work on? I've lived in the Houston area for over 30 years. Back when I was unmarried I lived in a townhouse in the Galleria area (which was where I worked). After I got married to someone who worked on the north side, well one of us was going to have to drive.

Over the years I've lived in the Galleria area, in the 1960 area, Fort Bend county and now Montgomery county. (Ironically when DH actually worked in Montgomery County, we lived in Fort Bend county).

If you would give me a better idea of where the jobs are located I might be able to make suggestions. It sounds like you are looking primarily at inside the loop or maybe Memorial area to be coming up with the prices you are talking about. I would bet there are better options.

Also commuting time can sometimes be vastly less than you expect with the newer toll roads. For example, when I lived in Fort Bend County I lived close to the Westpark Tollway and worked in the Galleria area. It took only 25 minutes to get home outside rush hour and not much more during rush hour. On the other hand when I lived much closer in (off Eldridge Parkway) and worked at the same place it took me over an hour to get home due to traffic patterns.

If you are looking inside the loop and want to spend $400-450k and don't want an older house that hasn't been updated then I would suggest that you look at some of 3 story townhouses. Personally I wouldn't do that (DH and I elected to commute), but it might work for you.

 

[samclem]

(a) older 1950-60s homes that need +$100k of work to be modernized

That's our house. About 1900 sq ft built in the late 1950s. I "modernized" it by replacing some plumbing, tearing out the old carpet and refinishing the beautiful wood floors underneath, replacing the kitchen cabinets and countertops (Corian--looks just great), getting good dual-pane vinyl windows to replace the single-paned aluminum framed ones, replacing the oil furnace with natural gas, and doing a lot of painting. We've probably spent 50K and the house is quite livable. There's more to do (bathroom remodel but keep the fun porcelain/iron tubs, ceramic tile in the basement), but we do it bit by bit.

So, would you buy a $600k house?

Well, as you can probably tell, I'd be disinclined to buy a $600K house where we live, and in our present situation. I don't know anything about Houston--do you need to spend $600K to be in a safe neighborhood? Is there more reasonable housing available close to work for both of you? Schools: A factor? (If Texas is making as much progress as other states regarding school choice, maybe you'll have more flexibility in this regard).

As you say: Property taxes, insurance, etc is a big deal. And there are other issues: My none-too-new car doesn't attract any sneers from the neighbors, but it might be different in a more affluent spot.

I'd just say you should go in with your eyes wide open. Look at all the costs for a $600K house and see if putting the money there will bring you guys more enjoyment than anything else you could do with the money.

 

[Lisa99]

I think I would do a longer commute before I paid that kind of money for a house in TX. $600k gives me the shivers because it would eat into our early retirement funding.

The last time we looked at buying a house I ran the typical 'how much can you afford' mortgage calculator. The mortgage size we qualified for was 3x what we ended up buying. I just about fell out of my chair when I saw what they were willing to give us, but then it dawned on me how so many people can get into deep trouble with mortgages. If you're debt free and have decent incomes the amount of mortgage you're able to get is ridiculous.

But sorry for the rambling...I couldn't pay that much for a house in Houston, or Dallas, or anywhere in TX.

 

[rodi]

How long have you been house shopping? We had a similar dilemma last year when we decided to move. I was willing to do a remodel, but all the houses we were looking at were 700-800k, plus remodel costs. It took 6 months, but we finally found a house that a company flipped, but didn't upgrade too much, that only cost 660k. It still had granite counters, but really basic cabinets. Flooring is laminate, not hardwood, etc. the market here in San Diego was absolutely crazy, and inventory in January when we first started looking was horrible. But by summer it really did pick up, and there were a lot more options. We still had to jump on it to get this house, it went on the market on Friday night, and on Sunday we had our offer in for 5k more than asking. We had one other offer to compete with, but they were low balling it.

I am extremely happy with our house, and so glad that we didn't stretch our budget and buy something for 800k+. If I were you, I'd rather buy a 350k house and not upgrade it, rather than buy more house than you need.

I'm with Meekie - I live in San Diego. Houston is 52% as expensive as San Diego according to several online calculators. $600k seems really high for Houston.

+1

Another thought that occurs to me is that at some point, all of us have to resign ourselves to the fact that we can afford what we can afford.

