How Do People Afford It?

[TAK]

How do people afford to buy $300k+ houses on $80k annual income or less? Do they live on that much credit for their house and their possesions? Do they save anything at all?

I'm not getting it.

I live in a house I purchased for under $100k in 2002 in Inwood North (not even Inwood Forest!) I want to move closer in, in a bigger house, with a yard. Apparently, I'd need to spend $250k or more just to get into a place that doesn't need to be totally updated, 4/2/2 2500sf+ and has a yard for kids and (big) dog.

I have more than $80k household income, and I can't see how I'd move ITL without living HEAVILY on credit...

What am I missing?

[mpbro]

How do people afford to buy $300k+ houses on $80k annual income or less? Do they live on that much credit for their house and their possesions? Do they save anything at all?

Hmm, seems that $300K on $80K salary is right on the cusp of affordability (3.75x). I think the traditional definition of "affordability" was something like 2.8x annual income, but someone can correct me. If you bring in a 20% down payment, your cost of money goes way down (no second mortgage).

When I moved to Houston, we bought a $350K house (20% down-->$275K note), and I was the only wage-earner (not much above $80K then). My wife was in business school and we were doing some renovations to the house. As I recall, we were slightly underwater in terms of cash flow. If I hadn't been paying tuition and fixing up the house, we'd have been saving a little bit, but not much. We felt as if our situation was risky, but we were pretty sure that my wife would be gainfully employed after finishing school.

In California, you have people earning $80K who are sitting in $700K homes...tick...tick...tick...

Edited March 6, 2008 by mpbro

[Poppahop]

What am I missing?

You are not missing anything. This is why the nation's economy is tanking. Everything costs too much money, and people were going into debt paying for it all. Now the bills have come due.

[TAK]

Hmm, seems that $300K on $80K salary is right on the cusp of affordability (3.75x). I think the traditional definition of "affordability" was something like 2.8x annual income, but someone can correct me. If you bring in a 20% down payment, your cost of money goes way down (no second mortgage).

When I moved to Houston, we bought a $350K house (20% down-->$275K note), and I was the only wage-earner (not much above $80K then). My wife was in business school and we were doing some renovations to the house. As I recall, we were slightly underwater in terms of cash flow. If I hadn't been paying tuition and fixing up the house, we'd have been saving a little bit, but not much. We felt as if our situation was risky, but we were pretty sure that my wife would be gainfully employed after finishing school.

In California, you have people earning $80K who are sitting in $700K homes...tick...tick...tick...

OK, let's use this example...

we'll say mpbro was making $85k. somehow, he was able to:

1. come up with $75k to put down. unless it was a gift, that was some serious saving over a long term on a $85k salary (that was probably less in previous years.)

2. have a wife in bschool (bschool is not free, perhaps big loans)

3. cover the PITI on a $275k home

4. cover usual living expense... car payment (or not), car insurance, food, utils, etc.

he admits he was in a risky situation and how known prospects for increase in income. do people do this often and then live on credit cards?

maybe i'm just afraid of a $3k mortgage every month and would rather put that money in savings and investments, and pay off my credit cards monthly (which is what we use to pay a lot of bills and buy groceries, etc.)

i don't even commute, so my gas bill is cheap (but i do drive a large SUV when i go nowhere.)

that whole affordability index thing seems outta whack to me...

maybe i'm going to retire old and rich and just don't realize it... but i need to move into a bigger house AND keep saving, and those don't seem to line up.

[jgriff]

I paid .68x my income for my house. Should I move to a more expensive one?

[Scharpe St Guy]

TAK,

This question has bothered me quite a bit as well. I would surmise that the individuals we are discussing could be broken up into quite a few different groups.

1. Family Money / Particpation

2. High Credit Utilization

3. And those temporary living the lifestyle and in the home until eviction.

4. ?

5. ?

Goodness knows there is a ton of money here in Houston however the basic question you posed I wish I had the answer too as well. My Wife and I make pretty good money and we are living in two homes (City/Lake) 1.87 times salary and at times it feels a little tight when vehicles want to be fixed, water heaters go out, ect.... We love living cheap though and having disposable income to take advantage of opportunities and events.

Niche and RedScare where are you????

Thanks,

Scharpe St Guy

[sarahiki]

TAK,

This question has bothered me quite a bit as well. I would surmise that the individuals we are discussing could be broken up into quite a few different groups.

1. Family Money / Particpation

2. High Credit Utilization

3. And those temporary living the lifestyle and in the home until eviction.

4. ?

