Buying a house

[mleok]

Median price of a house in the US is just over $225K
https://www.google.com/search?q=median+home+prices+in+usa&rlz=1C1CHBF_enUS749US759&oq=median+house+price+in+usa&aqs=chrome.3.69i57j0l5.8389j0j7&sourceid=chrome&ie=UTF-8

Put down $25K and finance $200K for 15 years at 3.5% (your number).  The payment is roughly $1430

1430/.25 * 12 is $68640. 

Median US household income is just over $60K a year.

So if the Median House is about 225K and the Median Household income is just over 60K, it seems to me that plenty of people, especially a couple where one (or more) has an advanced degree, could afford a median house.  I could be wrong, but I would suspect that even a sole bread winning family headed by a faculty member would earn close to the median household income, or more.  And if both spouses worked It shouldnt be too hard to earn more than the median household income and handily afford a median priced house.

Quite the opposite!  Im suggesting no such thing.  Here is probably the sad truth that may be surprising to some people to read, and Im going to type it for anyone to read!

Im suggesting that IF the average/median/typical house is priced at $1,000,000 and faculty positions  dont pay closer to $400,K a year (the number provided), then faculty who somehow found themselves in such a situation should move.  Find a job in an area of the country where the salary Does allow faculty to buy a house they can afford on the wages that are offered. 
Why would anyone even contemplate taking a job where the salary that was offered is insufficient to pay rent, (much less food, transportation, utilities and save for retirement) much less accept a job in such a location ?

From what I can see, Most of America would meet the requirement! 
https://money.cnn.com/calculator/pf/cost-of-living/index.html
Here is a cost of living tool I found online with a 10 second search.  I entered San Diego but left the default city of Asheville, NC.  Housing costs are 73% lower (i.e. only 27% of what it cost in San Diego).  Im pretty sure that there is a university in Asheville (maybe more than one, if you include private ones).

I am sorry for the long post. I found myself annoyed at what I perceived to be a 'woe is me' or 'it can not be done' reply to an earlier post of mine.  In closing, if one is not happy in the situation that they have found themselves to be in, change the situation.  No one is truly chained to their location. There are often several alternatives to enduring bad situations.

Wonderful, so you don't pay any taxes? Nobody is saying you need to make $400K/year to afford to live in San Diego, I am simply saying that if you choose to define affordable on the basis of being able to pay a 15 year fixed rate mortgage using only 25% of your take home income, then that's roughly what it takes. Most of us spend more than that, and do a 30 year mortgage, because that's what it takes to afford a house in an excellent school district.

Look, maybe your advice makes sense in your local setting, but it doesn't make sense everywhere. Certainly not in the coastal states where a significant fraction of the best universities are located. I maintain that being able to afford to buy a reasonable house with approximately one year of your base salary is hardly typical even in a household with two advanced degrees. Unless both spouses are academics, it's often difficult to find a good non-academic position for a person with an advanced degree that pays close to the market rate in a location with a depressed real estate market. If, as you say, you dedicated 25% of your take home pay towards your mortgage, all of your summer salary, and only financed the equivalent of one year of what you make in a year, why did it take 8 years to pay that mortgage off?

The bottom line is that simple rules of thumb like the one you proposed ignore numerous factors, including the differences in total income between two alternative locations, the rate that real estate appreciates, interest rates, and whether one wishes to retire in place. For example, in my case, the cost of property doubling over the 8 year period you mentioned in your original post. If your real estate market appreciated by the same amount in your initial scenario, after 8 years, that $200K house you passed on would be $400K, and you would now have to finance $300K, at three times your original payment. So, sure, debt is a source of risk, but so are fluctuations in the real estate market, and changes in interest rates (if you want to take a new mortgage in 8 years). The long term financial health of the city and your employer are also important issues.

I did leave an institution in the midwest where I had a 15 year mortgage on a nice house before moving to San Diego, and while I would have almost paid off that house had I stayed, I have twice the value of that midwest house in equity in my current house, with a higher salary, better retirement plan, better institution, and better quality of life. Put another way, there is more than one way to achieve financial security, and for many of us, the quality of the institution we work for matters a great deal, and I would not trade my current institution for the best that Asheville, NC, has to offer, even if housing prices are 60% lower (73% lower is relative to San Francisco).

[clean]

I maintain that being able to afford to buy a reasonable house with approximately one year of your base salary is hardly typical

To clarify, I said I financed 1 year of my  salary.  The house was more.

f your real estate market appreciated by the same amount in your initial scenario, after 8 years, that $200K house you passed on would be $400K, and you would now have to finance $300K, at three times your original payment.

