We bought our house in for $160K in 1988 and are still in the same place. It would sell for $1.2M today. We have been mortgage free for several years. H and I both had jobs and saved a 10% down payment when we bought our place. We only qualified for a variable rate at the time so as soon as we could qualify for a fixed interest rate we refinanced.
D1 and her fiance are saving for a house, but they are going to have a tough time in this San Diego real estate market. Their wedding is in May and after that they are talking about moving out of state in the next year.
D2 is single and does not think she will ever be able to buy a home since she doesn’t want to leave our area.
A lot depends on the college loan situation. If you come out with loans then it will be much tougher.
Also I think some people really need to think about where they live. I know if I were a young adult I would seriously consider settling in a cheaper area of the US especially if I were on the lower end of the pay scale.
I think buying a home is tougher for kids starting out today IF they live in a high cost of living area like we do. In our town (and we are far from the most expensive in MA) even a “starter” home is going in the 700’s – if you can even find one (many are being snapped up and knocked down to be replaced by much bigger houses) . It’s not easy to put together $140k for a down payment even if you have a good job because the cost of living (including rents) is so high.
But in HCOL areas aren’t salaries often higher? Balancing (somewhat) the income/housing costs of HCOL vs “low” cost of living? Case by case basis of course.
H and I bought our first house in 1987 in what may be considered a low cost of living area for $60K. My son and his wife bought a similar size house in 2018, same area, for nearly 3x as much - on his salary as a teacher and his wife’s paycheck in retail. They were able to get a special rate loan because he was a teacher (no PMI?) and thank goodness they did and bought then because if he had remained in his position I don’t think they could have ever bought after the 2020 increase in housing costs (and now increased loan %).
It may be MORE affordable to be in a low cost of living area…but your salary is your salary and and can only be stretched so much!
Agree with everyone on the current housing crunch for young folks just starting out.
BUT- there has been a real ratcheting up of expectations vs. what we all faced and certainly what our parents faced.
Who here shared a bedroom growing up? I’ll bet most of us. Whose kids shared a bedroom growing up? I’ll bet some of us. Who here have grandchildren sharing a bedroom? I do- but I know friends of mine are horrified at the prospect of their kids NOT being able to afford a big enough place.
There are elderly friends of my parents who are still living in the starter home they bought when they were just married. Never traded up to the two car garage, the bigger lot, the better neighborhood. And for those living in a two or three bedroom ranch- it’s really a blessing because no need to downsize, and for those with mobility issues, they can stay once they install the outdoor ramp and modify the bathroom.
I know many of the young couples buying in my neighborhood would NEVER allow themselves to look at these small, affordable (even in the Northeast) starter homes. They don’t have eat-in kitchens! OMG! But the young families move in, the dumpster takes up residence in the driveway, and then these relatively large homes (admittedly dated, but large) get transformed.
I wonder who has the money for the house AND the renovations… but they do apparently.
Playing the devil’s advocate here (and trying to also advocate for the “common Joe’s” out there)…did those young adults who have a ratcheting up of expectations grow up in OUR (our generation) bigger homes with perks? Lots of postings here of million+ worth homes in our CC pockets.
If we did a poll would we see that the young adult that grew up in a modest 3 bed/1.5 bath ranch on a slab has expectations to enter the market skipping the starter home?
My parents had a larger home, 2 car garage, 2 1/2 bathrooms and an in ground heated pool. My family of 7 shared one shower, no garage, kids shared bedrooms. I’m glad, their expectations are lower, and they all seem to want to stay in our high COL area. My oldest pays $2000 a month for 350 square feet and absolutely loves it, says she will probably never be a home owner (that can change). They are all pretty frugal. Some of her friends own their own homes here, but nothing big or fancy (not many can afford the property taxes of a tear down).
We bought our first home in 2001. Saved up for about a year and with a gift from my parents, we were able to put 10% down on a $270k home. Honestly, the banks were crazy to give us a mortgage, as we had plenty of debt and were hardly established in careers. But, things were looser then. We refinanced within a year as the market really took off, and we were able to eliminate our PMI. It was a very modest home (1000 sq. feet, 2 bedroom).
Sold that house 4 years later for a nice profit and bought our current home, which is bigger, but not big (1700 sq ft, 3BR/2 bathrooms) in a great location. The payment felt onerous for the first several years, until our finances stabilized.