5. ?

Goodness knows there is a ton of money here in Houston however the basic question you posed I wish I had the answer too as well. My Wife and I make pretty good money and we are living in two homes (City/Lake) 1.87 times salary and at times it feels a little tight when vehicles want to be fixed, water heaters go out, ect.... We love living cheap though and having disposable income to take advantage of opportunities and events.

Niche and RedScare where are you????

Thanks,

Scharpe St Guy

I too wonder the same thing. There are so, so many houses, especially ITL, that seem to cost far beyond what people with a "normal" income could afford each month. Even with 20% down, as a previous poster mentioned, coming up with $3,000 / month for a mortgage would stretch the budget of anyone making 100K or less. And if there are any other major costs, like daycare, or private school, it would seem impossible.

Perhaps a lot of people make a lot more money than I think they do...

[TheNiche]

Niche and RedScare where are you????

I'm not in a position to talk about how regular folks manage to afford their lifestyle. Every real estate transaction I make is in the context of a partnership, but I'm not in the position at this point to use non-recourse debt, so even though most of my projects' cash outflows are covered by rental income and mine and my partners' cash contributions, technically my debt-to-income ratio as it would pertain to bankruptcy risk is about 7.3 right now, and so long as my partners are solvent, that's OK. If all goes according to plan, it will be 9.8 in a few months, then 6.0 by the end of the year. Having said that, my business expenses are going to go up tremendously, and the bulk of my income will be on the balance sheet (which ultimately means that it gets leveraged with debt), so these multiples don't mean much to me.

Cash flow is everything.

[mpbro]

that whole affordability index thing seems outta whack to me...

You can say that again! The first year was tough, and I believe that we used some 0% credit cards as short term financing to get us through property tax season. In the end, though, it worked out pretty well for us. We had a home in a good location and got a lot of sweat equity (plus solid appreciation) out of it when we sold. My wife ended up making more than I did when she left B-school.

We have a child now, and let me tell you, the economics have changed considerably.

I have to say, though, that in Houston, the rent-vs-home price ratio is not unreasonable. When we moved to Houston in 2004, equivalent rent on the $350K house was $1400-1700. When we left in 2007, it was $2000-2300. In this tiny sample set, I'd say that rent more or less kept up with home price appreciation.

To give you some perspective, in Silicon Valley, rents are roughly similar to Houston. You might pay $2500/month to rent a house in Sunnyvale that would sell for $800K. Proposition 13 has skewed things greatly--property tax caps encourage people to not sell, and thus many landlords have an extremely low cost basis--but still, something has to give.

Edited March 6, 2008 by mpbro

[bpe3]

Most of my 30-40 year old friends live inside the loop.

They all fit into one of the following catagories:

1. they rent an affordable apartment, alone;

2. they rent a house, with roommates;

3. they are married with two incomes;

4. they make $150k to $250k a year;

5. they scripted and saved and invested well and put more than $100k down to make their mortgage affordable;

6. they work on commission and had a few REALLY good years allowing a LARGE down payment;

7. they took in roommates to cover the cost of the mortgage; or

8. they bought an inexpensive condo ($100k to 150K);

bpe3

Edited March 6, 2008 by bpe3

[musicman]

What am I missing?

you're not missing a thing, they are missing some common sense.

[RedScare]

Niche and RedScare where are you????

Thanks,

Scharpe St Guy

Based on Niche's past remarks, he and I did similar things, albeit at different times. Personally, I bought a condo at $116K in 1999, and sold it for a $50K profit in 2004. That went into the next house that is now probably worth $300K or more. I also put plenty of sweat equity into both homes.

The trick to this stuff is to buy an affordable home in an emerging area. As the area gentrifies, you can sell at a profit. That profit goes into the next home, preferably also in a gentrifying area. If you expect to just walk into a large home, already rehabbed, in an upscale Inner Loop neighborhood, it won't happen. Those who are unable or unwilling to sacrifice to gain an Inner Loop address usually move to the suburbs, where land prices allow for larger homes. Those who try to shortcut it by obtaining creative financing are ending up in the headlines of the Business section of the newspaper.

Oh, and FWIW, I have never borrowed more than $150K to buy any house, even though I could have qualified for it.

Edited March 6, 2008 by RedScare

[TAK]

i still don't get it... i make enough to pay for one of these places, but i don't see it.

maybe i'm just, errr, frugal... i don't have $50k to put down on a $300k house, and i don't want a $2500 PITI...

i guess that's why i live in a less desirable neighborhood (for now, anyway...)

