One of the benefits of having readers spread across the country, even the world, is that often we are introduced to a different perspective on a particular topic. And often that leads to even more thoughtful discussion. That was the case recently when I wrote about my thoughts on the television showMy First Place on HGTV: How to Spend Your Next Thirty Years House Poor.
While many agreed the premise of the show seems to steer first-time home buyers towards more expensive housing, few of us could agree on whether or not the featured couples could afford such housing. Part of the problem is key elements of an affordability equation are often missing – such as income, other debts, etc.
An even larger discussion developed regarding the regional variance in housing prices. I must say, even I was surprised by some of the comments (and there were a bunch of them – 91 at last count!).
In response to my suggestion the couple should look for a house in the $200,000 range (half their intended budget), reader “Cat” commented:
I completely agree with your post, however, in the city I live in a you cannot get a house for $200,000 even in the worst part of town right by the railroad tracks. You’d be hard pressed even to find a crappy condo for that low of a price here.
As a guy who grew up in a $27,000 (at the time it was purchased) house built in the 1960’s, and purchased a decade later, that was hard to believe, but no doubt true considering the grossly inflated real estate markets around the country. Of course, everything is relative. Areas with high real estate values also usually offer higher salaries, making these more expensive homes affordable to potential home-buyers.
Still, I was struck by the number of people who indicated they could not find a decent home for less than $450,000. My gut reaction – why not move? But it’s not that easy.
People tend to settle close to family, where they graduated school, or near job opportunities in their particular field. Others may enjoy a particular climate or part of the country. It’s not easy to just pack up your stuff, leave behind family, and move clear across the country.
I’m fortunate in that I live in a relatively small town in a very reasonable real estate market. Home values here are among some of the most affordable in the country. It was a consideration we made when accepting a new job ad relocating here some six years ago now. It just so happened to be the same city my mom lived in, and before she passed away (a year ago today, in fact), we enjoyed being closer to family.
Comparing Apples to Apples: Housing as a Percentage of Income
We spend about 15% of our after-tax income on housing. I’m comfortable with that figure, even though when we were shopping for a home those involved in real estate tried to convince us we could easily afford to mortgage 25%-30% of our take home pay on monthly payments. No thanks.
The reason we avoided taking on a larger mortgage is risk. Risk of job loss, illness, income reduction, etc. should weigh heavily on you when deciding how much house to buy. Instead, risk is often an after thought. Oh, that won’t happen to us. We have plenty of savings. I can always find another job. Trust me; it will, you don’t, and you might not.
It’s worth pointing out that if I moved to another part of the country, and made significantly more money than I do now, then 15% of my income would buy a more expensive house (not necessarily more house, just a more expensive one).
Unless the couple in that show were bringing home $20,000 a month, a $3,000 a month mortgage was probably considerably more than 15% of their income. It may have been more in line with 30% of their take home pay, and if that works for them, they can probably pull it off, assuming nothing goes wrong over the next 30 years.
Relocating for More Affordable Housing
So the big question is this: Would you consider moving to a new city if housing prices were cheaper, and you could buy more house for a lower percentage of your monthly income? After all, these days more people are considering relocating to end unemployment; why not relocate to spend less on housing, often a family’s largest budget category.
Obviously, one would have to consider a variety of other economic factors such as general cost of living, average salaries and job opportunities, quality of education, crime rate, climate, and very personal matters such as proximity to friends and family.
It is certainly not an easy decision, but one I would strongly consider obligating myself to such an expensive housing payment. By the way, I found this Best Places to Live in America post which lists average home price. You can see from the list there is a considerable range, even among the top places to live.