There has been discussion about San Diego home prices reverting back to their ‘normal’ trend, but what is normal? 3x income? 4x income? 5x income?
The few times I’ve spoken up about the income question, I’ve said “Who cares about the median income for the county, what counts is the income of the potential buyers”. Not everyone who lives in the county is looking to buy a home, and at this point they are most certainly a minority.
But comparing the trend is noteworthy, because over time there should be a statistical ‘norm’.
Harvard has charted the affordability index for each metro area, the comparison of median household income to median home price through 2006. I used the city-data report of median household income ($61,793) to their median home price ($556,500) for 2007.
For 2008 and 2009 the income used was $60,000, and the Dataquick median home price for May ($380,000 and $295,000). This is the chart of median price/median household income:
Since 1980 the number has never been under 4.0.
Yes, today’s median sales price is skewed artificially low due to the hot lower-end markets, but overall it looks like the relationship has gotten somewhat back in line.
Yes, the higher-end is screwed up, and has a long ways to go. The median sales price so far this month for the 126 detached sales from Carmel Valley to Carlsbad is $800,000. But as more higher-end sellers sell for less (instead of not selling), this number should trend higher if the median sales price rises, and incomes stay the same.
What if the median income goes down at the same time?
Example: Median sales price trends up to $350,000 due to additional higher-end sales, and the median income drops to $55,000. New ratio is MSP = 6.36 x income.
I’m not sure we’ll depend on this relationship to tell us much in the future.
The Harvard Excel spreadsheet for metro USA areas: metro_affordability_index_20071
Well the price to income ratio is undefined if the income is zero.Where are all these people buying 700k homes working?Must be nice to be a doctor or lawyer making that kind of money.Seems like most people are making < 60k/year.So 60* 4 =240k.Where are all the homes for <300k?Is everyone going to move to oceanside?
The other variable is interest rate. The same income can afford a more expensive house at the same monthly payment when the mortgage interest is artificially low. By that standard, today’s mortgage-payment to income ratio could be lower than anytime in the recent history.
After the 1920’s crash that led to the Great Depression, it took almost 25 years for housing prices to return to the high point, just before the crash. By the 1950’s, a different economy and set of political/governance arrangements were in place in the country. In other words, America had become a different place. That’s America. We change.
All the people who love free markets and all that jazz surely know that there never really is a “free” market. The two most spectacular periods of growth in real estate prices-the 1920’s and the period leading up to our epic crash-were all caused by all kinds of supports, kick backs, and participation by governments at the local, state and national level. And the builder/developers wanted it,sought it out. No “free” market for them!
So, picking up on a thread from one Jim’s other posts, San Diego is a nice place. Weather, as my wife would say, to die for. But even a nice place, a scenic, beautiful place, can become a hell hole if the conditions are right. And folks we got the right conditions.
As income collapes, housing prices are going to collapse. People may not want it to, but it’s just going to happen. People who have a degree of wealth are going to keep their homes. Even the wealthy have to live somewhere. Beyond that, we’re going to see Jim get involved in selling some new types of living arrangements that he couldn’t have imagined 3 years ago, and certainly didn’t bargain for.
IMHO, the ratio should trend back to around 4 for the areas in SD which are reasonable. The thing to be careful of is using median sales prices, which are weighed heavily toward the low end current, and average income, which is dropping. As foreclosures move up through the price range and unemployment pushes income down, your chart will look at lot further from “normal” for now than it does above. However, also, keep in mind as areas become “de-gentrified” with the prolonged recession the government is creating, the ratio will go well lower than 4 in those areas, such that the overall ratio for a larger area might also normalize at around 3, 3.5.
It’s not close to “normal” yet, and it won’t be for a few years, but that’s my prediction for what “normal” will be eventually.
“Consultant” – spoken like a true Marxocrat. I understand that there are hundreds of trailers left over from Hurricane Katrina that might interest you. Better Hurry!!!
@DESERT REALTOR.. Consultant isn’t saying anything Marxist. He’s saying what us Freeps really know.. there never really was a true free market. Probably never will be. Think Mae & Mac, FDIC, Fed…
There sure as hell won’t be any free markets until 2012 or 2016. In the meantime, all the negative doom and gloom sayers are wishful dreamers hoping for a free house, or at least a 2M house for $149,500. If that happens, who in the hell would want to live there surrounded by all the ice cream trucks???
This graph is a good start in understanding the SD real estate market. I think it would be interesting to see the rent vs own rate in SD versus other large cities in America.
