article: blowing your housing budget in a hot market

[starjay]

http://atlanta.curbed.com/2017/3/22/15013196/atlanta-homebuyers-budgets-home-for-sale

I live in the greater Atlanta(ish) area, and have been appalled at the stories I've heard from friends and acquaintances regarding home buying in the city. This antimustachian area of the forum seemed an appropriate place to share my horror at what this little article reports.

An excerpt from the above linked article:
About half of potential homebuyers in Atlanta expect bidding wars to drive up prices of the abodes they covet—and more than half fear becoming “house poor,” or saddled with a mortgage that strains their finances.

Nonetheless, 63 percent of Atlantans in the market for a new crib are willing to stretch beyond their budget in hopes of winning a bidding duel.

How far beyond?

“On average,” writes Owners.com in the report, “Atlanta consumers are willing to go $37,213 over budget to get into their dream home.”

[golden1]

It boggles the mind.  2008 was less than a decade ago, and people are making the same mistakes all over again.  I see it in my town all the time.  I make 50% more than the median household income in my town, and yet I have a house in the lower 25% of home values.  I would not want to pay anymore than I do in mortgage payments which is roughly 25% of post-tax income.  I can't understand how people afford these houses. 

[Slee_stack]

This literally hits close to home.

We bought a house in downtown Atlanta....just shy of 10 years ago.

The market ridiculousness is making us seriously consider selling high and getting out even though the area is quite nice and convenient right now.

A neighbor down our street just sold their house at an absolutely redonkulous price.  I was honestly shocked a buyer would go that high, even with the crazy market.  But someone did!

A good friend just paid full asking price on a house in a transitional area across town.  The price for his house, which is half the size and in a tougher area, was not much below what we paid for ours.

[jinga nation]

It boggles the mind.  2008 was less than a decade ago, and people are making the same mistakes all over again.  I see it in my town all the time.  I make 50% more than the median household income in my town, and yet I have a house in the lower 25% of home values.  I would not want to pay anymore than I do in mortgage payments which is roughly 25% of post-tax income.  I can't understand how people afford these houses.

It isn't the same people as in 2008.
Peer pressure is a powerful persuader for the plebes.

[Tyson]

We bought our home in Denver 2 years ago for $455k, which was pretty crazy I thought.  Now it would go for more than $600k.  Because our neighborhood got 'hot'.  Hell, if we didn't already have a home here, we couldn't afford to live in this neighborhood any more.  But it's not stopping people or even slowing them down - homes sell blazing fast even at these crazy prices.

[slugline]

I can empathize a little, having bought in Houston while oil prices were still riding high. If you lose out on a multiple-offer situation or two it can be very tempting to throw budget numbers out the window.

[A Definite Beta Guy]

Hey, this is my best friend! He just did this last week!

[therethere]

My friends are just starting to look in Denver. I guarantee this will be them. They think way more emotionally than practical.

They are already looking at houses above where I would feel comfortable buying and almost all good houses are going 20k above asking after the escalation clauses. So I guarantee they will look at the top of their "budget" then will be escalating likely 10-20k on top of that. They were complaining less than a month ago how they can't even save a couple thousand dollars... I'm a little scared for them. Though if they don't move for 10-15 years it will likely work out in the end. I have anxiety just thinking about it.

[Lumberjack]

Seems like it's happening in hot areas all over.

http://www.cbc.ca/news/canada/toronto/real-estate-offers-1.3974147

[patchyfacialhair]

I sympathize with those who have increased their budget in a hot market. We increased ours a ton! We didn't "blow" our actual budget, but we are way above our price range when we started looking.

Our city regularly shows up on "best places to live" lists and people keep moving here, driving housing way up. Just to give you an idea: when I worked in property management 5ish years ago, a 2br/2ba apartment with a garage was around $1000/month. Now it's $1800-2000. Needless to say, prices have gone way up. Legal mj also has a big impact on people wanting to move here.

We did the math, without looking at the market and said: at what price range will we be able to have a stupid high savings rate (meaning maxing both 401s, roths, and putting tons extra into taxable), and started looking at homes in that range. Homes that were going for 200k years earlier were now 300k and so on. We started looking at the $250k range, and all we found were homes that needed a ton of fixing up. We're fine with cosmetic renovations, but we wanted to avoid the HVAC, plumbing, electrical, and/or foundation issues that we were seeing in houses at that price range. So we bumped it up to $350k. That's a an average price for a non-downtown single family home (we wanted suburbs). The issue here was that homes were getting bid up over asking price and being snatched up too quickly. In our minds, the value wasn't there.

We ended up right at $400k for our house. For that we got a house we will never outgrow (2700sqft plus an unfinished basement), in a top school district, walkable to stores and services, bikeable to my work, and not in horrible condition. About 50% of our neighbors are the original owners from 20 years ago, which is highly unusual for our transient city. Most people are here for 3 years, then leave, due to plenty of military/government employment in the area.

Yes, the cost is that we have a little less money available for investments, but we saw first hand what it was like to "blow" our original budget. We were still way under what the bank approved us for ($650k)! And, we'll still be able to save, and travel, and eat out, and retire in our late 40s/early 50s, which is extremely luxurious in our minds.

[honeybbq]

Houses go for 100-200k over asking here and sell in 3 days with inspections waived. There will also be multiple offers.

It's cheaper (?) than renting I guess.

[jinga nation]

Houses go for 100-200k over asking here and sell in 3 days with inspections waived. There will also be multiple offers.

It's cheaper (?) than renting I guess.

WTF? Waive inspection? Isn't that required for the sake of buyer and the financing institution? An inspection costs barely anything compared to the price of the house. Penny wise, pound foolish!
Ho Lee Feck a doodle doo! The world's gone cuckoo!

[honeybbq]

Houses go for 100-200k over asking here and sell in 3 days with inspections waived. There will also be multiple offers.

It's cheaper (?) than renting I guess.

WTF? Waive inspection? Isn't that required for the sake of buyer and the financing institution? An inspection costs barely anything compared to the price of the house. Penny wise, pound foolish!
Ho Lee Feck a doodle doo! The world's gone cuckoo!

If you're paying 100k over asking anyways, a new roof or foundation is not going to throw you off the house anyways. It IS cuckoo land though... that's for sure.

[starjay]

Houses go for 100-200k over asking here and sell in 3 days with inspections waived. There will also be multiple offers.

It's cheaper (?) than renting I guess.

I have a friend who was renting in Oakland, CA, and this is very much the market he described for the Bay area last year. He said they got to the point that they assumed that the end sale price would be 40% or so higher than the list price, and they'd have to waive inspections. Fortunately, his dad is old school handyman type with some construction knowledge, and was able to steer my friend and his wife away from houses that would need more work than they were comfortable with.

They're still saving money on what the rent was creeping up to, so good for them.