[BryanS]

How do people do it? Those that have a seemingly "low" salary as compared to the possessions they surround themselves with (e.g. leased luxury cars, etc.) or live in (e.g. a big/expensive houses)?

They rob their future. Either by A.) Not contributing to their 401K/retirement accounts, B.) Not contibuting enough to their 401K, or C.) Robbing their 401K/retirement accounts right now.

Even beyond the 401K neglect/abuse, there are credit cards. And then, beyond that, home equity lines. Our thirst to drown ourselves in debt is insatiable.

By the time we are a freshmen in high school, we should be forced to take 4 years of personal finance courses. It should be just as important as math and English (and a second language

[RedScare]

i still don't get it... i make enough to pay for one of these places, but i don't see it.

maybe i'm just, errr, frugal... i don't have $50k to put down on a $300k house, and i don't want a $2500 PITI...

i guess that's why i live in a less desirable neighborhood (for now, anyway...)

Why do you need a 2,500 square foot house? Even by suburban standards, that is fairly large.

[BryanS]

i still don't get it... i make enough to pay for one of these places, but i don't see it.

maybe i'm just, errr, frugal... i don't have $50k to put down on a $300k house, and i don't want a $2500 PITI...

i guess that's why i live in a less desirable neighborhood (for now, anyway...)

...a quick and dirty rule... take your income, multiply by 3. That is the max you can get a loan for (in general), but... you still may not be able to afford it. Note, every loan that goes into default was ultimately approved by a loan officer or bank, so qualifying for a loan and being able to pay it back are two different things. Make sure you're funding your 401K/IRA responsibility, then take what is left over and live in a home that fits within that budget (and obviously, you have to balance out other expenses too - but never mortgage your future.)

[Urbannomad]

The answer is dual income with no kids. $80K for a $300K house is tight, but for say a $225-$250K house really isn't that bad(for DINKs). While those are not my exact numbers that's the general ballpark, plus or minus 10 or 15k, for my situation and we make the payments without any problem and still both contribute to our 401Ks at the full matching percentage along with 2 IRAs and our general savings fund and have plenty fun money left over.

I think in Houston especially, cars are something that really kills people in a budgeting sense. Even those who don't drive far tend to have new, nicer cars and when you figure in that $300 - $900/month for 1 or 2 car loans that's a big junk of money. I drive a small, low mileage, paid off car and my wife has a new, though relatively inexpensive car that we have a small monthly payment on so we save a lot of money each month right there. We were also able to put 20% down but we did have to save pretty hard and make sacrifices for about 5 years before we had enough money.... but I don't think working hard to earn something is a bad thing plus we are still under 30. I guess it all depends on how well people can personally budget their money and how much debt they've already gotten themselves into, but I think it's doable in a responsible way so long as the person is willing to sacrifice a little to get there.

But if you have kids I think those numbers get a lot harder to work out, and that is when I want to know how people do it.

[missmsry]

Never, ever listen to your realtor or the mortgage "banker" (ie: flunky). They will always attempt to get you to sign for a loan way beyond your means even if you "qualify" for a larger loan. That's how they make their cut.

Don't lease a BMW, buy the cheapest car that will run, pay cash and keep it for over 10 years. Even try taking the bus.

Don't eat out. Or hang in bars after work. Run in the park instead.

Invest as much as possible in your 401K.

Don't get divorced, that will eat up a ton of money and set you back years emotionally and financially.

Nobody needs to live in a 3,000 sq. ft. house. Or even 2,000.

And being frugal is nothing to be ashamed of. It has allowed me to own two homes without mortgages, one inside the loop near River Oaks, another on Padre Island. And we got our daughter through a major university without taking out loans.

Of course, I don't get mani-pedis, I wear blue jeans, etc. However, I also don't freak if I want a $150 haircut or a really cool pair of Tevas.

It's all a matter of priorities.

But it takes planning. We started in our mid-30s (kind of late, but we hadn't met each other yet) with first a ten year plan stating our goals and how to achieve them. We didn't quite make that timetable, but came close. Just never give up.

Edited March 7, 2008 by missmsry

[houstonmacbro]

Never, ever listen to your realtor or the mortgage "banker" (ie: flunky). They will always attempt to get you to sign for a loan way beyond your means even if you "qualify" for a larger loan. That's how they make their cut.

Don't lease a BMW, buy the cheapest car that will run, pay cash and keep it for over 10 years. Even try taking the bus.

