Author Topic: The Price of Housing / Mortgages !!  (Read 9328 times)

Fishindude

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The Price of Housing / Mortgages !!
« on: December 31, 2015, 08:43:23 AM »
It blows me away reading these forums how much people pay, and how much they borrow to purchase their homes.

I live in the corn belt midwest and you can buy entry level, in town, single family homes day in and day out for $40-60,000.   You can get a great move in ready suburban home with a half acre yard easily for $120 - 160,000, and some super nice custom homes for $250,000 range.   Anything priced over about $300,000 is tough to sell. 

Very similar situation in many of the smaller communities around here.  Prices get a bit higher in the metropolitan cities, college towns and waterfront type areas, but still within reach.

It's not like there aren't jobs here either.  Lot's of manufacturing and ag related industries, as well as all of the normal healthcare and municipal employment opportunities.   You might drive 45 minutes to work, but you're not fighting metro traffic.

Just can't fathom paying $2,000 rent and a half million dollars and upward for a basic home.  From what I read here, it sure doesn't appear the income is three or four times higher, to justify the housing cost.



bacchi

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Re: The Price of Housing / Mortgages !!
« Reply #1 on: December 31, 2015, 09:34:32 AM »
Yeah, I don't think the income compensates the increased housing price, at least for most people.

But driving 45 minutes each way to get to work? Even without traffic, that's still 1.5 hours/day in a car. No way.

pdxbator

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Re: The Price of Housing / Mortgages !!
« Reply #2 on: December 31, 2015, 09:37:35 AM »
I'm jealous of those low prices. Being in Portland housing is expensive granted, but I can't imagine living any place else. I can walk to my supermarket, a bar, a multiple restaurants, and we have hills and mountains and coast.

Leftside

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Re: The Price of Housing / Mortgages !!
« Reply #3 on: December 31, 2015, 09:48:05 AM »
Fishindude,

What towns are you referring to?  I am always interested in looking at real estate in other parts of the country.

JLee

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Re: The Price of Housing / Mortgages !!
« Reply #4 on: December 31, 2015, 09:56:39 AM »
Even disregarding purchase price, taxes in some parts of the country are absolutely insane.  I moved from AZ to NJ...in AZ, I have an 1825sq ft 3br/2ba house on a 10k sq ft lot, 2 car garage, diving pool, remodeled in 2011. I paid $140k in 2013 and my property taxes are about $750 a year (they were $670 when I bought it).

Meanwhile, here in New Jersey...no garage and a 25% smaller lot. $8k+ in taxes annually, too.

Cathy

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Re: The Price of Housing / Mortgages !!
« Reply #5 on: December 31, 2015, 10:28:29 AM »
Just can't fathom paying $2,000 rent ...

A rent of $2,000 per month can be either expensive or cheap depending on the city and the type of accommodations being rented, but what you really need to consider is how much money can be saved per month (see below).


From what I read here, it sure doesn't appear the income is three or four times higher, to justify the housing cost.

Income does not need to be three or four times higher to justify the housing cost. It only needs to be higher by an amount that offsets the higher housing cost. If you can earn $100,000 per year (net of taxes) in a city where your rent would be $1,000 per month, but you can earn $150,000 per year (net of taxes) in a city where your rent would be $3,000 per month, you can still save more money in the second locale, even though the salary (net of taxes) is only 50% higher, not three times as high. This basic fact of math is the same reason why married coupled and other dyadic partnerships are able to retire three or four (or more) times faster than a single person, not just twice as fast. This is also another exhibit in why savings rate doesn't matter, only absolute dollars saved matters.
« Last Edit: December 31, 2015, 10:49:06 AM by Cathy »

onlykelsey

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Re: The Price of Housing / Mortgages !!
« Reply #6 on: December 31, 2015, 11:26:22 AM »
For me, the income is definitely higher here than most of the country (although I could probably get the same in LA or Houston, less expensive cities), but the benefits of having sharpened my teeth and trained in NYC is worth a lot to my future marketability.