No appreciation was assumed in the original example.  However, if you assume that prices moved proportionally (and in my reading of the real estate pages, the lower and middle prices tend to grow proportionately more than the upper end of prices), then the 100K house would be worth at least 200K.  so in my example you would be financing 200K (not $300K)...OR you could STAY PUT and save the entire house payment in a retirement account or somewhere else! 
If housing prices double in 8 years in an area, there is a good chance that they will crash just as hard!  (See Las Vegas, which may not yet have recovered from the 2008 real estate crash).

Most of us spend more than that, and do a 30 year mortgage, because that's what it takes to afford a house in an excellent school district.

Look, maybe your advice makes sense in your local setting, but it doesn't make sense everywhere. Certainly not in the coastal states where a significant fraction of the best universities are located.

"most of us"  "Where a significant fraction of the best universities are located".  So perhaps we have a problem with the term "your local setting".  Perhaps you are the one in the minority. Perhaps in YOUR local market it is more difficult to find affordable housing in an excellent school district.  For "most of us" in the rest of the country, away from where the 'significant fraction of the best universities are located" this works quite well.

In the link that was provided by another person on the 25 least affordable locations, If I recall the details of the article correctly, 17 are in California and the rest are in New York.  That is hardly representative of the entire 'coastal area"  And if we look on the map, Asheville is in North Carolina, on the Atlantic coast. 

I did leave an institution in the midwest where I had a 15 year mortgage on a nice house before moving to San Diego, and while I would have almost paid off that house had I stayed, I have twice the value of that midwest house in equity in my current house, with a higher salary, better retirement plan, better institution, and better quality of life. Put another way, there is more than one way to achieve financial security, and for many of us, the quality of the institution we work for matters a great deal, and I would not trade my current institution for the best that Asheville, NC, has to offer, even if housing prices are 60% lower (73% lower is relative to San Francisco).

In the end, then, you have been fortunate to find a situation that has worked for you and you are happy. I am glad that you are happy, as I initially thought that you were unhappy because of the house price issue you found yourself in.  Too many people/faculty purchase too much house too soon (because the bank said they would lend them that much) and are disappointed when they are not able to sufficiently save for retirement or afford to reach their other financial goals because the state raises (when they come) dont allow them to out earn the initial mistake of borrowing too much on the house to allow them to afford the other things that they may have wanted. 

[mleok]

f your real estate market appreciated by the same amount in your initial scenario, after 8 years, that $200K house you passed on would be $400K, and you would now have to finance $300K, at three times your original payment.

No appreciation was assumed in the original example.  However, if you assume that prices moved proportionally (and in my reading of the real estate pages, the lower and middle prices tend to grow proportionately more than the upper end of prices), then the 100K house would be worth at least 200K.  so in my example you would be financing 200K (not $300K)...OR you could STAY PUT and save the entire house payment in a retirement account or somewhere else! 
If housing prices double in 8 years in an area, there is a good chance that they will crash just as hard!  (See Las Vegas, which may not yet have recovered from the 2008 real estate crash).

Okay, so you still end up financing $200K after paying down the mortgage for the first 8 years, when you could have done that at the get go and be 8 years further along the same mortgage. Certainly, you want to take into consideration the fundamentals, like the presence of excellent schools, well-paying jobs, amenities and attractions, supply vs. demand, when determining how sustainable long term real estate appreciation is in any area. Otherwise undesirable areas which have appreciated significantly due to more desirable areas becoming unaffordable are the most susceptible to crashes during the down cycle.

Most of us spend more than that, and do a 30 year mortgage, because that's what it takes to afford a house in an excellent school district.

Look, maybe your advice makes sense in your local setting, but it doesn't make sense everywhere. Certainly not in the coastal states where a significant fraction of the best universities are located.

"most of us"  "Where a significant fraction of the best universities are located".  So perhaps we have a problem with the term "your local setting".  Perhaps you are the one in the minority. Perhaps in YOUR local market it is more difficult to find affordable housing in an excellent school district.  For "most of us" in the rest of the country, away from where the 'significant fraction of the best universities are located" this works quite well.

In a hypothetical where one has a $1000/month mortgage, and it represents 25% of your take home income, that yields a $48,000/year take home salary, or about $60,000/year pre-tax. That $1000/month mortgage would correspond to a $175,000 purchase price with a 80% LTV on a 15 year fixed mortgage at 3.5%, so that's about 2.92 times the annual income.

According to this article,

https://www.jchs.harvard.edu/blog/price-to-income-ratios-are-nearing-historic-highs/

The median sale price is now about four times the median income, which is a significant increase over the factor of three in 2011, but there are areas in the midwest and part of the south where your rule of thumb makes sense.