Don't eat out. Or hang in bars after work. Run in the park instead.

Invest as much as possible in your 401K.

Don't get divorced, that will eat up a ton of money and set you back years emotionally and financially.

Nobody needs to live in a 3,000 sq. ft. house. Or even 2,000.

And being frugal is nothing to be ashamed of. It has allowed me to own two homes without mortgages, one inside the loop near River Oaks, another on Padre Island. And we got our daughter through a major university without taking out loans.

Of course, I don't get mani-pedis, I wear blue jeans, etc. However, I also don't freak if I want a $150 haircut or a really cool pair of Tevas.

It's all a matter of priorities.

But it takes planning. We started in our mid-30s (kind of late, but we hadn't met each other yet) with first a ten year plan stating our goals and how to achieve them. We didn't quite make that timetable, but came close. Just never give up.

Good advice for everyone!

[brerrabbit]

Our solution is we went to Pearland in 1994. Same house for 14 years and love it. We are tremendously spoiled with a $618 P&I a month payment on our house. Yeah its bigger than what we need at 2,800 sq ft but downsizing scares me a lot. We would have to pay quite a bit more for a lot less house. We have certainly gained equity should we ever choose to move but for the forseeable future we're fine where we are. The thing that has totally stumped me and will always stump me are the people I know in Pearland who moved there in the last five to six years and bought $250k to $350k houses. What the hell were these people thinking? Look at the real estate trends over the years in Houston and you will see that the first areas to get absolutly hammered are the burbs. If you want to spend that much money you better be inside the Loop and hopefully in an area trending the right direction.

I remember in 1994 my wife and I were scared to death when we paid $137k for our house and were wondering how we would ever be able to make the payments.

Edited March 7, 2008 by brerrabbit

[KatieDidIt]

A lot of it has to do with timing. If you bought a house in the early 1990's in Houston, its almost tripled in value. So if you can hang with the taxes, you are in a house far above what one could afford to buy these days.

If you sold that house you could certainly move a little farther out (talking a few miles here not the true suburbs) an buy something a little bigger.

I have always felt that your house should only be a 1/4 of your net worth. 3x's salary could get you in trouble. A house only being 1/4 of your worth means that you can bail yourself out if you need to. It also mean you actually save/put away more money than you spend. Most people I know follow this, putting down a substantial down payment when it comes to purchasing, often 50% or more when it come time to move up a size or up in neighborhood.

Edited March 7, 2008 by KatieDidIt

[bpe3]

Just make more money people. That's the answer. The whole premise of this thread is bogus. You'd have to look long and hard to find a person making $80k/year in a $300k home unless they did what it takest to come up with a very large downpayment. The fact of the matter is that most people in $300k homes make a lot more than $80k/year. End of story.

The OP makes $80k+. The PITI on a $300k loan is about $3k/month. At $80k/year, he's taking home about $4,750/month before 401k and IRA distrubutions. That ain't going to cut it. You have to make more than that. It's that simple.

The only other option is a very large downpayment. He says he doesn't want to put down $50k. More bad news. He'll probably need to put down twice that. Many an inner loop homeowner has used a large downpayment to get inside the loop. Over the last 10 years, it's been a VERY wise investment.

bpe3

[longcat]

I'm not going to pretend that this is representative of everyone buying ITL at these prices, but there are a lot of new Doctors earning good money, and every year a new crop of lawyers starts at V&E, BB, F&J, BG...etc making 160k base before bonuses (at age 25!) And that doesn't even address all the energy industry hires, financial services, etc. So I think that some substantial portion of the ITL buyers do have income to support these prices. I'd be interested to see a comparison of median houshold income trend against housing appreciation at a zip code level, but I couldn't find any free sources online since the Census only seems to go down to that level every 10 years last time I poked around.

[banking214]

Due to loose credit standards, lenders really did give away money to anyone who wanted it. You could pick from an array of "exotic" mortgages. Why not an interest only ARM? For 3 years, locked in place at 1.50%. Now, not everyone qualified for this type of loan, but I am just using it as an example. I would personally never, ever want something like this. Many people did. Many people now owe more money than their home is worth.

[crunchtastic]

Thanks to the baby boomers and inheritance, etc, a lot of young people buying ITL have gobs of family help, I'm discovering. I went to few office wedding showers last year and the most popular topic of conversation was home buying and how much the 'rents where kicking in on the downpayment. $100K was a nice round number I heard often. The other interesting thing was the attitude that it was just sort of expected, to be getting that kind of cake from mom and dad. These aren't rich spoiled kids, just young accounting nerds. As long as they're buying and driving development, cool.