For a while, I assumed we had one more upgrade left in our journey, as that’s definitely what most of our peers have done. But, we got used to a super manageable mortgage payment and location-wise, we were never going to do better. So, we’ve stayed here. The house, which was always a tad too small at the height of our child-raising years, is actually perfectly-sized for us now.
Agree it’s a good question. I’ve had some of our young neighbors ask (with genuine curiosity) why we never “finished” our basement (it’s furnace, water tank, and some gross shelving now although my kids played there happily and we hosted a few kid parties down there). I say “we were saving for college so never had spare cash for major renovations” and they look at me with horror. According to the real estate agents in town, the “thing to do” is a media room with theater style seating (wet bars are out, but a fridge and sink are required), a powder room, and a workout area with mirrors and cushioned floor.
The good news is we never wanted that stuff (and couldn’t have afforded it, and didn’t want the uptake in property taxes which comes with a renovation). The better news is that when we sell, we won’t be the fanciest house on the block.
But as I hear the grinding of teeth that “everything is so expensive right now” I wonder if young families realize you can watch TV on a regular sized screen, sitting on the floor, in a house that has a regular old ugly cement floor basement…
We were a two engineer income couple and had no problem with 20% down on our first house (to avoid PMI). We both worked for the same tech company in CA and we benefited from their extremely generous relocation benefits to upgrade homes over three career moves/reclocations.
Our advise to our S has been to not consider purchasing a home as a single person and to instead invest heavily. He lives in a high cost of living area in a high cost of living state (CA, Palo Alto). His rent for his 850 sft apartment is more than our mortgage on our new 4,000 sft home on an acreage lot in the Texas Hill Country. He has been able to save a sizable amount, and is now considering a condo, but I still recommend to him to avoid that for now.
If jobs for your skillset exist in a lower COL area, I think it’s smart to start out there and build up, but that’s not always possible/feasible.
Obviously, the Army dictates where our son lives, but he was fortunate to be posted to Georgia out of the academy where his cohort was advised to buy houses as soon as possible as they were all slated to spend their full commitments at that post (all of Army Cyber is in that one location). This was just before the crazy run-up. He was fortunate to be able to buy a beautiful house that was almost as nice as the one he grew up in due to prices in that area at the time. I posted an example on the Recent Grads/Younger Folk Affording Rent or Buying a House thread of the type of house available there on an Army salary. Certainly, luck/timing/Army benefits had a lot to do with how he is positioned now, but his experience has shown us the cost differential between various parts of the U.S. If starting out in a lower COL city is an option, it can make a lot of financial sense to do so.
We lived in a market with very expensive housing (LA). We ended up in our first home 4 years after marriage. That was 4 years of only eating out once a week at Denny’s, taking 1 cheap vacation a year and generally working too much to have hobbies. So we gradually accumulated the downpayment plus a margin of error on top of it (did not want to lose a safety net).
Ended having to get a house way out at the western edge of the Valley despite working in West LA to afford something, so signed ourselves up for the 1+ hour commute each way along with our mortgage. Initial interest rate was 8.5%. Monthly payments represented ~35% of gross income. Both of us worked full-time.
We intentionally did not have kids until we had a house and had improved our finances/income further post-house acquisition. It was all careful stepped planning with kids as the final financial commitment/risk.
For houses 2-4 (all acquired due to work-related relocations, all in super expensive markets – LA, Bay Area and NY Metro), we used the equity in previous homes to fund the next one, with moderate step-ups in home value in each case. By then interest rates were getting better, though nothing like where they settled for years until the last 1-2 years.
My oldest is now months away from being the age we were when we acquired the first home. Like many of his peers, he considers it unrealistic, though some of that is a difference in perspective/priorities rather than true economic conditions. He works in a major metro, though not as proportionately expense as any of the ones we lived in. I have always tracked the value of our prior homes and did an exercise out of curiosity. Adjusted for inflation, he’s making about as much proportionate to what both of us made collectively relative to the current value of our first home (in other words, he could buy it and end up with a similar % of current gross income). I also browsed online for homes in his market that were an one hour commute from where he works (and the hardship would be dramatically less because he’s allowed to work remotely most days and we had to commute 5-days-a-week). And on that basis, he could easily afford a nice home and end up paying less gross income than we did at the time, and with a lower interest rate. But he has no interest in living so far from the activities of the city and his friends, he enjoys going out with them to restaurants and bars than cost far more than our weekly Denny’s treat, he has bought himself some nice furniture for his apartment, etc. All perfectly reasonable choices, just different than the sacrifices we made to prioritize home ownership at the time (as a couple on a marched path toward kids). So he could afford to own, he just wouldn’t be able to own where he wants to live or without trade offs of lifestyle. In the meantime, he has a decent nest egg building so he should be in good shape if his priorities change in the future.
