How Do People Afford It?

[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.

[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.

[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.

[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.

[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.

[KatieDidIt]

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.

In the 300 and up category,they want to live in a "nicer" home than what they grew up in. Buying a "crappy old" house in Briargrove, West Memorial,West U or River Oaks is not nearly as glamourous as the Generic Mansions they can live in way out of town. Doesn't matter how nice the neighborhood is, or how close to work it is., it doesn't look "rich" to them. After living amongst them for a couple years they all wanted to give nicer things to their kids than they had. Kids absolutley cannot share rooms.

I showed an old neighbor a picture of our New Old house in West Memorial and she crinkled her nose. I think she thought my husband lost his job or something. Of course being Houston it cost about 40% more than the McMansion we moved out of.

[lockmat]

Do yall think property taxes plays a big role? I know my dad built a new house in montgomery country and sold the one in harris just b/c they were so much cheaper in montgomery county. He doesn't think he'd ever be able to retire had he stayed in harris b/c the taxes were so high. I'm not sure about other counties outside of harris besides montg.

[KatieDidIt]

Do yall think property taxes plays a big role? I know my dad built a new house in montgomery country and sold the one in harris just b/c they were so much cheaper in montgomery county. He doesn't think he'd ever be able to retire had he stayed in harris b/c the taxes were so high. I'm not sure about other counties outside of harris besides montg.

Lockmat, on a house in Sterling Ridge we were paying 18,000 a year in County, MUD,School and Association Fees. Our total cost for for a house worth 250,000 more in Harris County, SBISD and with Association Fee was 12,000. SO I don't know why people think its cheaper up there. Of course its an older home so the "improvement/house" is minimal on the bill. Everything in Sterling Ridge was brand new and taxed at full sales cost. The land was worth nothing.

[jgriff]

Lockmat, on a house in Sterling Ridge we were paying 18,000 a year in County, MUD,School and Association Fees. Our total cost for for a house worth 250,000 more in Harris County, SBISD and with Association Fee was 12,000. SO I don't know why people think its cheaper up there. Of course its an older home so the "improvement/house" is minimal on the bill. Everything in Sterling Ridge was brand new and taxed at full sales cost. The land was worth nothing.

I've run into the same thing. I thought about moving out further West from the Memorial Villages area and found that the taxes made it unaffordable.

[TheNiche]

I met that older homes in the city are built better then a majority of the newer homes.

Being the owner of an older home, and of older commercial properties, I'd challenge that. It's a mixed bag, and you never know what you're going to get.

For instance, it never ceases to amaze me that so many contractors back then thought that they could get away with pouring concrete with inadequate or no reinforcement. And then there are the previous homeowners that have done crappy remodels at various times, have used crappy plumbing parts, or other stupid-ass things that convey to new owners. And back then, code enforcement was more lax or just non-existent. I don't think I'll ever buy an older building again without hiring a structural engineer (not just an inspector) to check it out.

[memebag]

$1000/month for auto fuel??

How is that possible? That's 11 gallons a day (if you drive into town every day). Even if your car only gets 20 mpg, that's 220 miles each day. Are you folks commuting from College Station?

[ricco67]

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.

for an example:

I had a client who was (and probably still is) an avid cyclist and said he NEEDED an SUV to carry his bike and have room for equipment on his weekend trips. Taking his commute, lifestyle, and finances into consideration, I had suggested a good mid sized car or hatchback (like his wife's car whose brand I can't remember) and use a bike rack. He didn't want to explose he $5k bike to the elements, so he got a Mazda Tribute.

Whatever.

As time passed (two years) his tribby (that's the name) broke down and was forced to use his wife's car. The very one I suggested and 'Lo and behold! It held not only HIS bike, but his Daughter's and all their equipment for a weekend.

when he drove off, I did a little jig of vindication as his wife later told me she did a "I told you so" to him as everything fit.

Moral of the story: Look at a car objectively for what you need.

[cnote]

$1000/month for auto fuel??

How is that possible? That's 11 gallons a day (if you drive into town every day). Even if your car only gets 20 mpg, that's 220 miles each day. Are you folks commuting from College Station?

Driving an F-250 in rush hour, and you wont even touch 20 mpg, try 10 or less...assuming his is not a deisel...

EDIT: forgot to quote, and this is an active thread...

[ricco67]

$1000/month for auto fuel??

How is that possible? That's 11 gallons a day (if you drive into town every day). Even if your car only gets 20 mpg, that's 220 miles each day. Are you folks commuting from College Station?

If you're referring to me, yes that is an average for me. My clients are literally all over the city. As south as Clear Lake to as north as the woodlands and I drive it every single day. One day I had to drive from NASA, to Tomball, to Sugarland. I called it the Triangle of death. I'm ecstatic when my appointments are all within the 610 loop.

[sarahiki]

Driving an F-250 in rush hour, and you wont even touch 20 mpg, try 10 or less...assuming his is not a deisel...

EDIT: forgot to quote, and this is an active thread...

This thread is spinning off topic a little bit, but whether one is talking about what car you choose or what house you choose, it's a personal choice. I'd love for everyone to drive a small, fuel-efficient car, and some posters here clearly think people should choose a small house. But sometimes people have a good reason for the choices they make. Sometimes they don't, but I'm pretty sure that's none of my business.