Hopefully they won't decide en masse to start having children and move from Rice Military to Pearland, then the market gets soft with a glut of townhomes. I'm really interested in the next round of census data.

[sowanome]

My partner and I bought a place ITL in DEC. 2006 and it's been perfect for us,(I worked in the r.estate industry for a while and I'm now in finance, so yes i'm a numbers person) Stats:

30 yr MTG

6% i.rate

D.PMT= 23%

Note=245,000

PITI=$2,040

Annual Income(2006)= $90,000

Owning a home for $1020 pp = priceless and we've had many vacations!!!

However, we don't have any kids and we cook a lot and we've always known our weaknesses. ITS ALL ABOUT the DOWN PAYMENT!!!! Typically, bankers view the perfect borrower as spending 28-32% of their gross income on housing(This is why we bought at 300k and not 375k). It's really easy to live without credit as we do, but its all about the down payment, esp. at that price point. This is not an investment property, it's your house, so save up money for a down payment and really locate where you are spending your money...It's usually the little things. Think about it like this, we max out our 401k's each year and we are loving life...Watch the small expenses, they really add up!

[cottonmather0]

I used to wonder how a lot of people did it (high rent fancy apartments, BMW, nice clothes and toys, weekends out at the club), then I figured out most of them were in debt up to their eyeballs and not saving a penny. Not saying that there aren't a lot of people who legitimately live the large lifestyle, but generally speaking, if you can't figure out how someone is doing it, you're not missing anything, they're just leveraged to the hilt and will have to pay the piper someday.

[sarahiki]

I used to wonder how a lot of people did it (high rent fancy apartments, BMW, nice clothes and toys, weekends out at the club), then I figured out most of them were in debt up to their eyeballs and not saving a penny. Not saying that there aren't a lot of people who legitimately live the large lifestyle, but generally speaking, if you can't figure out how someone is doing it, you're not missing anything, they're just leveraged to the hilt and will have to pay the piper someday.

Or maybe it just makes us feel better to think so?

[texas911]

Or maybe it just makes us feel better to think so?

Exactly. Houston's economy is hot and there are a lot of "millionaires next door" types. This quote from another post. And these are just the millionaires, not counting the high middle class.

Houston sees millionaire tally soar

Bayou City projected to have third-greatest increase in wealthy residents over next five years

Houston Business Journal

Houston is churning out newly minted millionaires at a dizzying pace.

Data compiled by Claritas Inc. shows that more than 58,569 millionaires lived in the Houston area in 2006, a 4.3 percent increase over 2005.

[TAK]

Why do you need a 2,500 square foot house? Even by suburban standards, that is fairly large.

Me, wife, one son, one more on the way - currently in a 3/2/2 @ 1492sf...

I work at home and need an office.

My wife has her own company and needs a separate office.

Currently, my wife offices on our dining room table and I take up a BR. room.

We need one more room. A 3 BR and a study would work for right now, but If the next child is a girl, we'll eventually need another room.

Those are just the "needs".

A play area for the children and their toys would be nice. A guest BR would be nice (although wife's office and guest bedroom could probably be one in the same).

So, we're looking at 4 BR + Study or 5 BR. We don't "need" 2500 SF, but it would be pretty close. We're in 1492 now and can't fit bedroom furniture in the kid's room - fortunately, he's just in a toddler bed - a real bed wouldn't fit with the furniture and toys.

That is why we need 2500sf. 1500sf was perfect when I was single. It was still good when we had no kids. No longer.

[TAK]

Just make more money people. That's the answer. The whole premise of this thread is bogus. You'd have to look long and hard to find a person making $80k/year in a $300k home unless they did what it takest to come up with a very large downpayment. The fact of the matter is that most people in $300k homes make a lot more than $80k/year. End of story.

The OP makes $80k+. The PITI on a $300k loan is about $3k/month. At $80k/year, he's taking home about $4,750/month before 401k and IRA distrubutions. That ain't going to cut it. You have to make more than that. It's that simple.