The median income can be misleading because those making minimum wage aren’t buying $500,000 homes, they are probably renting.
My guess is that those on the other side of the $60,000 median income are the ones buying homes.
temecula_guy has it right. Median yearly income to prices isn’t the ratio that really is important. The ratio that really should be looked at is median monthly income to monthly payments, which is affected by interest rates, as well as how easy it is to get an “exotic” loan. During the boom times, the exotic loans were all the rage, and all buyers and lenders were looking at were the initial payments, not what they became after they reset and/or recast. Now, with the exotic loans mostly gone, things are back to what they were prior to the last decade or so-except interest rates are much lower. In the 1970’s and 1980’s, interest rates were 10%-18%, not 4.5%-6% like now.
It’s getting lively in here. Consultant did slam Bush and Obama in another thread so he/she is not as myopic as some. I don’t understand how some were/are not able to come up with a 10% – 20% down payment especially when there are two income earners in a household with a combined income of at least $100K. I think the age of entitlement started in the late 90’s for the majority of those entering the work force. After the dot com ‘recovery’ personal saving rate steadily declined. Boo Hoo to those who live beyond their means and were/are unable to put at least a 10% – 20% down payment.
Residents in Carlsbad will soon notice a spike in their water bill as the Carlsbad City Council and Carlsbad Municipal Water District board of directors has decided to increase water and wastewater rate by 10 percent.
The rate increases will go into effect Aug. 1 and customers will see changes in their monthly bill starting in September — an average of $7.56 a month. About 85 percent of Carlsbad residents get their water service though the Carlsbad Municipal Water District.
Nearly 74 percent of the water rate increase is directly related to increased cost in water purchases from the Colorado River and Northern California, according to water officials. These two imported water sources make up 100 percent of the Carlsbad Municipal Water District’s supply.
A small portion of the increase also is needed to maintain and operate the water system.
In addition to the new water rates, the board adopted a new billing rate structure, known as “tiered rates.” Under the tiered rate system, customers will pay one rate for up to a certain amount of water. Water used above that amount will be billed at a higher rate, similar to how electricity rates are structured.
The board also approved conversion to a new Fixed Network Automated Meter Reading system, which will allow meter information to be electronically transmitted to a central location and will allow for more accurate readings, enhanced customer service, real-time leak detection, increased revenue recovery and decreased staffing and vehicle needs.
In the meantime, all the negative doom and gloom sayers are wishful dreamers hoping for a free house
Not true. We just want prices to return to their sane, pre-bubble levels. That had the low-end at $100/sf, mid-level at $200/sf, and really high end up to $300/sf (not counting killer lots, excess land and/or Trump-like gold fixtures). No reason for them to be any higher.
I’m not so sure normal prices, or graphs from history can help us. The Fed has put a muti-trillion dollar floor in, CA is giving 18k in downpayment money, and unemployment is the worst since many of us were born…
350k to 500k is what the middle class household wealth can support, and that includes ultra-low real interest rates.
Those builders who thought 700k was middle class have been brought back to reality, as in Del-Sur’s case.
I agree it would be useful to see historical median income to median mortgage payment, but unfortunately the data from the last decade would be worthless. A graph that used those figures would make the bubble days look cheap up until resets/recasts.
tj-Low end IS at $100/sq ft right now. It’s just that there are little to no low end areas within thirty miles of the ocean. Being that close to the ocean automatically makes you not low end.
Out here in Riverside, there’s plenty of stuff for $100/sq ft. East of here, things are significantly below that. You can find properties in the desert (places like Hemet) for $40/sq ft-or less.
I don’t think many of the readers realize how many people want to live here and anywhere near the CA coast and how many of them will and can fund it. I would look inland now. Same nice dry air and low prices. That’s where the affordable homes are now. The coast will never be affordable for the most of us.
“Seems like most people are making < 60k/year. So 60* 4 =240k. Where are all the homes for <300k?Is everyone going to move to oceanside?”
The median household income most likely cannot afford to purchase in the top ~10% of San Diego housing stock.
The best neighborhoods, the best views, the best school districts, etc all come at a price premium. Realistically, it’s those on the higher HHI scale that are buying these homes and not the median.
Yet some people love to site the median, and apply it in an unrealistic way only to fool themselves into thinking their beachfront home is own it’s way at an absurdly unrealistic price.
That’s not to say prices are not falling, and most likely going to fall more.
“I don’t think many of the readers realize how many people want to live here and anywhere near the CA coast and how many of them will and can fund it.”
