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Rain Man
07-14-2006, 08:22 AM
This is a two-part poll.

First part goes to the homeowners amongst us. Compared to the pay that your household was bringing in at the time, how much did your first home cost?

Second part goes to the renters amongst us. When you're ready to buy your first home, what price level do you think you're going to pay, relative to the income of your household? (I realize that this may be hard to answer, but give it a guesstimate.)


The reason that I'm asking is that I'm astonished at the homes that I see younger people buying today. My first home was a condo that was slightly more than twice my income, and even at that my wife wasn't employed at the time. Once she got a job, it was actually slightly less than my annual household income. We lived there a year, made some good appreciation, and then leveraged it up.

In contrast, several of the 20-somethings I know are buying homes that are six times their annual income, and one of them is buying a home that has to be eight times higher. These are not rich kids with trust funds, either; they're your normal, run of the mill 20-something. They all seem to think that their income will "grow into the house", and I'm thinking I see a reason why foreclosure rates are so high. What ever happened to the concept of a starter home? Or am I just seeing an anomaly?

ExtremeChief
07-14-2006, 08:24 AM
The home we are getting ready to purchase is equal to my wife's and my income annually. The first one was probably triple our income.

DaFace
07-14-2006, 08:26 AM
I took a personal finance class once that said you should aim for a house payment that is roughly 1/3 your monthly income. Strangely, they never mentioned what a price should be for the house in total. I'm a non-homeowner at this point, but I'll probably aim for 2-3x our household income.

DaKCMan AP
07-14-2006, 08:26 AM
I'll have my Master's next May and I'll start working full-time. Depending on where I'll be working will decide a lot of it. I'll probably be renting for a little while before buying a place. Hell, I'm only 21 and single...no need for a house yet.

Rain Man
07-14-2006, 08:37 AM
I got my first house for slightly more than twice our income, though it became only about 1.2 times our income once my wife found a job. (We were relatively new to Denver at the time.)

We then sold it and bought our next home, and it was almost exactly 2.0 times our income, though we bought it knowing that we were on an upward income trend at the time, and knowing that it needed a lot of work. (Ironically, my employer then had a bad year and my income actually went down that first year, though it recovered after that.) Of course, we bought that house low because it needed a lot of fixing up, and over the past ten years (counting the upcoming kitchen remodel), we've spent more on the remodel than on the original house purchase.

I'm just agog at these 20-somethings buying $250,000 - $300,000 houses when their incomes are $40,000. I don't know how they can do it.

SLAG
07-14-2006, 08:41 AM
i'm buying a starter home.. but you already saw that pic rainman

ChiTown
07-14-2006, 08:41 AM
I bought my first home in the early 90's in Chicago. It was a cracker box that I absolutely loved. At that time, it was about 2.5x's my salary.

My second home was a bit different. I made a chitpotfull of cash on the home I solid in Chicago and rolled it into my home in Wichita. I've got about 60% equity in my house right now, and I've been able to keep my house pymts pretty low. At the time I bought it, the principle was about 2x my salary.

That said, I'm getting ready to take out a loan to do a major Kitchen remodel, and building out a bedroom and bathroom in my basement. So I got that going for me........... :banghead:

Bacon Cheeseburger
07-14-2006, 08:43 AM
Our first home was only $7300. Of course it was the mobile type. But before anyone laughs, we lived in it for six years and sold it for $2000 more than we paid for it. It beat the shit out of living in an apartment, which was our only other option. We had our own parking places, a fenced yard and I could turn my stereo on without the neighbors freaking out.

Iowanian
07-14-2006, 08:44 AM
My first home was trashed by renters and not kept up....I bought it for around my yearly salary, and spent 2 years gutting and remodeling it. I sold it last year and didn't quite double my money, but had built alot of equity, as well as appreciation.

I cleared enough to move into a house around 2-3 times my annual salary that was much nicer, in a good location, that needed a little bit of work....so I can still make money on it.

I've had a "3 house plan" from the beginning. Start small and brutal, make enough to make the down payment and do some of the work to the 2nd....buy a larger, nicer home, improve it, and eventually sell for a profit.....hopefully with enough equity and profit to make a good dent in.... my 3rd home as either a small farm where I want to be and build, or buy "the home" I plan to live in for a long time.

It baffles me when I see young people and newly weds buying houses 5X over what they make, filling them with expensive furniture and driving new cars.

