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Photo of Tree and Three Flowers Sculpture, Kirby Dr. at Westheimer: Bill Barfield via Swamplot Flickr Pool
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I find it a bit distressing that a 2.8x is considered affordable. 185 sets you with a monthly payment of ~1200$ (including PMI/Ins/Taxes), that is well more than someone earning 66k a year should be paying. Sure, if you jump on one of those ridiculous “how much house can I buy” calculators it will say you’re totally fine, but almost all of those calculators are nonsense. The sad fact is that the concept of spending 33% on living that has been the classic standard in the south seems to be shifting towards the 50% model that is more common in the north/cali.
I agree with MrEction. Affordable is in the eye of the beholder.
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My brother wants to buy his first house, and I explained it to him thusly: To see how much house you can afford, NEVER start with one of those mortgage calculators. Instead, do the following: Evaluate your month to month finances. Figure out how much you can comfortably spend on housing every month, using your own situation of debts, expenses, etc. Multiply by 2/3 to see how much you can pay on a mortgage (the remaining 1/3 is escrow fees to cover required insurance, taxes, etc, which the mortgage calculators leave out.). THEN go to the mortgage calculator and work it backwards to see what price range you should be in. This will be your threshold for affordability. You will then probably want to knock off 10 or 12% and give that number to a realtor (this way if they show you something over your price range that you like, you can still go for it).
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That said, on a macro scale, the affordability indices do have merit. Large corporations use the data to help determine where to locate offices. Federal and State governments use them to help determine who gets housing dollars. But it is important that we not treat those numbers as gospel for what we, individually, can afford in terms of housing.
MrEction,
What are you saying? A $1,200 monthly (mortgage, insurance, taxes) on a 66k salary is spending 22% on living. How is that way too much?
Go 5th Ward! I have a feeling that due to the age gap and the demographic changes of the area, the 5th ward is ripe for change.
Inner loop 5th Ward and west of Hardy/Elysian over to N. Main is more than ripe for redevelopment. Houses are crumbling, although there are still some ancient turn of the century homes scattered in there, and once the word gets out that it’s not as dangerous as perceived, there will likely be a glut of townhomes and other odds and ends going up there.
@Progg, if you look at the gross amount then yes, it’s not terrible. But consider post-taxes, health-related insurance premiums, car payment, student loans, and 401(k) contributions (if made), that $66k starts looking a bit uncomfortable. This doesn’t even take into consideration utilities, phone bills, and internet. (Granted, the last two are not basics, but let’s be real now.)
@Progg Well caught, I should have been more clear. Couple things. First, you should look at the number after taxes. Some people use gross but that makes no sense since taxes are taxes are taxes. They are not a luxury. They are less optional than food. With taxes 66 turns into 55 pretty quick.
Then you have to consider that the 33% does not just include the mortgage, it should include all housing expenses. That’s utilities, which would add another 2-300$, and in a conservative budget it should also include savings for housing repairs, between 1-200$. I don’t think you count cable/internet, so leave those out. So that 1.2k becomes 1.5-1.7k pretty quick.
In my personal experience you could get by on spending 1.2k a month on rent earning 66 a year, but you will feel stretched thin (especially as a young bachelor!) Doing it in a mortgage though is a much more serious issue, because you are on the hook for repairs, and a foreclosure is miles apart from an eviction.
….Ultimately though…..I guess I’m really just basing this on my own experience. That number is what I would feel (barely) comfortable paying for a mortgage, and I earn a tad more than what was listed. I started work right before the recession, and I saw a lot of friends get in over their heads with houses. Now that we are past the housing crisis, everyone is breathing a sigh of relief, and yet….I’m seeing people get in over their heads again. I mean, just look at the inner loop. The average starting price I am seeing there (outside 3rd and 5th ward) are 300k and up. There is demand now, but how much of that is people overleveraging again? There really is a limit to how many doctors and lawyers there are in this town, so how can all these houses be going for such astronomically high prices compared to the median income?
Maybe all this comes down to me seeing a little green….
I get it. I’m an adult and know all about what goes into monthly budgeting. My only point was that let’s compare apples with apples and either use a percentage of gross income or a higher percentage of net income. It seems like you were confounding the two. Of course that number should be left to the individual…. and the bank of course.
MrEction – I’ with you on wondering how many of the folks jumping into half-million dollar mortgages (when $300K would be a stretch) are a paycheck or two away from being in deep sh-t. I would guess there is a massive amount of outstanding home loan debt in the Inner Loop (to start). Or, I’m just completely in the dark about what kind of money is being made outside the medical/O&G/banking fields, because they can’t all be working in those three areas…right?
I work in the O&G industry. Many of the people I know are dual-income households, so their combined gross income is easily north of $200K and more likely in the $250K-$300K range for mid-career employees. The more successful dual-income O&G households are doing well north of $300K. Granted, these folks usually start paying for private school for their kids, which is a major drain on cash.