I couldn’t agree more, and I’d add that a lot of them remain in denial even when presented with hard data.
Does this make anyone’s blood boil?
http://www.latimes.com/business/la-fi-petruno27-2009jun27,0,2308676.column
Excerpts…
One proposal for a debt-forgiveness program was floated this month by the Milken Institute in Santa Monica. The plan, authored by institute President Michael Klowden and regional-economics director Ross DeVol, would refinance existing mortgages of underwater homeowners with new loans from the government.
Klowden and DeVol call it the “homeowner principal forgiveness vesting plan.” Here’s how it would work:
Say an owner’s mortgage is worth $400,000 but his house is valued at $300,000. The government would refinance the $400,000 loan with two new loans. Fannie Mae, the mortgage financier now under government control, would provide a first loan for the market value of the house, in this case $300,000. The Treasury would issue the second loan, in this case for $100,000.
The Treasury loan would be interest-only and would provide the vesting part of the program. For each year that the homeowner keeps up payments on both loans, one-fifth of the Treasury loan would be forgiven.
*****
The Milken plan would partly be aimed at a subset of homeowners who almost certainly would garner the least amount of sympathy from the rest of the country: People who might be able to continue making their payments, but who have no economic interest in their house because of negative equity.
How many homeowners in that situation would walk away? A new study by a team of researchers including Luigi Zingales, a University of Chicago finance professor, estimated that 26% of current mortgage defaults are “strategic” — meaning homeowners chose to default even though they could afford their loans.
Based on surveys of U.S. households the study also found, not surprisingly, that the willingness to walk away rises as negative equity increases.
*****
But just as the U.S. in the 1930s took over and restructured more than 1 million mortgages via the Home Owners’ Loan Corp., some experts believe there is no way around a bigger federal role this time, focusing on outright debt reduction for people who are in far over their heads.
“The idea that these loans are worth face value is a fiction,” Green said. “If we don’t deal with [reducing] the balances, we’re not really dealing with the problem.”
Note that the P/I ratio in the early 1980’s was close to the historial average of 4x when the 30 year fixed interest rate was in the mid-to-high teens (maxed out at 16%). Also note that inflation (including wages) was in the double digits during this period.
I suspect its the “real” interest rate not the “nominal” interest rate that will impact the normal P/I ratio. The “real” interest rate has been falling over time as overseas buyers of U.S. treasuries, who are less concerned with earning a risk adjusted return than with manipulating their currencies (to support their export industries), capture a greater share of the treasury market from domestic buyers. This evolution should increase the P/I ratio, but not to the degree some on here have assumed.
My bias is towards a rising real interest rate as 1) the US savings rate increases, which should result in domestic buyers recapturing some of their lost share and 2) creditors demanding a higher yield to compensate for the U.S. treasury becoming an inherently riskier borrower.
Of course, this doesn’t preclude the U.S. government from continuing to transfer tax payer wealth to support artificially low mortgage rates, but this can only continue for so long.
whoops, I meant 5x P/I in the early 1980’s, not 4x. Sorry, shouldn’t be responding this late 🙂
By the way, great post Jim. Its nice to see good long-term data at the metro level (vs. national). Now if we could only get Harvard to publish this data by zipcode!
If the data is available, maybe we can compare median whole-market price (listing price AND sold price) to income. This will eliminate the hot lower-end effect.
There not making any more land.Buy now or be priced out forever.If prices go down you can do a short sale.It’s a no brainer folks!!!!!!!You cant lose with CA real estate.
BTW… The Milken Institute = Michael Milken
The guy was one of the architects of the S&L junkbond idiocy of the late 80’s early 90’s. What the Milken ibstitute is proposing is a slight variation of a junkbond where the government ends up with the crap and private banks get a paying mortgage.
Here’s more info on Michael Milken…
http://en.wikipedia.org/wiki/Michael_Milken
I have quite a few co-workers who live in beautiful places in La Jolla. It’s not because they make outrageous amounts of money, it’s because they got to San Diego years ago when prices were a lot cheaper in those areas. When the county population was smaller, a larger proportion of the total population was able to live in the nice coastal areas.
I can look at the weather forecast and say that it will be warmer tomorrow (temperatures will go up), but I still feel confident that it will be colder in 6 months (temperature will go down). There is no conflict in these two, because they are due to different processes and happen over different time periods.
Similarly, as the county population grows over the next 40 years, an ever-smaller fraction of the total will be able to live in the nice coastal zones. So long term (6 month temperatures in my weather analogy) I agree with agents that nice locations will get progressively less affordable. That’s because a progressively smaller fraction of the entire county population will fit in the coastal zones, and you’ll be going up the income curve to higher numbers.