But, yes, I think for most it doesn't make sense.  I own a third-floor walk up condo which required a 65K assessment to fix the building's roof this year which is no wider than 12" at ANY point, which is located in a less than ideal neighborhood with positively abysmal schools, and I could rent it for ~3,500 a month, approximately.

dandarc

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Re: The Price of Housing / Mortgages !!
« Reply #7 on: December 31, 2015, 11:29:50 AM »
For me, the income is definitely higher here than most of the country (although I could probably get the same in LA or Houston, less expensive cities), but the benefits of having sharpened my teeth and trained in NYC is worth a lot to my future marketability.

But, yes, I think for most it doesn't make sense.  I own a third-floor walk up condo which required a 65K assessment to fix the building's roof this year which is no wider than 12" at ANY point, which is located in a less than ideal neighborhood with positively abysmal schools, and I could rent it for ~3,500 a month, approximately.
Impressive rent - not sure I could even get into a place that was only a foot wide ;)

onlykelsey

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Re: The Price of Housing / Mortgages !!
« Reply #8 on: December 31, 2015, 11:33:03 AM »
Quote
Impressive rent - not sure I could even get into a place that was only a foot wide ;)

HAHAHAHAHAHAHA I'm sorry.  I meant 12', not 12".

GrOW

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Re: The Price of Housing / Mortgages !!
« Reply #9 on: December 31, 2015, 11:34:29 AM »
Don't overlook benefits of living in a higher cost area when you can pair it with a similar income. Being frugal and then moving to areas like OP desribes much later in life can be a very sweet pairing indeed.

Fishindude

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Re: The Price of Housing / Mortgages !!
« Reply #10 on: December 31, 2015, 11:35:40 AM »
What towns are you referring to?  I am always interested in looking at real estate in other parts of the country.

I'm in central Indiana, but you can find the same scenario in neighboring states in the rural communities.


« Last Edit: December 31, 2015, 11:38:26 AM by Fishindude »

onlykelsey

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Re: The Price of Housing / Mortgages !!
« Reply #11 on: December 31, 2015, 11:35:46 AM »
Don't overlook benefits of living in a higher cost area when you can pair it with a similar income. Being frugal and then moving to areas like OP desribes much later in life can be a very sweet pairing indeed.

That's my plan.  I can have an individual net worth of 1 million by ~33 at this point, despite coming to mustachianism approximately 10 days ago.

maizeman

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Re: The Price of Housing / Mortgages !!
« Reply #12 on: December 31, 2015, 12:58:28 PM »
Income does not need to be three or four times higher to justify the housing cost. It only needs to be higher by an amount that offsets the higher housing cost. If you can earn $100,000 per year (net of taxes) in a city where your rent would be $1,000 per month, but you can earn $150,000 per year (net of taxes) in a city where your rent would be $3,000 per month, you can still save more money in the second locale, even though the salary (net of taxes) is only 50% higher, not three times as high. This basic fact of math is the same reason why married coupled and other dyadic partnerships are able to retire three or four (or more) times faster than a single person, not just twice as fast.
I agree with all of this.

Quote
This is also another exhibit in why savings rate doesn't matter, only absolute dollars saved matters.

No, what matters is the ratio of absolute dollars saved to anticipated annual expenses in retirement. Cannot lose sight of the fact that reducing the latter decreases one's time to retirement even if the former is fixed. What you're pointing out is that the commonly repeated wisdom that only savings rate matters depends on the premise that annual expenses while working are a good proxy for annual expenses after retirement.

While that premise is going to be approximately correct in the majority of cases, it does fall apart in cases where a person has significant expenses that fall into the category of "spending money to make money." That could be living in a more expensive city where they can command a higher salary, a long work commute or all sorts of other things. Heck, if a person was drinking heavily to cope with the stress of work but was able to cut back significantly post-FIRE that'd also create error in estimating time to retirement based on their savings rate alone.

From my own personal experience, I can add that I've often seen people move to high cost of living areas intending to get a high paying job, save up a bunch of money, and then leave, they often get used to the amenities and/or develop networks of relationships that make them reluctant to ever leave again. So while on paper it is often a good strategy, there is a real element of risk to it.

Cathy

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Re: The Price of Housing / Mortgages !!
« Reply #13 on: December 31, 2015, 01:04:59 PM »
No, what matters is the ratio of absolute dollars saved to anticipated annual expenses in retirement.