The only other option is a very large downpayment. He says he doesn't want to put down $50k. More bad news. He'll probably need to put down twice that. Many an inner loop homeowner has used a large downpayment to get inside the loop. Over the last 10 years, it's been a VERY wise investment.

bpe3

heh... for grins, how much do you think one would need to make to live in a $300k house?

and no, i won't be putting down $100k on a house ITL. i won't be putting $100k down on a house anywhere. if i have $100k in cash, there are better uses for that money, and i can still live ITL.

i think you have missed the point of the thread. the point is that there are MANY people with a household income UNDER $100k who are buying homes OVER $250k.

this is not a question of means (for me, anyway). it's a question of wants. i maxed out my 401k in August ion 2007, put another $1k in savings every month, have no credit card debt, and only have one car note and a student loan (that is so cheap on interest that i'll never pay ahead on it.)

to an extent, i agree with you. i have said, a few times, "screw it, just buy the house and make more money like you've always done". on the flip side, i'd rather buy 4 houses for $70k that need to be rehabbed and rent them for $1000 a month than to buy myself a $280k house...

yes, had i bought ITL 10 years ago, I'd be happy, but I wasn't living in Houston at that time.

[TAK]

...a quick and dirty rule... take your income, multiply by 3. That is the max you can get a loan for (in general), but... you still may not be able to afford it.

That's kinda why I started this thread. My income x 2 is more than I want to spend, but people are spending 2.5x - 2.8x, and I'm wondering how...

Apparently, people have parents with $100k in pocket for them. That would make the point a non-point. I wouldn't go that route, even if my parents had the money. Nothing wrong with it. I just wouldn't take the money.

It's all good. I am happy in my house. Just need more space and don't want to move outside the beltway. There are plenty of houses in my neighborhood.

[KatieDidIt]

That's kinda why I started this thread. My income x 2 is more than I want to spend, but people are spending 2.5x - 2.8x, and I'm wondering how...

Apparently, people have parents with $100k in pocket for them. That would make the point a non-point. I wouldn't go that route, even if my parents had the money. Nothing wrong with it. I just wouldn't take the money.

It's all good. I am happy in my house. Just need more space and don't want to move outside the beltway. There are plenty of houses in my neighborhood.

TAK, they might be doing balloon mortgages, where you pay the majority of the loan towards the end. I guess they are thinking they will sell or be making more by the time those numbers come up. Creative financing is dangerous in my opinion.

But on another note, there are a lot of people making serious money, and unless they told you they are only making 80k, I would suspect they are making more or have some investment income.

You might consider an equity loan and just add on if you have the lot size. Its actually cheaper than paying the 6% to a realtor and closing costs. A lot of people are building the 2 story garages for the reasons you mentioned. NEed more space, don't want to leave the location and can't afford the move up.

oh and I wanted to add, yes a lot of parents are starting to gift monies to their children in order to escape the death tax. And its not just the upper classes doing this either. I think you can give away/gift around 12k a year now per individual without having to pay a tax. That means the father and the mother can give that money EACH, equalling 24k a year in tax free income to the kids. (Death tax is wrong, you've already paid the tax on it once while alive and earning. If I can, I will do this for my children when I get up there) I think you can also gift one dwelling in your lifetime. This might be some of what you are seeing, but I would say creative financing or just plain high income would be the majority.

Edited March 10, 2008 by KatieDidIt

[houstonmacbro]

That's kinda why I started this thread. My income x 2 is more than I want to spend, but people are spending 2.5x - 2.8x, and I'm wondering how...

Apparently, people have parents with $100k in pocket for them. That would make the point a non-point. I wouldn't go that route, even if my parents had the money. Nothing wrong with it. I just wouldn't take the money.

It's all good. I am happy in my house. Just need more space and don't want to move outside the beltway. There are plenty of houses in my neighborhood.

Maybe I'm hanging out in the wrong circles. I don't know ANYONE personally who's parents have that kind of starter money.

[Mr. Chenevert]

I think a lot of people are underestimating salaries..

A 5-7 year engineer is easily making 100k in Houston. Say he marries a school teacher, who is making ~45k/year. Thats a household income of almost 150k...

Assuming a 20% downpayment on a 300k house and the PITI would be closer to $2k, not 3k... well within their means...

I dont think saving 60k over 7 years is that hard... heck, borrow from your 401k if you must... thats better than paying PMI...

[mpbro]

I think a lot of people are underestimating salaries..

Wage inflation in the oil industry has easily exceeded 8% since 2004, especially at the entry level. In 2004, an M.S. geologist with no oil industry experience might start at $65K at most oil companies. Now, good people are easily fetching $90K, and you hear cases of starting salaries in excess of $100K. Companies are adjusting wages twice-annually and adding all sorts of perks to reduce attrition. A friend of mine (recent PhD graduate in geophysics from Stanford) is starting at $115K at the supermajorest of the supermajors. Companies that might hire 1-3 new college graduate geoscientists per year are now hiring 10-20 per year. Most of these people are buying townhouses and homes.