That doesn’t mean coastal zone prices won’t fall for a year and flatline for another year or two, as in temperatures for tomorrow in my weather analogy. I think they will. But I do think, long-term, coastal zone prices will continue to rise even proportional to median income.
I think it’s debatable whether most of the population increase over the next 50 years will be in-situ densification or increased urban sprawl, but either way I’m skeptical that the nice coastal areas will experience either. The obviously can’t sprawl, and wealthy people have political clout that prevents densification. That’s the system we have.
Dwip,
Ask your friends in La Jolla…
1. How much was their original mortgage interest rate when they first moved in.
2. How difficult was it to get a mortgage?
3. Could they have purchased without 20% down?
I’ll bet their original interest rate was above 10%, mortgages were more difficult to get than today, and they couldn’t get a mortgage without 20% down.
What does all that mean? It means when your friends purchased houses were lower priced because there were more barriers to entry. It also means that those with money were favored to purchase over those looking to acquire debt.
In today’s market interest rates are low. (allowing borrowers to borrow more) Bringing 20% down isn’t required. (FHA = 5%) And finally there are a lot more lenders looking to give you a loan. (They compete against each other)
When you add it all up it starts to make sense that people working normal jobs were once able to buy in places like La Jolla. If government hadn’t intervened we would be experiencing this type of market again.
Morning Shadash,
well I certainly agree that all those factors have changed the picture of the market over the past decade. I’m really thinking of the 30 year time frame. Over that period population changes become quite significant.
In the past 30 years, San Diego population grew by about 67% according to the US census bureau. That’s not a trivial change, and although I don’t know where I’d find the number, I doubt the housing stock west of I-5 grew by as much. By 2050, the most recent estimate I’ve seen is SD population will grow another 45% (google “san diego 2050 report”). Those are always uncertain but it’s still a healthy chunk of people.
If you change your population by 67% or 45% and, crucially, have only a limited supply of coastal properties, market forces absolutely will change the affordability of those locations, even relative to the overall median income.
To get back to my analogy of temperature tomorrow vs. temperature in 6 mos, I think it’s as if JtR says “you should buy a jacket because it’s going to get cold this winter” and some people here jump on him, saying “but the weather forecast is for a heat wave tomorrow!”. All the shenanigans have distorted prices since 2001 or so and I feel confident that upper end prices will fall, but long term, I see no compelling case that the hard economics of population growth will be prevented from playing out. Just don’t employ a realtor who uses the long-term argument to motivate buying when you’re in the midst of a limited-time bubble, as some dishonest realtors do. Happily JtR’s expansion suggests you can be honest with your customers and still do well.
Well with the craziness going on in Sacramento it’s going to be interesting to see how California does in the future. I travel across the country for work and other than the weather most major cities seem to be doing better economically than SoCal. (But that’s just just my personal opinion.)
Guys, what is middle class? If husband and wife work at the home depot and are able to pull in close to 60K per year – doesn’t that make them middle class? If so, that is mediocre and they aren’t entitled to buy near the coast. However, if they saved their money and really wanted to, they can come up with a big down payment and buy a low end home near the coast near 500K – deservingly so. It’s not that hard.
Dwip-
http://spreadsheets.google.com/ccc?key=rQDvT4mcJp4hL9qoEtIIZIQ
I understand your theory, but the population changes in the last ~20yrs havent been that drastic (compared to other areas). San Diego has gone up ~20% in 20yrs. Riverside up 75%. SB up 40%.
From 1990-2000 SD increased the LEAST of any socal county aside from LA. Actually, same is true from 1990-2007. So unless your friends bought back in the early 80s or 70s, I’m not seeing the data to support your theory.
60k = 5,000.00 monthly (before taxes) 3,772.33 (after taxes)
20% of 500k = 100k (this is how much they would need to save up for a standard loan)
400k at 6% = $2398 per month
3772.33 – 2398 = $1374 per month for food, car, and incidentals for 2 people
recently Chanteclair at 4S reported 11 new homes were sold “within an hour.” now that’s assume we are looking at average of $650k for a 3200 sqft home, that’s $203/sqft.
let’s do some breakdown:
–at 20% down, that’s a loan of $520k, which means $2800/month
–HOA/mello roos/property tax = $1000/month
–utility = $200/month
–2 car payments = $700/month
–insurance home and auto = $300/month
total monthly built in cost of $5000/month
now let’s assume 5x income is right. Then would a couple making $130000 be able to afford these $650k homes?