I did leave an institution in the midwest where I had a 15 year mortgage on a nice house before moving to San Diego, and while I would have almost paid off that house had I stayed, I have twice the value of that midwest house in equity in my current house, with a higher salary, better retirement plan, better institution, and better quality of life. Put another way, there is more than one way to achieve financial security, and for many of us, the quality of the institution we work for matters a great deal, and I would not trade my current institution for the best that Asheville, NC, has to offer, even if housing prices are 60% lower (73% lower is relative to San Francisco).

In the end, then, you have been fortunate to find a situation that has worked for you and you are happy. I am glad that you are happy, as I initially thought that you were unhappy because of the house price issue you found yourself in.  Too many people/faculty purchase too much house too soon (because the bank said they would lend them that much) and are disappointed when they are not able to sufficiently save for retirement or afford to reach their other financial goals because the state raises (when they come) dont allow them to out earn the initial mistake of borrowing too much on the house to allow them to afford the other things that they may have wanted.

I was fortunate to move here when the real estate market was depressed. But, if one was starting as a faculty member here today, one would definitely need to seriously consider purchasing a smaller house as opposed to a "forever" house unless one already had substantial downpayment.

[clean]

Okay, so you still end up financing $200K after paying down the mortgage for the first 8 years, when you could have done that at the get go and be 8 years further along the same mortgage

Let us be reminded that You made the assumption that house prices doubled in 8 years.  Usually, housing prices grow much closer to the rate of inflation.  If they doubled in 8 years, then that is roughly a 9% annual rate of increase... Hardly what the majority of the nation has experienced. 

Also, running some numbers on that 200K mortgage, assuming an original 30 year payment at 4%, after 8 years, the outstanding balance has fallen about 32,500, or a little more than $4000 a year.  Is it possible that the larger house costs more than $4000 a year to heat/cool, insure, and pay property taxes? Perhaps the smaller house owner is still no worse off... and that is under the assumption that house prices doubled in 8 years, which, for most of the country, is very unrealistic! 

One thing to understand about California housing is that boom and busts are central to the market.  It is fascinating from a psychological standpoint that today, many think that California housing is a simple and safe bet.  Casually, they forget the massive destruction that occurred only a few years ago and the echoes of the impact are still around:  low inventory, massive Federal Reserve intervention, and a shift to investors buying homes. Looking to buy?  Gear up for a sizable down payment and maximum leverage on a low interest rate.  Also, it is easy to forget that 1,000,000+ Californians lost their homes via foreclosure and many today are still underwater even with the recent boom in home prices.

http://www.doctorhousingbubble.com/california-housing-history-real-estate-market-trends-30-years-of-data/

It sounds like you bought at the  recent low, and have done well. I dont vouch for the veracity of the link I quoted after a 10 second internet search, but it would seem, that if it is accurate, many in California are not participating in the same increase in wealth you have enjoyed.   

I sincerely hope that the loss of the deductability of  state  taxes, the cap on the mortgage interest deduction, or future raising interest rates does not wipe away your equity, built not by paying down debt, but by the increase in the current market value.  I also hope, for all of our sake, that the tariff battles with China, Mexico and Canada do not cause us to move into a recession.

[mleok]

Okay, so you still end up financing $200K after paying down the mortgage for the first 8 years, when you could have done that at the get go and be 8 years further along the same mortgage

Let us be reminded that You made the assumption that house prices doubled in 8 years.  Usually, housing prices grow much closer to the rate of inflation.  If they doubled in 8 years, then that is roughly a 9% annual rate of increase... Hardly what the majority of the nation has experienced. 

Also, running some numbers on that 200K mortgage, assuming an original 30 year payment at 4%, after 8 years, the outstanding balance has fallen about 32,500, or a little more than $4000 a year.  Is it possible that the larger house costs more than $4000 a year to heat/cool, insure, and pay property taxes? Perhaps the smaller house owner is still no worse off... and that is under the assumption that house prices doubled in 8 years, which, for most of the country, is very unrealistic!

Certainly if you purchased the smallest and least expensive house consistent with your needs as opposed to your wants, you'll be better off financially in a real estate market with low appreciation, at least if you're disciplined enough to invest the money you would have paid for the more expensive house. But, for families with kids, the constraint of being in an excellent school district means that the median priced house will be unlikely to address those needs.