You are better off having $200,000 in savings than having $100,000 in savings. It's really that simple. Future plans can always change, but the truism that $200,000 in the bank is worth more than $100,000 in the bank will not change. It's the absolute dollars that matter. Somebody who is a consumer sucker spending $500,000 per year but with $1,000,000 in the bank is in a better position than somebody spending $10,000 per year with $20,000 in the bank.

Your other comments are just an objection to the literary device that I employed in the post.

(For the purpose of this post, "savings" and "in the bank" refer to net worth, including the present value of deferred liabilities.)
« Last Edit: December 31, 2015, 01:11:03 PM by Cathy »

alsoknownasDean

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Re: The Price of Housing / Mortgages !!
« Reply #14 on: December 31, 2015, 01:47:06 PM »
Employment availability (and diversity of jobs) is the big one.

Here in Australia generally the regional cities/smaller towns have cheaper housing than the capital cities (not quite midwest cheap though), and some fields might have plenty of work in those cities, but in other occupations (especially many white collar fields), there might be few jobs outside of the big cities. In my state about 70% of the state's population lives in metropolitan Melbourne, so unsurprisingly a lot of the jobs are based here.

There's also the risk of some smaller towns relying too heavily on a single large employer/industry, which can cause pretty major issues if said employer goes under.

If you're in a field where there's jobs everywhere and the incomes are fairly similar, then by all means it's worthwhile considering going for a regional area or a cheaper capital city. It's not a bad idea to FIRE in a cheaper area too :)

maizeman

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Re: The Price of Housing / Mortgages !!
« Reply #15 on: December 31, 2015, 01:56:50 PM »
A person with $1M in the bank who is willing to live on $24k/year is in a better position than a person who also has $1M in the bank but thinks they "couldn't possibly survive" on less than $96k/year.

If we cannot consider the confounding variables which mean "only absolutely dollars saved matters" is a false statement in some cases because you're using a literary device to make people question their assumptions, wouldn't the same logic imply that we cannot consider the confounding variables which mean "only savings rate matters" is also a false statement in some cases, since this statement is also used to make people question their assumptions (namely, that only people with extremely high incomes can afford to retire early)?

zephyr911

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Re: The Price of Housing / Mortgages !!
« Reply #16 on: December 31, 2015, 02:04:01 PM »
It blows me away reading these forums how much people pay, and how much they borrow to purchase their homes.

I live in the corn belt midwest and you can buy entry level, in town, single family homes day in and day out for $40-60,000.   You can get a great move in ready suburban home with a half acre yard easily for $120 - 160,000, and some super nice custom homes for $250,000 range.   Anything priced over about $300,000 is tough to sell. 

Very similar situation in many of the smaller communities around here.  Prices get a bit higher in the metropolitan cities, college towns and waterfront type areas, but still within reach.

It's not like there aren't jobs here either.  Lot's of manufacturing and ag related industries, as well as all of the normal healthcare and municipal employment opportunities.   You might drive 45 minutes to work, but you're not fighting metro traffic.

Just can't fathom paying $2,000 rent and a half million dollars and upward for a basic home.  From what I read here, it sure doesn't appear the income is three or four times higher, to justify the housing cost.
A more holistic view would help you understand this a little better.

You don't need 3-4x the income to pay 3-4x the housing cost, unless everything you buy is also 3-4x more. Our mortgage is 5% of our wages here in AL... if we quadrupled our housing cost to $488K, it'd still only be 20% of our current wages, and we'd only have to make about 15% more to save the same amount of money. If all other lifestyle costs went up 50%, we'd still only need 20% more.

jeromedawg

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Re: The Price of Housing / Mortgages !!
« Reply #17 on: January 01, 2016, 03:12:23 PM »
I'm in Southern California and recently joined MMM. It wasn't until then that I realized that housing prices are pretty insane here, but everyone else living down here treats it like it's "normal", which I guess it is depending on how you look at things LOL

For instance, I think many people I know (and probably don't know) end up taking a mortgage out on places where they can *make* the payment (but probably at the sacrifice of eating into their retirement contributions). They get enamored by the 3000sq ft "mansion" (priced at just over a million) that they think they should upgrade to from their current 2000sq ft single family home (in the $700-900k range), which they had previously upgraded to from their 1400sq ft condo (priced at $500-600k). The "upgrade" is only $100-200k more on top of where they were at each time, so it doesn't seem so bad ($100-$200+ more per month for 1000 more sq ft is totally worth it, they say). I guess some of these people played it right and either got into the market during the crash OR they've just lived in the area forever before prices inflated like crazy, so those people are probably fine. But for everyone else, I really wouldn't be surprised if they're living paycheck-to-paycheck to fund their homes.

