Its not just the down payment people cant afford.
Not everyone is a professional working in oil and gas.
Take a cop or a bus driver who is in his late 20s with a wife and a young kid. Assume the cop/busdriver makes $60,000 gross and the wife works part-time only because daycare is too expensive and she makes $20,000 gross. The family takes in $80k per year gross.
Assume a price of $400,000 for a house (lower than the average price of $460,000). And assume this family was able to save a 5% downpayment before they had their kid and will put $20,000 down. The mortgage principle is $380,000.
Assuming a rate of about 6.5% and 25 year ammort, your mortgage payment is going to be about $2,500 per month. Depending on their exact tax situation, the familys $80,000 gross income might be about $54,000 net which is about $4,500 monthly.
That $4,500 monthly minus $2,500 for your mortgage is only $2,000 left for all your other expenses like car payment, daycare for a couple of days per week, and then utilities, and food, and kids arent cheap.
Its gonna be real tight and you better hope nothing unexpected happens. And you want a second or third kid and to save for their college, your retirement, and a vacation every so often?
And your example of a condo as a starter home has the problem that housing on average goes up at the rate of inflation. The past couple of years where you could have bought a condo for $200k and then it almost doubles in value are gone. In a market where you can rent for cheaper than buying and housing isnt appreciating, you can be better off renting and saving the difference instead of earning a bare minimum in appreciation but paying a ton of interest.
Its funny how everyone is a real estate expert these days. A couple of years of a hot market and too many house flipping shows on TV and eveyone thinks its normal for a mid 20s family to have a $500k+ house.
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Originally Posted by Sylvanfan
Depends on what you have to put down. If you have 5% than you'd need to be making about 100 as a couple for a 25 year mortgage right now. The thing thats hurting most people is the down payment for a 460k house as 5% of that is 23 g's.
But the question people have to ask themselves is do you need to start out in an average house? It's called starting because you have to get in and build your way up. Get the 14500 together for a 250k condo, use that help save up money. If the market continues to go up and your condo is worth 280k a year later, suddenly you have 30k plus the 14 k you put in and you can upgrade. It's not the mortgage payment people can't afford, it's the down payment. But a lot of people fail to see that, even if the market goes down, the first thing to go generally is middle range to upper mid housing. So if your in on the low end of the scale you generally won't take a bath.
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