One thing to understand about California housing is that boom and busts are central to the market.  It is fascinating from a psychological standpoint that today, many think that California housing is a simple and safe bet.  Casually, they forget the massive destruction that occurred only a few years ago and the echoes of the impact are still around:  low inventory, massive Federal Reserve intervention, and a shift to investors buying homes. Looking to buy?  Gear up for a sizable down payment and maximum leverage on a low interest rate.  Also, it is easy to forget that 1,000,000+ Californians lost their homes via foreclosure and many today are still underwater even with the recent boom in home prices.

http://www.doctorhousingbubble.com/california-housing-history-real-estate-market-trends-30-years-of-data/

It sounds like you bought at the  recent low, and have done well. I dont vouch for the veracity of the link I quoted after a 10 second internet search, but it would seem, that if it is accurate, many in California are not participating in the same increase in wealth you have enjoyed.

It's funny that you quoted that website. I happen to know the Highland Park area that the article cites as being indicative of the housing bubble very well, and the increase in value is due at least in part to the significant gentrification of that area, the revitalization of the Los Angeles downtown core, the easy access Highland Park has to downtown, and the generally horrendous LA traffic which makes living further out a long commute.

I sincerely hope that the loss of the deductability of  state  taxes, the cap on the mortgage interest deduction, or future raising interest rates does not wipe away your equity, built not by paying down debt, but by the increase in the current market value.  I also hope, for all of our sake, that the tariff battles with China, Mexico and Canada do not cause us to move into a recession.

We came to San Diego during the crash that was fueled by the period unverified zero interest or negatively amortized loans, and observed which areas rebounded the fastest. As you might expect, the most desirable neighborhoods, with good proximity to excellent jobs, and excellent schools, were the quickest to rebound as demand continued to far exceed supply. We have definitely seen a slowdown in the market due to the effect for the SALT limit and cap on mortgage interest deductions, but the fundamentals remain strong. What we have observed is that the greatest volatility occurs at the entry level of the market, so buying something that is modestly priced, but does not meet the needs of professionals with excellent incomes can be a risky strategy as well.

[spork]

In my college and post-college years, I lived in Boston, San Francisco, and Honolulu. I couldn't afford to buy a home in any of those locations then and certainly can't now. When I lived in Asheville, it was tied with Raleigh as the most expensive real estate market in NC. But having purchased (in reality, mortgaged) two homes between Asheville and Raleigh, I know that real estate costs across NC are about half of those of where I live now (East Coast). But when I relocated, I still refused to buy anything that I could not put a 25% down payment on. Financing too high a percentage of a home's purchase price is one of the big mistakes I often see. The other is buying a much larger home than what is needed. Although my wife and I are very happy in our current home, we could easily get by on something that is at least 25% smaller, and that would save us $1,500-$2,000 per year in taxes, insurance, and maintenance. But my general advice is that if you can't afford to buy and are just scraping by because of high rents, it's time to move.

[fast_and_bulbous]

When I lived in Asheville, it was tied with Raleigh as the most expensive real estate market in NC. But having purchased (in reality, mortgaged) two homes between Asheville and Raleigh, I know that real estate costs across NC are about half of those of where I live now (East Coast).

My first faculty position was at UNCA in the early 2000s. We bought our first house in Asheville! The market at the time was split between shacks and mansions, at least price-wise. Somehow we found the one affordable house, a trilevel with a garage converted into living space. We sold the house FSBO three years later and made a surprising (well, not so surprising) profit. Had the assessed value come higher we would have even made more profit as the buyer was willing. The only improvement we did during that time was new carpet. Kind of crazy, really; this was back when people were flipping houses like mad, I think. I can't imagine the market there now.

[lightning]

When I bought my first house, I was always thinking about what I needed in the present, and not what I might need later.

What I would tell my early career self when it comes to buying the first home:

1) If you know you plan to move for sure, then buy a home that will have the most likely chance of appreciating in value over a short amount of time.
2) If you plan to start a family, go ahead and buy a home that is bigger than what you need now, so you don't have to go looking for a new house again, in a few years when you can't get anything done at home because you don't have enough space. Also, the needs of a young family are different from the needs of an older family with teenagers (for example, finished basements with bedrooms and bathrooms are great for teenagers, but a house on a cul-de-sac is better for young kids, and thinking even farther down, a ranch style home (ranch style doesn't have as many stairs) is better if elder parents are going to live with you.
3) Amenities that may be great, now, (like that background play set the comes with the house or the or Space Invaders console that comes with the basement or the swimming pool) will become the bane of your existence when you try to get rid of it later, after you get tired of it. Interests do change.
4) Big landscaped yards look awesome and make you feel good, but there is a hidden cost to having a big yard, either in spending time to take care of it or hiring someone to take care of it. Same thing goes for lots of living space and house cleaning services. You don't want to be a slave to making things look nice, unless you enjoy doing things like that. I enjoyed amateur landscaping as my hobby . . . for about four years, then I was in thicket hell, when I lost interest in landscaping. Interests change (see #3).
5) Just because you can afford something, is not the reason to buy it (I suppose that goes for just about anything and not just homes)
6) Granite countertops are overrated.
7) so is a bathroom for everyone in the household. people need to learn to hold their pee, otherwise you end up stopping every 90 minutes on family trips.