Instead of "older 1950-60s homes that need +$100k of work to be modernized ", why not think of "older 1950-60s homes that have a lot of character and might give us an opportunity to work on a few small projects ourselves in a few years".

You can survive without pouring $100K into a perfectly sound home, of any age, and apparently (from what you are saying) an older home is what you can afford. Instead of "buying a $350k home and putting $150k into it", why not consider buying a $250K home and making no upgrades? Nobody ever died from living in a $250K home in Houston. I think you would save so much from living such a downsized lifestyle, that you would speed into retirement.

I wonder how many of our (often extremely accomplished and highly compensated) members live in homes worth $600K and up? Perhaps not so many.

This!!!
Buy a house that is functional (not necessarily fixed up - but has working bathrooms and a kitchen) and upgrade it over time. Determine what you want, vs what you need. Bank the money you would otherwise have spent on the house.

We're 11 years into our current home and are still fixing it up... slowly. And getting great satisfaction as we go. Since most of our changes were cosmetic, rather than functional, we're taking our time, paying cash as we go.

 

[haha]

How about a 2 or 3 bedroom Apartment? Houston seems to be a city capable of really inflicting real estate pain, do you want your retirement to depend on the oil price and the WTI/Brent basis?

Ha

 

[Katsmeow]

I'm with Meekie - I live in San Diego. Houston is 52% as expensive as San Diego according to several online calculators. $600k seems really high for Houston.

This is almost certainly a location issue. When DH and I were newly married and looking for a house we looked for houses in our price range (this was about 20 years ago) which was about $220k at the time. Near where I was living at the time (Galleria area) for that price you could have a nice townhome or you could have one of those older, updated houses that was 2000 SF.

We ended up buying closer to where DH worked (north side) and bought a 5 bedroom, 3800 SF house under construction which we were able to customize. The negative was that I had an hour long drive to work.

A few years ago, we spent $530k for house in Fort Bend County. However, it was 4500 SF, on over 2 acres with a guest house and a pool. It was vastly much more house than we could have bought in a more central area inside Houston. But DH had a long commute to work and I had a 35 minute commute. It way way nicer than what we could have gotten for the same amount in a more central area in Houston. (We have since downsized from that house).

I know people who spend way more than $600k for houses in Houston. It is really just a factor of how close in you want to be. If you want to work downtown and live close by then you will pay - a lot - for that location. If you are willing to spend 45 minutes on a commute then you can spend a lot less. If you are willing to spend an hour or more on a commute you can spend even less. Most people can't afford to spend $600k for a house in Houston and so they commute to a lesser or greater extent. Then of the people who could spend $600k (we could have when we bought the house in Fort Bend County) a lot of them don't want to spend that much to get what they could get for much less if they didn't live so close in. When we bought the house in Fort Bend we had the income to buy a house twice as expensive, but we just didn't want to spend that much on a house. But, I know people who absolutely don't want to live anywhere except very close in.

 

[bondi688]

soupcxan
Which specific area of Houston are you looking at? I found some rather nice houses at much below the 400-450k range you are budgeting, although I have now decided against moving to Houston at this time of my life.

Both houses are listed at < $400000

 

[kyounge1956]

That's our house. About 1900 sq ft built in the late 1950s. I "modernized" it by replacing some plumbing, tearing out the old carpet and refinishing the beautiful wood floors underneath...(snip)

what is it with the carpets in houses of that era? The house I bought in Lacey, built in the early 1950's, has oak floors throughout, with wall-to-wall installed over it. Why did so many people cover up that beautiful wood with ugly carpet?

Now returning to your regularly schedule thread...

 

[soupcxan]

If it were as simple as stainless steel and granite, this would be an easy fix. The price problem is due to (a) location and (b) space. There are not a lot of neighborhoods that accomodate both our commutes. Adding an hour a day to each of our commutes is 10 hours a week or 500 hours a year. That's a lot of wasted time, not to mention the stress of Houston traffic. And within those neighborhoods, most of the homes are well under 2k sq ft. We want more like 2300-2500 sq ft but the old homes aren't that big, and the new homes are +3k, so the price is jacked up.

Yes, if you live in the Houston suburbs you can easily get a modern 3k sq ft house for $300k. But there is no suburb that works for both our commutes.