**house comparison based on my income, not the combined of mine and wife

its really no wonder the bankruptsy rates are what they are....too many people living way beyond their means, and too many young people expecting to start right out, living the lifestyle their parents have accumulated with 30 years of work.

MOhillbilly
07-14-2006, 08:46 AM
i own my home and payed for it with my heart.

how does one calculate that into cash and earnings?

Rain Man
07-14-2006, 08:47 AM
Our first home was only $7300. Of course it was the mobile type. But before anyone laughs, we lived in it for six years and sold it for $2000 more than we paid for it. It beat the shit out of living in an apartment, which was our only other option. We had our own parking places, a fenced yard and I could turn my stereo on without the neighbors freaking out.

Wise move.

I'm actually a fan of "manufactured housing" for a lot of purposes. Is it your dream home? Probably not. But it's great affordable living for starter homes and for retirees. It's unfortunate that there's such a stigma associated with it.

DaKCMan AP
07-14-2006, 08:48 AM
Wise move.

I'm actually a fan of "manufactured housing" for a lot of purposes. Is it your dream home? Probably not. But it's great affordable living for starter homes and for retirees. It's unfortunate that there's such a stigma associated with it.

I would never own one as long as I live in FL.

...probably still wouldn't own one elsewhere, though ;)

Donger
07-14-2006, 08:49 AM
It's unfortunate that there's such a stigma associated with it.

And tornadoes. Don't forget the tornadoes.

And 2x4s.

Iowanian
07-14-2006, 08:49 AM
I kind of lied now that I think about it.

In college, my brother attended the same one I did, and the 2nd semester his freshman year, we bought an old trailer house and payed a guy to haul it down for us.....we did some work in it, had a roomate from our hometown...and eventually yunghungwell.....lived in it until my brother finished school(after me) and then sold it to some hippies, who had to move it because they were tearing down that ghetto park.

very, very cost effective for college.

Rain Man
07-14-2006, 08:54 AM
Funny thing about my first home: I had lived in Denver for only about nine months, and my wife hadn't yet found a job. I was only making in the low $30s, and we were kind of scrimping to get by since Denver housing was a bit more expensive than we expected. This was back in the early 90s.

I was kind of looking at house prices because I wanted a place, but knew that we were not close to being able to buy it. Lo and behold, I'm driving through one of the most expensive neighborhoods in Denver, and I see this very unusual property that looks like a mansion, but was actually ten apartments. The place was built in the 30s, had the same landlords for 60 years, and when they died some developer had decided to turn the apartments into condos. I saw what they were doing, called about it, and they had that place way underpriced. I bought the cheapest condo they had at $70,000, and my wife and I went on a huge "austerity plan" while the developer finished the rehab. We saved every penny we had, I cashed in my savings bonds from my childhood, and we did every financial trick in the book to come up with the down payment. We managed to sneak in, lived there for 10 months, and then sold the place for $85,000 to buy a bigger place. I thought I was a genius until the person I sold it to then sold it for $150,000 three years later.

Bacon Cheeseburger
07-14-2006, 08:55 AM
And tornadoes. Don't forget the tornadoes.

And 2x4s.
Yeah, the tornado warnings were always fun. We'd have to go down to the shelter, which was the basement of the park's clubhouse and be crammed in with all the other idiots from the park. The kids would get restless and drive everyone nuts. Then again, it's not like you're any safer in a 2nd or 3rd floor apartment.

As far as the stigma, it's there for good reason. There is a lot of the "other side of life" living in them. I was glad to get out when I did.

Baby Lee
07-14-2006, 09:00 AM
First house was a new house in Jeff City, a little over 2x.

Present house was a steal, less than 1x my salary, and has improved in value 2.5x since 2001.

Predarat
07-14-2006, 09:37 AM
Like Rainman my first home is a condo about 2-2.5 times my household income.

Inspector
07-14-2006, 09:38 AM
Bought my first house in the mid 70's for $20k. Don't remember what we made back then but the house payment was pretty easy for us.

I restored an antique house back in the 90's that sold for 7x what I gave for it. That was a nice deal for us. Went to a new huge house until the kids finally moved out and then was able to sell that one and pay cash for my current home.

With the exception of the new huge house (which was about 1x our income level) we have never bought a house for more than a years pay.