When the big hiring push started in 2003-4, most oil&gas related companies were about as lean as they possibly could have been. The staffing levels and inefficiencies haven't reached the bloated levels of the early 1980's, but having seen both sides of this game, the lambs will go to slaughter someday...big question for Houston RE is when.

Edited March 10, 2008 by mpbro

[texas911]

And don't forget the median home price in Houston is, what $120K? It may look like a lot of people buy $300K houses, but that's not what statistics say.

[sarahiki]

And don't forget the median home price in Houston is, what $120K? It may look like a lot of people buy $300K houses, but that's not what statistics say.

But that's not an Inner Loop median, obviously. I think the question is how can so many people afford ITL houses...

[KatieDidIt]

But that's not an Inner Loop median, obviously. I think the question is how can so many people afford ITL houses...

Because there are a lot of very wealthy people in this huge city. They don't want to commute so they pay to be close to work. If you look at the real estate market, the high end is still going up. ITL and even ITB is a lot of generation wealth and Upper managment. They can afford it. Its that simple. People who can't go out to the burbs, thus the sprawl we are experiencing.

Questioning purchases ITL its definately under-estimating what people are making. Heck, just look at the poll on this HAIF site asking about salary. The majority are making OVER 100k.

[GovernorAggie]

I'm wondering the same thing. Especially considering where some of these homes are...45N near Sharman, Hogan Street, Sidney St. in the East End, Dowling, and basically the rest of the "near East End" area. Every time I see the prices I wonder, "Who are these people selling to?"

[Ethanra]

People can afford a more expensive home because they budget for it. We can live in a more expensive house that would cost three times as much as a house in the burbs because of several reasons. First, who really need a 3000 sq. foot house in the burbs. You can get a a house that is half the size, 10 times better made to live comfortable in and all with a good school. Your electricity and utility bills are half as much. If you live closer to town you save hundreds a month on gas, time, were n' tear on your vehicle. Even on the weekends just to go to the corner store you need to drive. The gas bill has to been pushing a thousand a month. There are many ways stretch your budget.

[Gary]

I'm not in a position to talk about how regular folks manage to afford their lifestyle. Every real estate transaction I make is in the context of a partnership, but I'm not in the position at this point to use non-recourse debt, so even though most of my projects' cash outflows are covered by rental income and mine and my partners' cash contributions, technically my debt-to-income ratio as it would pertain to bankruptcy risk is about 7.3 right now, and so long as my partners are solvent, that's OK. If all goes according to plan, it will be 9.8 in a few months, then 6.0 by the end of the year. Having said that, my business expenses are going to go up tremendously, and the bulk of my income will be on the balance sheet (which ultimately means that it gets leveraged with debt), so these multiples don't mean much to me.

Cash flow is everything.

Niche, how did you get into the partnership mentioned above? I ask because I've been reading a little about it but am not sure how to go about finding those who will commit there credit/income.

[TheNiche]

First, who really need a 3000 sq. foot house in the burbs. You can get a a house that is half the size, 10 times better made to live comfortable in and all with a good school. Your electricity and utility bills are half as much. If you live closer to town you save hundreds a month on gas, time, were n' tear on your vehicle. Even on the weekends just to go to the corner store you need to drive. The gas bill has to been pushing a thousand a month. There are many ways stretch your budget.

People may buy a 3,000 sq. ft. home in the suburbs if they have more than one or two kids or expect to care for their aging parents at some point, have a lot of parties and events, want to be in a particular school district, want the exclusivity of a community without people poorer than they are, if they want a big yard with plenty of privacy and little noise, or (the big one) if they work in the suburbs, as most people in the Houston region do.

I'd also contend that homes built in the suburbs aren't necessarily more poorly-built than homes built in the city. I'd think that Tremont Tower would be a testament to that.

Most of the suburbs don't really suit you or I, but they are very appealing and justifiable for a lot of people.

Niche, how did you get into the partnership mentioned above? I ask because I've been reading a little about it but am not sure how to go about finding those who will commit there credit/income.

Make trustworthy friends. One of my partners is an ex-girlfriend, another is a guy twice my age that I met years ago when I was going to UH.