Yes, plenty of people live in unrenovated homes from the 1970s (most people in the world live in much less). But cooking is a hobby and cooking in an original 1970s kitchen is no fun. And DW is not interesting in using a 1970s bathroom that has 40 years of built-up crud.

Yes, you can buy a narrow 3 story house for $400k. We're living in one now. We're right on top of our neighbors and we hear them all the time (despite no shared walls). And we're tired of having to go up and down the stairs for every single thing. Use the bathroom, get your cell phone, get your car keys, carry the groceries, change the laundry, change your clothes, check the mail, etc. Cooking a meal on the grill requires 4 or 5 round trips on the stairs. I thought this was no big deal until I had to use the stairs 10-20 times a day. And our parents are getting to the point where they do not navigate the stairs so well when they visit.

Rents increased 17% in Houston last year. No idea if this will continue in 2013 but wouldn't bet against it. And long-term we want to own so we can make the place our own.

Agree there are some bubble-like qualities to the RE market here if you want to be reasonably close to the city. So resale value is a definite concern.

I agree $600k is a LOT of money for a Houston home and this is orthogonal to early retirement plans.

 

[Accidental Retiree]

soupcxan
Which specific area of Houston are you looking at? I found some rather nice houses at much below the 400-450k range you are budgeting, although I have now decided against moving to Houston at this time of my life.

Both houses are listed at < $400000

Gorgeous! These look like either the Spring/Humble/Woodland area, or what you can find down in Pearland, sans all that pretty greenery. Where did you find these?

It has been a long time since I lived in Bellaire, but I, too, am having a hard time visualizing a $600k house in Houston. I first thought of the Galleria area, or River Oaks, and I know there must be expensive areas; I figure they must be inside the 610 loop. But I am just guessing from long ago memories.

Commuting. Blah. An SF Bay Area resident, I understand not wanting to commute.

 

[bondi688]

soupcxan
Since this is an ER forum, the decision of how to balance the hassle of commuting vs paying more than you would like or can afford really depends on how long you two plan on staying at the jobs, wouldn't it? And will one plans to retire much sooner than the other? That will play into your calculation. The world is not perfect and will cater to all your desires, so you have to choose which is the less bitter pill. Would the commute be more unacceptable to you than what you are going through in off hours than living in a place you sound like you absolutely hate. I have relatives who commute everyday from CT or LI to go into Manhattan to work. Their commutes are longer and likely more stressful than commuting from the suburbs in Houston, but to them, those efforts were worth it.

 

[bondi688]

Accidental Retiree :

You are right, they are in Spring, specifically, in the Champion Forest, Memorial Northwest areas. Those houses will easily cost 4 to 5x more in the areas where my relatives are living in CT or the Long Island.

 

[Katsmeow]

Accidental Retiree :

You are right, they are in Spring, specifically, in the Champion Forest, Memorial Northwest areas. Those houses will easily cost 4 to 5x more in the areas where my relatives are living in CT or the Long Island.

This is actually very funny. In my earlier post I said:

When DH and I were newly married and looking for a house we looked for houses in our price range (this was about 20 years ago) which was about $220k at the time. Near where I was living at the time (Galleria area) for that price you could have a nice townhome or you could have one of those older, updated houses that was 2000 SF.

We ended up buying closer to where DH worked (north side) and bought a 5 bedroom, 3800 SF house under construction which we were able to customize. The negative was that I had an hour long drive to work.

The 5 bedroom house we ended up buying was indeed in Memorial Northwest. It was a lovely house but we did move closer in after several years because it was a PITA for me to get to my office (in the Galleria area in Houston). For both Memorial Northwest and Champions Forest you aren't really all that near to a major freeway so it took a good 20 minutes to wind my way to HWY 249 before making my way to work.

Based upon the price range the OP is talking about something in the 1960 area - which is where those houses are - is probably an hour to an hour and a half commute each way for one or both of them.

FWIW, houses near Westpark Tollway in Fort Bend County were much easier to travel into Houston due to the proximity to a lightly traveled toll road. That commute was about half as long in time as the one to Memorial Northwest.

In short - unless you work on the north side - those subdivisions are difficult for travel into Houston itself for work. There are many other subdivisions that would be better suited that would be much less expensive than $600k but would have much more pleasant commutes depending upon where the OP and spouse work.