I don't know, I'm just glad I found the forums here before getting suckered into that way of thinking. I'm going to to try holding out as long as I can in our "humble" 1400sq ft condo before figuring something else out... hopefully this telecommuting job works out - that way we could just pick up and go anywhere we want that's LCOL compared to this place. I have to admit though, the weather and being close to the beach sure is nice. Hahahaha.

undercover

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Re: The Price of Housing / Mortgages !!
« Reply #18 on: January 02, 2016, 07:39:30 AM »
No, what matters is the ratio of absolute dollars saved to anticipated annual expenses in retirement.

You are better off having $200,000 in savings than having $100,000 in savings. It's really that simple. Future plans can always change, but the truism that $200,000 in the bank is worth more than $100,000 in the bank will not change. It's the absolute dollars that matter. Somebody who is a consumer sucker spending $500,000 per year but with $1,000,000 in the bank is in a better position than somebody spending $10,000 per year with $20,000 in the bank.

Your other comments are just an objection to the literary device that I employed in the post.

(For the purpose of this post, "savings" and "in the bank" refer to net worth, including the present value of deferred liabilities.)

By that logic, you'd never retire. It's definitely not as simple to say that one is objectively better off with $200k than $100k. It's true that $200k > $100k mathematically, but that's about it.

Blueeyes7767

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Re: The Price of Housing / Mortgages !!
« Reply #19 on: January 03, 2016, 01:42:00 AM »
Mortgage costs and property taxes in the Washington State are outrageous also.  Rent is ridiculous too. 

clarkfan1979

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Re: The Price of Housing / Mortgages !!
« Reply #20 on: January 03, 2016, 06:21:21 AM »
Just can't fathom paying $2,000 rent ...

A rent of $2,000 per month can be either expensive or cheap depending on the city and the type of accommodations being rented, but what you really need to consider is how much money can be saved per month (see below).


From what I read here, it sure doesn't appear the income is three or four times higher, to justify the housing cost.

Income does not need to be three or four times higher to justify the housing cost. It only needs to be higher by an amount that offsets the higher housing cost. If you can earn $100,000 per year (net of taxes) in a city where your rent would be $1,000 per month, but you can earn $150,000 per year (net of taxes) in a city where your rent would be $3,000 per month, you can still save more money in the second locale, even though the salary (net of taxes) is only 50% higher, not three times as high. This basic fact of math is the same reason why married coupled and other dyadic partnerships are able to retire three or four (or more) times faster than a single person, not just twice as fast. This is also another exhibit in why savings rate doesn't matter, only absolute dollars saved matters.

I agree. You don't need to make 3-4 times the amount. You simply need to make enough to offset the higher costs. Larger cities have public transportation that is often subsidized by the city with taxes.

I just moved to a higher cost of living area and many people ask how we do it. Its not that hard because we are making more money. We are able to save and invest more with the higher incomes, even thought it's higher cost of living.

SnackDog

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Re: The Price of Housing / Mortgages !!
« Reply #21 on: January 03, 2016, 08:18:51 AM »
We moved from Houston to the Bay Area about 15 years ago. We were stunned at housing prices which were 3-5x those in Texas. But as a friend remarked at the time "there has to be something affordable - just look at how many poor people live in the east bay."  Everyone we knew who moved found a place to live, eventually, well within their means, and simply could not believe the increased quality of life in California. The options for a long weekend just boggle the mind. Savings rates took a hit but happiness shot up.  California is crowded to the point it may not be expensive enough to keep people away!