[Gary]

If you live closer to town you save hundreds a month on gas, time, were n' tear on your vehicle. Even on the weekends just to go to the corner store you need to drive. The gas bill has to been pushing a thousand a month. There are many ways stretch your budget.

Man you got that right! I am in town almost everyday and my fuel bill is over 1000.00 a month.

I'm seriously considering selling or renting my home and moving into town. For what i pay in gas every month I could easily afford a more expensive home, and not be on the road as much. Of course I'm not even going into the wear and tear on my F250. which is a small fortune to maintain.

[jgriff]

Man you got that right! I am in town almost everyday and my fuel bill is over 1000.00 a month.

I'm seriously considering selling or renting my home and moving into town. For what i pay in gas every month I could easily afford a more expensive home, and not be on the road as much. Of course I'm not even going into the wear and tear on my F250. which is a small fortune to maintain.

For all you guys who want high density in Houston this is what's going to drive it. All the planning and subsidies in the world will be nothing compared to high transportation costs.

[KatieDidIt]

For all you guys who want high density in Houston this is what's going to drive it. All the planning and subsidies in the world will be nothing compared to high transportation costs.

I've met two couples in the past few weeks that have bought/are buying within two blocks from us. One couple from The Woodlands another from Sugarland. Another couple moving in from Uptown/Galleria because one commutes to the Energy Corridor. They are tired of the drive and traffic. I think the reverse exodus is starting to occur, which will drive real estate prices even higher.

Edited March 10, 2008 by KatieDidIt

[ricco67]

Man you got that right! I am in town almost everyday and my fuel bill is over 1000.00 a month.

I'm seriously considering selling or renting my home and moving into town. For what i pay in gas every month I could easily afford a more expensive home, and not be on the road as much. Of course I'm not even going into the wear and tear on my F250. which is a small fortune to maintain.

But then, are you going to keep your F250 when you move close into town? Depending on where you live, that truck will be a mother to park.

[Ethanra]

I'd also contend that homes built in the suburbs aren't necessarily more poorly-built than homes built in the city. I'd think that Tremont Tower would be a testament to that.

Most of the suburbs don't really suit you or I, but they are very appealing and justifiable for a lot of people.

I met that older homes in the city are built better then a majority of the newer homes. Our home now was built in '64 and the previous we lived in was older. Everything is solid in the home and has little problems at most. Buddies of mine who have

newer homes, even one buddy that has a home worth close to a million in Sienna Plantation, they have a laundry list of problems.

I also understand why people live in the suburbs. If you can only afford $90,000 on a house and want to live in a good school is the first one I can think of. You listed great reason as well. The fact is many people just want the biggest house as they can afford even if its wasted space, and they just don't care what sacrifices they need to make to have that huge house.

I personally think Sugarland, Kingwood, Clearlake, the woodlands all have great things about them. Many people work close to the homes in these areas. Place like Katy, Cypress, I just don't get though. Just drive down Fry road between 290 and I-10 and you will understand. I met a guy this weekend at this hunting ranch we go to. He is in his 30's with one kid and he and his wife work off of San Felipe close to the loop and they make good money. They live in Cypress and he complained in every conversation about his commute time. He also complained about his shopping and eating choices as well. I then ask him why doesn't he just move closer to work. His response was, " Why should I pay three times as much for the same home?" I just don't get some people and there logic.

Edited March 10, 2008 by Ethanra

[bpe3]

I guess Sowanome's post pretty much disproves my point. He or she seems to have bought a $318k house with a $90k combined salary. They put $73k down though, which makes a difference. I guess it's different for married people. Most single people I know wouldn't want that much of their cash flow committed to mortgage payments. We'd all rather have more cash available for dining out, entertainment, travel, etc.

I guess HAIF really is a cross section of society. As soon as people start asking about how people seem to be living a more affluent lifestyle than the rest, others start chiming in about leased BMW's, unfunded IRA's, maxed out credit cards, etc. How hard is it to come to grips with the fact that some people just make a lot more money than you do? Forget the $300k townhouses, there are single family homes all over the inner loop that are selling like hot cakes for $800k to $1,500,000 or more. Cetainly some of these folks may be stretched to their financial limit, but many others are not.

bpe3

[Gary]

But then, are you going to keep your F250 when you move close into town? Depending on where you live, that truck will be a mother to park.

That's a good question... I need the size of the truck as i haul a lot of musical equipment, all the time. However, I've been driving a Chrysler Town and Country van while my truck is being serviced, and although it's not very macho, it has been great when loading and unloading. So I'm seriously considering buying one.