Comment by class3shock

Usually you don’t buy a whole house when you are 25. You start with a small unit. My first condo was 700 sf which I sold for a good profit and use the money to pay for a bigger condo, about double the size. I then combined the profit of the second home with my wife’s profit from her house which was also small and together we got our first nice house just outside the city, about 15 min commute. We paid around 220 $/sf compared to 600 $/sf for a similar home in the city. Our house is 3X the size of the house I grew up in with my parents and 3 siblings, which was standard size for a middle income American family in the 80s. Not to mention the quality and amenities of our house is so much better than a house from the 80s. Yes houses are a lot more expensive today but only if you are buying in busy urban areas. If you dare to look in the suburbs you’ll find great homes which by square footage have not increased that much in the past 30-40 years after adjusting for inflation. In the city you are competing with everyone else wanting to be able to walk to their favorite brunch place. Cities also have crazy regulations that prevent building affordable homes.

> assuming 1/3 going to a mortgage would give you $2.3k a month to work with

That’s the problem right there. Even if you’re locked in on the historically low sub 3% mortgages, there is a chance you’re spending more than 1/3 of your income on housing. People with higher rates and people who are renting, spend a lot more than 1/3 of their income on housing.

I know finance influencers and older generations keep talking about 1/3 income on housing, but that hasn’t been a thing for a while now. Even before the pandemic surge in housing costs, 1/3 on housing was dream in most cities across the country.

Internet + Natural Gas + Light + Water + Home Insurance + Auto Insurance + Property Tax + Phone + Home Security + Car Gas + Credit Cards

A $350k mortgage with bills, is expensive. Will eat up a whole check if you don't make more than $140k/year.

A lot of people get help from mom and dad, but if you're already a homeowner, the home youre sitting on has appreciated too, so you can role equity into your next purchase. Not everyone is starting from zero. There are so many homeowners who would not be able to afford the home they're currently in, but are sitting on $500k of equity they can role into their next place.

While $84k is the average household income in the US, the average among home owners is a bit higher, around $100k-$120k. Also, very high prices really skew averages. Many "starter homes" are closer to $200k. I bought new 3 years ago, and the rent home I lived in prior, which was in an older middle class neighborhood in a Houston suburb, sold for $224k (and this included some basic renovations like new flooring)

If you think of it as a homeowner debt subsidy, that forces a higher percentage of the country into recurring-revenue rentals, that provides an adverse incentive against correcting home prices for income. Right now the consumer debt that’s substituting for wage increases hinges on the middle class being able to access lines of credit; one very popular LOC is home mortgages. If home values are allowed to fall to the level predicted by median wages, that could trigger a massive wave of defaults and bankruptcies as existing loans go underwater, homeowners have their lines of credit shorn, and then start missing mortgage payments and file for bankruptcy. U.S. mortgage loans for 1-4 bedroom properties are currently $14.5 trillion USD; for comparison, U.S. GDP is around $31 trillion USD. So if 10% of homeowners default or discharge their mortgage debts due to home prices collapsing to realistic levels, U.S. GDP drops 5% that year (not accounting for the loss of interest the banks would’ve recorded to GDP as production output for up to decades). Median household wages for homeowners is $86k, well below the $120-140k threshold recently discussed, supporting the government estimates that 30% of homeowners have difficulty making payments on their homes. So, if those 30% went bankrupt over a home prices crash, there’s a plausible threat of a 15% collapse in GDP (compared to Covid, which was around 10%).

Relative to that, I don’t think economic policy is likely to prioritize new home ownership, not when a catastrophic reversal of years of GDP gain is a material risk. It would be a different story in a first world country, I expect, but here trying to reset home prices would just result in a massive rent costs spike (the U.S. free market tends not to build median-wages housing if it can avoid it) and a notable fraction of those households becoming homeless, while they watch as other families benefit from the price correction’s devastation by buying up their home at auction. The best that policy can do with the restrictions the U.S. government places on itself is to issue federal funding to regional governments to build median-price housing — and since much of that funding would go to regions explicitly hostile to current U.S. leadership, that is extremely unlikely to be passed by Congress.

If there are N houses available in the bay area and FAANG hires a total of more than N people from outside the bay area at a median $X/year, then the median cost of a house will be more than the most house that someone making $X/year can afford.

We’re paying Cal FAIR about 10% the value of our house per year, despite having best possible fire safety for come construction and the area surrounding the house.