Confessions of a cheapskate....

cdcox
07-14-2006, 09:53 AM
Both houses I've bought have been less than 2x my household income at the time.

I see a several reasons why people are buying houses that would normally be classified as beyond their means:

a) much more liberal lending policies in the last 5 years. With Zero down payments, interest only loans, ARMs people look at the payment and it seems managable to them. I think both the lenders and the homeowners are taking huge risks with these types of loans.
b) Opportunity due to low interest rates. If interest rates go up substantially, the opportunity to move up in the housing market may disappear. The mentality is to buy big now, because you may not be able to afford to later. This only makes sense if you are doing a fixed rate though. Why anyone would risk an ARM in the last 10 years is beyond me.

c) Some housing markets are so high that in order to get into even a starter house in a decent neighborhood, you have to stretch yourself. I can understand this better than stretching yourself to buy a mansion in a more moderate market, which I have seen people do.

sd4chiefs
07-14-2006, 09:58 AM
a) much more liberal lending policies in the last 5 years. With Zero down payments, interest only loans, ARMs people look at the payment and it seems managable to them. I think both the lenders and the homeowners are taking huge risks with these types of loans.

There are a lot of people in San Diego that did this in the last few years and are now screwed with interest rates going up.

kc rush
07-14-2006, 10:54 AM
Our first home was about 2x our annual income, our current home is around 1.5x.

I think that a lot of people were getting into the interest only loans, but are getting killed on them now. Look for a lot of foreclosures over the next couple of years as rates rise (and they've built no equity).

Iowanian
07-14-2006, 11:25 AM
Why anyone would risk an ARM in the last 10 years is beyond me..

I went with a 7 year arm, at 5.25%. I thought the half % interest savings was good and didn't figure I'd be where I'm at for 7 years...and if I was, would probably refinance to keep the money for the improvements in the house and deductible. At the end of 7 years, it can only go up 1.5%/year to a cap of 12...which I know is ridiculous, but would have time to do something about it.


i'd like to build some cash capitol so when the "interest only" and others over their heads start getting crushed, I can kick them while they are down and make some loot in the long run. Anyone with an Interest only loan....should just be renting, and save themselves the property taxes on the house they can't afford anyway.

Rain Man
07-14-2006, 11:49 AM
My psycho ex-boss was a clever psychopath on his mortgage. He had a very expensive house, and he figured out that it was cheaper to refinance every year so he could get the one-year teaser rate on ARMs. I'll bet he then hid under the desk and burglarized the mortgage company after they closed, too.

DeepPurple
07-14-2006, 12:24 PM
1) My first home was purchased new 1976 in St. Petersburg, FL / 3 BR, 2 BA, 2 Car, 1200 SF for $35,000. (My salary was GS-11 Gov't service $24,000) sold home in 1977 for $39,900. Government picked up all closing costs and realtor fees because of relocation to Pensacola.

2) Second home purchased new 1977 Pensacola, FL / 3 BR, 2 BA, 2 Car, 1500 SF for $44,500 (Salary GS-12 $30,000) sold 1978 for $49,900.

3) Third home purchased vacant lot 1978 for $7,500 then borrowed $50,000 and self contracted new construction, 4 BR, 3 BA, 2 Car, 2000 SF with 16X32 swimming pool. (Salary GS-13 $35,000) sold 1979 for $77,000.

4) Fourth home purchased vacant lot 1979 $15,000 then borrowed $57,000 and self contracted new construction, 4 BR, 3 BA, 2 Car, 2700 SF with 18X36 swimming pool (Salary GS-13 $39,000) sold 1981 for $115,000 (home was valued at $130K, but mortgage rates were at 16% and real estate market was dead)



I've owned three new homes since these four above, including my current home. However, I listed these to show my first home and how you can do what's called "ladder up". I started with a VA Loan and just $500 down and simply rolled over the profit into each home and in just five years ended up with a nice profit when selling the fourth. Also, on the last two I acted as my own general contractor which meant even greater profit and the ability to add many upgrades at very little additional expense and was able to use my own design plans.

jAZ
07-14-2006, 12:25 PM
I voted twice and it might not be cheating.

At the time that we entered the contract and were approved for our homeloan, I was working full time as was the wife. At that time, the house was 1.3x our income. By the time the house was finished and we moved in, I had quit my full time job and started classes for my MBA basically eliminating much of my income and bumping it up to nearly 3x our income.