Personally, even though I've done it a lot, I hate moving and I hate dealing with the unpleasant aspects of shopping for a home like reading the fine print on mortgage documents, and receiving the ego smack-down of getting out-bid on a home, paying $400 to a know-nothing-do-nothing closing attorney (and other BS closing costs like a bank's drive-by appraisal and a foundation inspector who is in cahoots with the local foundation repair mafia), and having to own (and make payments for) two homes at once when making the transition between two homes. Most of all, I hate losing precious time to this process, where I am silently complicit in a lot of really racist aspects of the home buying process (like when a realtor says "location, location, location" or "this home is in a school district with high test scores" we should all know what that REALLY means).

This is a very useful discussion. I hope Pendanterast (sp?) from the CHE fora signs up, signs in, and chimes in. He had studied things to say about buying a house, especially the investment aspect.

[Puget]

Well, it's done! Just finished signing about a tree's worth of paper and now own my first house.

I'm trying to take an hour or two to savor the moment before plunging back into all the things I need to do to get ready to move on the 17th. That seems like plenty of time except I'm out of town the 5th-14th (I would have planning things very differently if I'd known how the house timeline would turn out, but it will work. . .somehow). I need to finish scheduling some work that needs to be done before I move in and finish packing.

[dr_codex]

Congratulations! We move on the 31st, and are surrounded by boxes. The whole process is exhausting, and I hope never to do it again until I retire.

dc

[lightning]

Well, it's done! Just finished signing about a tree's worth of paper and now own my first house.

I'm trying to take an hour or two to savor the moment before plunging back into all the things I need to do to get ready to move on the 17th. That seems like plenty of time except I'm out of town the 5th-14th (I would have planning things very differently if I'd known how the house timeline would turn out, but it will work. . .somehow). I need to finish scheduling some work that needs to be done before I move in and finish packing.

Congrats! In the end, no matter what I've said, I still think it's worth it to buy a home (vs. renting).

[Antiphon1]

Wonderful news!  Congrats to all new home owners.  Here's wishing all of you many happy times in your new homes. 

[Puget]

Thanks everyone, and congrats/good luck to the others that are also moving this summer.

I get to show the house to some friends today which will be fun. Making progress in getting all the work arranged and scheduled-- floor refinishing should start next week and will be a major transformation of the look of the house (the sellers probably really should have done this before putting it on the market).

Anyone have any experiences good or bad with tub/shower refinishing (aka reglazing)? The tub and surround (which I think are fiberglass but could be acrylic?) are stained and the finish seems to have flaked or been scrubbed off in places. At first I thought I'd get inserts, but experienced some sticker shock from the estimates, so I started looking into refinishing. I know its sort of a temporary fix, but seems like it might do for a few years till I'm ready to do a bathroom remodel.

[monarda]

Congrats Puget!
Now THE LIST begins.

The first thing I did when I bought my first house was refinish the wood floors. They'll look great! I've been in this house now for 25 years, they're starting to wear a little in the high traffic areas.
What finish is the refinisher using? There is a difference in how long they'll last in traffic areas.  Our guy uses a Bona product called Traffic. We didn't use him 25 years ago. And Bona Traffic is also a new product...

I don't have experience with reglazing.  I just googled and found this advice
If you are planning to remodel soon anyway, I might price out what kind of things you may want in the end. It'll be expensive to do it twice.

What kind of inserts were you pricing?
You can get replacement surrounds at Home Depot for not that much. ($200-ish)  They're pretty easy to DIY install if you're up for that. Taking out the old one will be the worst part.

[clean]

What does a new one cost? 

there is a 'shower scene' in the movie Dave.  (he plays a look alike for the president and while doing his work as  a double the prez has a stroke so Dave has to continue on.  There is a scene where Dave is in the presidential shower when the president's wife walks in to discuss a veto that the chief of staff did).... Long set up for something as simple as that was a really nice looking shower, and IF I were to need another shower, that would be something to consider! 

Also, a jet tub (great for a bad back) is not really all that more expensive than a regular tub.  IF you need a new tub anyway, consider upgrading to a jet tub.

Just some thoughts!