When my husband started his first real job, his employer brought in a 401(k) advisor who also peddled some investment stuff on the side. We got snookered into investing into some mutual fund that did not do well during the time we’re putting money into it (early nineties!) but at least it was cash out of sight, out of mind. We cashed that in and had enough for a 10% down on a tri level house, but not enough for closing costs. We ended up buying a brand new house in not so posh area but within a very good school district. Got a second mortgage for 10% to avoid PMI, and the builder/realtor came up with a scheme where we got cash back towards closing costs by bumping the price up a bit (so basically financing the closing costs). There were two houses with the same floor plan in this small development; we went for the cheaper one although we liked the more expensive one better - and the cheaper one got appraised at the same price so appraisal covered the cash we got back. We had no debts but not much credit history whatsoever. The more expensive house sold quickly… and then we realized that we lucked out by not buying that house! The guy who owned property behind that house went nuts and started bulldozing down the trees and whatnot on his land! It was a war zone in that backyard! The first house price was $180k. I think the prices quadrupled in that area since mid-nineties.
Buying a cheap first home or condo that then increases in price has been a traditional way to build the downpayment for a subsequent larger home, as seen in many of the comments in this thread. And the biggest increases have been in HCOL areas like Palo Alto. Is your expectation that prices are no longer likely to increase in these areas? Is that because salaries (or the value of employee shares/bonuses) will come down or because these areas will become relatively less desirable and people will leave?
Our S is 24 years old and no telling where he will eventually reside. Owning a house right now would most likely be more of an anchor than anything else - it’s probably better to stay mobile for now. A condo might be a better option with less burden on maintenance, and it could be an option. Returns on stock investments are historically pretty good.
Evidently, it’s a nice time to be young, and single, with high earnings in silicon valley
D1 waited for 8 years before she bought a place. She didn’t want to buy a starter place and then move when they had a kid. She looked for over a year before she bought. They bought a 3 bedrooms, 2 baths at Park Slope. They put 30+% down and most of that were from D1’s bonuses. She also got a 2.5% mortgage. She is much better than me when it comes to managing finances.
D2 is living with her finance who owns a lovely small one bedroom apartment, also in Park Slope. He works at a private school (not high salary), but he was able to come up with the downpayment by tutoring. He said 3 years of tutoring money paid for his apartment. He paid 700k for the apartment, and also has around 2.5% mortgage. D2 and him are going to get a bigger apartment after they are married. I think they will rent out the 1 bedroom. D2 jokingly said D1 should buy a bigger apartment and rent out their current apartment to them. When D2 couldn’t find a place to rent 2 years ago, D1 did offer as an option to buy a place to rent out to D2.
My D and SIL are in the same situation. Both Chem Es living in a low cost area. Both Co-oped and had money left after college due to the co-op. They married right after D’s graduation, purchased a house within the month. They have since paid the house off (5 years) and currently have no debt. While I’m sure they aren’t unique I do believe they’re outliers. They are now saving for a lake home. Cash for that as well I’m sure.
My parents bought their first home in 1971. 3 bedroom, 2 bath, 2 car garage 1400 sq ft no basement. All the rooms are small. Mom still lives there. House was paid off in 1996. They assumed the mortgage when they bought it to have a better interest rate. Property taxes are about $1000. Homeowners Ins is about $1500-2000.
This is how my Mom who lives on her pension and Dad’s SS pays all her bills and still has plenty of money leftover each month.
They never got a bigger place and it was a godsend decision. My brother and I were gone pretty quickly. I left for college in 1990 and was hardly ever back. They had 28 years after I was gone in the house. It was plenty big for the two of them.
Actually my wife and I can’t wait until we can downsize.
in that backyard! The first house price was $180k. I think the prices quadrupled in that area since mid-nineties.