Assuming 25% tax rate (fed and state) and factoring in deduction from mortgage and tax, that means $9000 after tax for the annual income of $130000.
so a family that pulls in $130,000 can very well afford $650,000 in housing, making the 5x income ratio quite valid. They still have $4000/month to spend on food and entertainment, and if they do not overspend they can stash at least a $1000/month in savings.
But if that family making $130000 needs to spend 6x income on housing, there goes that $1000/month savings rate, and that’s not a workable long term situation.
You guys keep talking about the coast. The homes for the middle class are inland. Poway for instance. In SD middle class moved to lower class areas during this bubble and higher moved to middle. To follow up on the person who travels for work- I bet you see much more shopping where you go and more exepensive toys. Not to mention comercial construction. SD is ghost town In some ways cosidering how exepensive it is. I can only conclude it’s not real weath but house poor people who make up te bulk here.
Ocrenter 20% is 130k down. Don’t know too many workers with that kind of coin to put down. I’m sure they are out there but not ordinary folks.
That family would be financially much better off elsewhere indeed could buy a home outright for 130k and still be close to an economic center make 130k is some parts of the nation.
It only makes sense if they ‘speculate’ the homes value to increase.
Finally 130k is about 6k take home. So 3,800 for the home really doesn’t work. They probably have kids too.
I’ll break it down and I never shared this on any blog until today. We bought in ’06 mid 600K. At the time both our incomes totaled around 100K – I can’t remember and I don’t want to pull the mortgage paperwork. We had over $115K saved for a deposit. How did we do that? NO car payments, no credit card debt and we both rented rooms near the university inexpensively throughout college and early on in career. So YES it is doable to buy a house and at no point were we paying more than 40% of our gross income to the mortgage. It also helps to have great credit and A+ paper. I got laid off approx 7 months ago, but we have NO problem getting by even at a tick 6.375%. Sure we aren’t saving and the 401K is not being maxed out at this time, but this is a hiccup. Our daughter is still in day care and you all know what that costs per week. We haven’t missed a payment and we do NOT have credit card debt – still. So I’m sick and tired hearing people say they can’t afford to buy a home. Am I looking for a job? Yes, but only after summer 😀
You don’t have a job but you’re paying for daycare?
You’re not looking for a job any longer?
Let me ask a question…
If you didn’t buy a house and continue renting would you be better or worse off than you are now?
It doesn’t matter, you can’t change it now.
You don’t need to badger or ridicule him, he’s trying his best to cope with what is.
Agree it’s unfortunate situation. But you have to look at reality. 100k for both incomes buying 600k house is house-poor. Extremely so. We can dance around it, but it is what it is.
California’s were arbitraging. That is, many of those who lived here in the 80’s and 90’s sold their homes and moved out. When the moved back east they were able to buy newer homes that were bigger, all in cash.
Unfortunately those who bought after they did(2000’s) financed these transactions.
And now the markets are correcting this imbalance.
You can always think of ways you could have done things differently that would make you “better off than you are now” in some way or another. You can ruin your entire outlook on life thinking of ways you could have done things differently that would make you “better off than you are now” in some way or another. Or you can choose to enjoy the things you did that turned out well.
I’m looking for a job after summer – I’m busy enjoying the weather, the beach and driving up and down the coast visiting family and friends. We won’t even be around in August sans 13 days. Since we purchased, we put on a new roof, redid the landscaping and will be redoing the floors and kitchen. That is what makes us happy – a home to live in and make our own, enjoy and move forward with life. The only that gets me worked up are the slackers that get a day pass for living beyond their means and those that wish a home is an entitlement. There are no handouts or gov’t cheese for us and there shouldn’t be for slackers. We can stay in this house for a long time and not worry about moving to the next level because this is a good neighborhood with a great school district and I can go to Trader Joe’s grab a few items and be back in less time it takes some to get to a major freeway. BTW, we are down 12% and that is not enough of a difference for us to regret our decision because we bought a house in the best location we could afford without over extending. Now, If we were over extended, lived in a marginal neighborhood, barely making the mortgage and over leveraged on credit then YES, we would be better off renting.
I think some are forgetting a big down payment is the ace card generally speaking. And we purchased when our incomes were 100K combined the year we bought because I had taken a drop in salary for a start up company. Since then our combined income (until Jan this year) were more than 2X the median. Having no debt (other than the house) and no car payments with substantial saving makes it much easier to weather this economic downturn – we are far from house poor. I simply wanted to make a point that it seems most people are spenders while some are savers. And those that are spenders tend to complain that they can’t buy a house or come up with a down payment.