So, in your example, thats 175/10/12 = 1.5K per month, leaving $200 for the mortgage. So, $175K is unrealistic.

In related news, Cal FAIR is lobbying for a 60% increase in rates this year, because, apparently 16% of rural houses in California burn down each year (it’s either that, or they’re unbelievably corrupt/incompetent, since they’re somehow losing money).

Note that people in flood planes (much of the cities) have similar issues.

The taxes are important though. You'll "pay" for that monthly through your escrow account (or you'll save up for it in a HYSA or something, though personally I'd rather have my lender deal with the city and estimating next year's increases).

With taxes included, that $1800 mortgage can easily become $2600-$2800/month --- $33,600/year --- in a high-property tax state (like many of the states that don't have income tax, which are where many of the cheap homes are). For that to be 30% of your _net_ income, you'll need to clear $112k/year _post-tax_, which is $373k/yr HHI pre-tax assuming 35% of those go to federal, state and FICA.

You'll "only" need $112k/yr HHI if, like lenders, you're assuming that this will be 30% of your gross income. However, if we assume net is 65% of gross, then this mortgage is 46% of your net income. I know that a lot of people carry that risk, but that's a little high for my comfort level.

As for:

> Are people just devoting 50%+ of their income to housing? Everyone buying a house with the help of mom and dad? I just really don't get it.

Like almost everyone else that didn't have Mom and Dad angel investors, we got insanely lucky. I had two really good years financially during which time I was able to save enough to hit our 20% down and then some. We were also lucky with our current situation, as our landlord was willing to extend our lease without increasing the rent and the place we were renting was pretty sweet.

In the UK it seems more about the super wealthy buying up houses to rent them out. Incomes don't appear to be the biggest factor at all, more about concentration of wealth

...to stick to the 1/3 rule.

When did that become the rule? Why, back in my day, 25% was the max amount recommended to spend on housing. Though that was also back when no one would even think of taking out a 72 month car loan. Maybe one of those new 60 month loans, if you just don't have the money, otherwise stick to 36 months.

And like you, I just don't get it. 1/3 on the house, whatever percentage comes out for the $40K car @ 72 months (granted, one doesn't need to buy new), where's this money coming from? We live in Redmond (WA), and I'm at a loss as to how there are so many newer Teslas parked in >$1MM houses. C'mon, there's only so many of those $500K total comp jobs to go around.

$1700 per month pays off a $350k loan in 17 years, does it not? That's assuming that the household income stays static over that time.

That is very reasonable. In Australia, 35 year mortgages are normal, and 25-30 year mortgages were normal 20 years ago. Why would your household income need to be 1/4 of the cost of the house to make it work?

1/3 to mortgage is crazy to me.

My mortgage is around 6% of my gross, and just under 10% of my net and I feel that's high / stressful to me. I want to get it paid off ASAP.

Housing costs in the US can be out of line with average income because there isn't enough housing. Sellers only have to compete for the top X% of incomes.

The average homeowner household makes more than the average. Many people are not homeowners.

For example if you are 22 and just started your first job you are included in the statistics but I think we wouldn’t really expect it to be affordable to become a homeowner (nor would it be desirable from a labor mobility standpoint).

And many people prefer renting somewhere like Manhattan to buying in Topeka. So it doesn’t make sense to assume everyone wants to buy a house. I know several millionaires that rent.

It would be better to compare overall cost of housing to income.

Look up the median age of a home buyer in 2025:

It's 59 years old lol.

Boomers and institutional money are doing the home buying.

https://www.apolloacademy.com/median-age-of-all-us-homebuyer...

In 2009 the same chart shows that the median age was 39.

In the early 80s it was early 30s.

Look at congress, we live in a boomer gerontocracy. Not every boomer is wealthy and powerful, but the majority of people who are wealthy and powerful are either descendants of elites/wealthy, boomers, or a very small fraction of younger tech/finance/business owners.

The good news is - assuming there's not a big change in immigration rates - if you can rent cheaply enough for 10-20 years the boomers will start dying in sufficient numbers that if there is somehow no reversion on home prices in the mean time there should be insufficient buyers at that point and prices will eventually fall.

Probably a lot of private equity buying up homes to generate rental income? Usually, I am more pro market, but I think there needs to be some regulations on this. Although if you are an existing homeowner with low interest rate locked in, you probably want more private equity investments to drive up your property value...