zephyr911

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Re: The Price of Housing / Mortgages !!
« Reply #22 on: January 04, 2016, 07:09:11 AM »
Mortgage costs and property taxes in the Washington State are outrageous also.  Rent is ridiculous too.
Not the whole state. I'm probably gonna FIRE on Whidbey... there are still some decent 2BR condos there for <$100K. Really nice places for $250-300K.
I watch prices regularly, lest the madness spread further - I realize that unless all the wealth created in this massive runup in Seattle is destroyed by a crash, it will overflow and inflate prices throughout the region, but it doesn't appear to be happening yet.

slugsworth

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Re: The Price of Housing / Mortgages !!
« Reply #23 on: January 04, 2016, 12:00:14 PM »
Mortgage costs and property taxes in the Washington State are outrageous also.  Rent is ridiculous too.

Really, My mortgage is below 4% and my property taxes are below 1% of my assessed value, which is low. Prices have inflated in metro Seattle over the last few years (due to the amazon boom) but I think I get a great  deal from a tax perspective and get nationally competitive mortgage rates.

Per this, my experience in WA looks pretty good nationally.
http://money.cnn.com/interactive/real-estate/property-tax/

In response to the OP, I think that for me, being near mountains is important and being in a walkable and creative place is important. I have been offered a job lower COL places, but decided that it wasn't worth the trade-off.  When I'm FI, I'm hoping to find some lower cost options. Sell us on rural Indiana (or greater Mid-west) on something other than the price and lack of traffic!

zephyr911

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Re: The Price of Housing / Mortgages !!
« Reply #24 on: January 04, 2016, 02:34:36 PM »
In response to the OP, I think that for me, being near mountains is important and being in a walkable and creative place is important. I have been offered a job lower COL places, but decided that it wasn't worth the trade-off.  When I'm FI, I'm hoping to find some lower cost options. Sell us on rural Indiana (or greater Mid-west) on something other than the price and lack of traffic!
Maybe we can just trade when the time comes. I got a nice walkable 1144SF 3BR that will be net-zero energy by next year...

StarBright

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Re: The Price of Housing / Mortgages !!
« Reply #25 on: January 05, 2016, 08:29:50 AM »
I've read that Indianapolis actually has one of the cheapest metro area housing markets in the country.

As a former Hoosier who has moved all over the east coast and with lots of inlaws in SoCal experience tells me this is true. Starter homes in other cities I've lived in have never been less 180k and were likely to be closer to 500k (Triangle in NC was the cheapest and we bought a fixer upper).

My husband just got a job nibble in San Diego and when we started looking at housing prices near his folks we couldn't find a 3bed house under 800k.

Moving near my family in Naptown is sounding so better and better (sadly both our jobs are pretty location dependent).

Fishindude

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Re: The Price of Housing / Mortgages !!
« Reply #26 on: January 05, 2016, 10:26:45 AM »
In response to the OP, I think that for me, being near mountains is important and being in a walkable and creative place is important. I have been offered a job lower COL places, but decided that it wasn't worth the trade-off.  When I'm FI, I'm hoping to find some lower cost options. Sell us on rural Indiana (or greater Mid-west) on something other than the price and lack of traffic!

My brother lives near the mountains.  He's in a suburb of Denver, houses are high prices, they are jammed tight together, traffic is horrible, etc.  My initial thought was .... cool, move out west to enjoy the western open spaces and wilderness.   Having visited him several times, he can have it.

Some sales points for rural midwestern living:
    You can own a whole farm for the price of a decent house in HCOL area.
    Low taxes.
    Small schools and small classroom environments.
    I can pee off the deck or in the yard.
    Plenty of jobs.
    My dog can run loose without fear of getting lost or run over.
    I can burn leaves, burn a wood stove, burn camp fires, etc.
    Don't have to drive somewhere to take a walk in the woods, go hunting, etc. just leave out the back door.
    Favorable growing conditions and good soils for gardens, etc.
    Can shoot guns, crank up the music or raise hell in the back yard without fear of disturbing neighbors.
    Kids can run or bicycle around the neighborhood without fear of problems.
    Minimal zoning issues, neighborhood association rules, etc.
    Still and easy 1-2 hour drive from metro areas if you want culture, arts, pro sports, fine dining, etc