I’m not trying to be a prick. I’m just stating facts. People that rent have had to deal with ridicule from homeowners for the last 10 years. Btw I doubt you’ve given up looking for work. More likely you’re just trying to take advantage of the time off.
Geotpf,
Agreed on the IE; Dawg’s blog has shown brand new 4K+sf places going for $86/sf. It’s absolutely brutal out there. Then again, it’s the high desert — it should be cheap.
Also, I never meant to portray beachfront as “low end”, but then again everything within view of the ocean isn’t exactly high-end either.
I think the only way to really do this subject justice would be to break the population by income groups and the housing by price groups. If nothing else, I believe it would show that the quantity of housing that aspires to be $300K+ has greatly exceeded the number of people capable of truly affording them. [Note: I would have said $400K+, but that extra $100K is only there because of still ultra-low interest rates.]
“I don’t think many of the readers realize how many people want to live here and anywhere near the CA coast and how many of them will and can fund it.”
Doesn’t matter, unless that number has significantly increased since before the bubble.
I think it’s safe to say that the number of ready, willing, and able buyers has decreased, but all that is needed is enough to to buy those properties that can be bought at “what the market will bear”. The balance of the two will determine at what price.
“…People that rent have had to deal with ridicule from homeowners for the last 10 years…”
10 years? Try 16 yrs being ridiculed everyday as a driver of an original faded Nissan 2WD pick up truck with missing hubcaps on one side. Have you ever pulled into the Ritz Carlton, Laguna Niguel for a conference and find out that Valet Parking is NOT an option?
3clicks,
ahhh, but with the ridicule, also comes the sheer satisfaction of knowing that you aren’t saddled with a car payment. Which is a sweet, sweet feeling.
LOL!!!
3clicks, in the memorable words of Eddy Murphy from Beverly Hills Cop parking his junker at the Beverly Hills hotel, “and make sure to take care of it this time cuz this stuff happened to it last time I was here.”
Dwip,
Great minds think alike. I was just scouring YouTube for a suitable clip from BHC but couldn’t find one. 🙂
3 Clicks….don’t let ’em get to you. Shadash insults. That’s what he does. His bitterness (for whatever reason) seems to be directed at those who do not fit his ideal of a virtuous citizen. Someday he’ll be “one of those old people who should get out of my house” as he once spouted.
I wonder if there is a loan guy out there that could track the stated income to purchase price/down payment/monthly payment.
I would be very interested to know what that would look like today. I was so surprised when JTR posted
Down payments:
All-cash = 9
50-99% = 8
30-49% = 22
78% of the buyers used at least a 20% down payment.
It is hard to read this graph when you figure in all cash offers or $50% down because that changes everything.
3 Clicks-
I’m not hear to break your balls or tag team ya with Shadash, but keep us posted with the job hunt and the -12% in your current home value versus 20% downpayment you put down for the crib purchase in 06.
It seems to me at some point the entire downpayment will be wiped out and then some.
Just a hunch.
“Someday he’ll be “one of those old people who should get out of my house” as he once spouted.”
When you buy within your means and don’t extend stupidly with credit. The likelihood of not being able to repay your debts is diminished. I love how homeowners come out of the woodwork saying I’m horrible because I call people out.
Although 3-clicks seems like a reasonable person. Is paying 600k for your first house a good idea? Like I’ve said before I travel across the country for work and almost everyone I meet thinks the prices paid for houses in SoCal are insane! Because rentals are often available for less cost than it takes to buy I tend to agree with them.
…Is paying 600k for your first house a good idea?…
Yes. I moved from the Bay Area/Silicon Valley when 600K +/- will get you East Side/South Side where you NEED bars on the windows and spray can art is free. It is a 40 minutes to drive to Santa Cruz if there is no traffic on Hwy 17. Also, the weather and temperature difference is extreme – relatively speaking. Since I moved, I haven’t heard a police siren in a long time and I surely don’t miss the spray can artistry. And the beach is 12 minutes away doorstep to sand. For me, the increase in quality of life is worth spending a premium.
I’m not one of those “can’t we all just get along” types, but I see merit in both arguments.
3clicks’ prudence elsewhere more than makes up for the otherwise maximally stretched income. However — as shadash notes — most anyone else in that position would be setting themselves up for spectacular fall.
Jim- thanks for answering this question.