    I'm sure there are a few more.
     

slugsworth

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Re: The Price of Housing / Mortgages !!
« Reply #27 on: January 06, 2016, 02:00:51 PM »
In response to the OP, I think that for me, being near mountains is important and being in a walkable and creative place is important. I have been offered a job lower COL places, but decided that it wasn't worth the trade-off.  When I'm FI, I'm hoping to find some lower cost options. Sell us on rural Indiana (or greater Mid-west) on something other than the price and lack of traffic!
Maybe we can just trade when the time comes. I got a nice walkable 1144SF 3BR that will be net-zero energy by next year...
Where are you at? I'm always interested in looking at new places.

@ the OP, I liked your response, it seems like being where you are gives you a lot of freedoms that you value - which is what it is all about.  One of the things about being in the city I'm in that I dislike, is not being about to go mountain biking from my house - in previous cities/towns I've been able to be within 4 miles or less from trails. So that is something I do miss. 

electriceagle

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Re: The Price of Housing / Mortgages !!
« Reply #28 on: January 15, 2016, 12:45:54 AM »
It blows me away reading these forums how much people pay, and how much they borrow to purchase their homes.

I live in the corn belt midwest and you can buy entry level, in town, single family homes day in and day out for $40-60,000.   You can get a great move in ready suburban home with a half acre yard easily for $120 - 160,000, and some super nice custom homes for $250,000 range.   Anything priced over about $300,000 is tough to sell. 

Very similar situation in many of the smaller communities around here.  Prices get a bit higher in the metropolitan cities, college towns and waterfront type areas, but still within reach.

It's not like there aren't jobs here either.  Lot's of manufacturing and ag related industries, as well as all of the normal healthcare and municipal employment opportunities.   You might drive 45 minutes to work, but you're not fighting metro traffic.

Just can't fathom paying $2,000 rent and a half million dollars and upward for a basic home.  From what I read here, it sure doesn't appear the income is three or four times higher, to justify the housing cost.

When comparing housing costs in areas with strong seasons to those without, don't forget the cost of heating & cooling. If you pay $250/mo for energy and someone in California pays $50/mo for energy, thats worth a non-negligible $60k at a 4% rate.

zephyr911

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Re: The Price of Housing / Mortgages !!
« Reply #29 on: January 15, 2016, 07:01:17 AM »
Where are you at? I'm always interested in looking at new places.
Madison County AL. If my roots and family weren't elsewhere, I'd be staying forever.

maizeman

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Re: The Price of Housing / Mortgages !!
« Reply #30 on: January 15, 2016, 06:31:29 PM »
It blows me away reading these forums how much people pay, and how much they borrow to purchase their homes.

I live in the corn belt midwest and you can buy entry level, in town, single family homes day in and day out for $40-60,000.   You can get a great move in ready suburban home with a half acre yard easily for $120 - 160,000, and some super nice custom homes for $250,000 range.   Anything priced over about $300,000 is tough to sell. 

Very similar situation in many of the smaller communities around here.  Prices get a bit higher in the metropolitan cities, college towns and waterfront type areas, but still within reach.

It's not like there aren't jobs here either.  Lot's of manufacturing and ag related industries, as well as all of the normal healthcare and municipal employment opportunities.   You might drive 45 minutes to work, but you're not fighting metro traffic.

Just can't fathom paying $2,000 rent and a half million dollars and upward for a basic home.  From what I read here, it sure doesn't appear the income is three or four times higher, to justify the housing cost.

When comparing housing costs in areas with strong seasons to those without, don't forget the cost of heating & cooling. If you pay $250/mo for energy and someone in California pays $50/mo for energy, thats worth a non-negligible $60k at a 4% rate.

It is certainly worth considering, but it looks like the actual difference a much smaller factor.

The average Californian is paying $128/month for electricity and heating and the average Illinoisian (?) pays $152/month. Numbers for other corn belt states are similar.* So we're actually talking about a difference of $~24/month or $7,200 at a 4% withdrawal rate. Which doesn't go very far at all in California real estate markets.

*Source: https://wallethub.com/edu/most-least-energy-expensive-states/4833/