House prices to income

[HappierAtHome]

If you have a household income of $200k+ and you save 50% or more of your income, the housing market isn't as bad as it looks.

Agreed but the average household income is something like $66k.

I think we're on the same page - this market sucks for a lot of people, but it's not that bad for high earners. I find it pretty funny when people on 300k complain to me about the market being unaffordable.

[steveo]

If you have a household income of $200k+ and you save 50% or more of your income, the housing market isn't as bad as it looks.

Agreed but the average household income is something like $66k.

I think we're on the same page - this market sucks for a lot of people, but it's not that bad for high earners. I find it pretty funny when people on 300k complain to me about the market being unaffordable.

That is weird.

The market is nuts though. We bought our house for 770k 4 years ago and now houses seem to be selling for 1 million dollars (maybe they are nicer than ours but I'm not sure about that).

[CommonCents]

Hang on a second. I'm not stating that I or my wife expect to be given a million dollars. Your reaction is way over the top.

I'm not a fan of handouts.

The million dollars figure I named as an example (in part for a simple figure and in part because it's true.  With the million in the bank, added to what I have already, we could stop working.)  But contrary to you comment about not being a fan of handouts, see below the bold, where you:
1. State you got a handout of 25% of your house
2. Share your wife is pissed that your in-laws spent money on their house and when questioned about why she is pissed, explain:
    a. If they gave you the money (implied: that they had spent on their house), neither of you would have to work.  aka a handout
    b. You get where she's coming from (in other words, you don't necessarily think she's wrong and maybe even agree with her her that she ought to be pissed)

Immigration is fairly high in Sydney and I think some families get a lot of help. My in-laws paid 25% of our house. I'll give a great example of crazy house prices. My in-laws live in Vaucluse (close to Sydney harbour) which is really expensive. Some developer or investor bought 2 houses close together near their house and knocked them down and build a new house. They want I think $60 million and knocked back $55 million. My in-laws who are mustachian had a slip up. They renovated their investment property in the same area and spend $1.5 million. My wife was spewing because we intend to retire on a lot less than that.

Why should your wife be mad?  It's their money to spend how they like.  As long as they can afford the home and don't come later to you for a handout (which seems unlikely given they gave you 25% of your own home), there's no harm, no foul here to get mad about.

If they gave it to us my wife wouldn't have to work in a crappy job. I wouldn't have to work in my cushy job. She is over it now but I get where she is coming from.

[/quote]

[HawkeyeNFO]

#1 - 1.5:1 in 2001 Norfolk, VA
#2 - 4.5:1 in 2003 DC area
#3 - 5:1 in 2012 DC area

Interest rates on the latter 2 homes were 3.875% and 3.25%, which is why we could afford more home (less money to service debt).  On the first home rate was around 7.25%.  Without including mortgage rates, these ratios of purchase price to income are really meaningless.

[dragoncar]

If you have a household income of $200k+ and you save 50% or more of your income, the housing market isn't as bad as it looks.

Agreed but the average household income is something like $66k.

I think we're on the same page - this market sucks for a lot of people, but it's not that bad for high earners. I find it pretty funny when people on 300k complain to me about the market being unaffordable.

It's unaffordable if you want to retire soon

[AccidentalMiser]

Current house =1.75x

Next (and final) house = .5x (for cash)

[horsepoor]

Some of these housing prices are insane!

For me:

1st house in CA, bought on my own at about 2x gross salary
2nd house in ID, about 1.25 combined gross salary
3rd house in ID, also about 1.25 combined gross

We're currently about clicked over the 1:1 gross salary to mortgage point, which is kind of a nice milestone.

[steveo]

Hang on a second. I'm not stating that I or my wife expect to be given a million dollars. Your reaction is way over the top.

I'm not a fan of handouts.

The million dollars figure I named as an example (in part for a simple figure and in part because it's true.  With the million in the bank, added to what I have already, we could stop working.)  But contrary to you comment about not being a fan of handouts, see below the bold, where you:
1. State you got a handout of 25% of your house
2. Share your wife is pissed that your in-laws spent money on their house and when questioned about why she is pissed, explain:
    a. If they gave you the money (implied: that they had spent on their house), neither of you would have to work.  aka a handout
    b. You get where she's coming from (in other words, you don't necessarily think she's wrong and maybe even agree with her her that she ought to be pissed)

Immigration is fairly high in Sydney and I think some families get a lot of help. My in-laws paid 25% of our house. I'll give a great example of crazy house prices. My in-laws live in Vaucluse (close to Sydney harbour) which is really expensive. Some developer or investor bought 2 houses close together near their house and knocked them down and build a new house. They want I think $60 million and knocked back $55 million. My in-laws who are mustachian had a slip up. They renovated their investment property in the same area and spend $1.5 million. My wife was spewing because we intend to retire on a lot less than that.

Why should your wife be mad?  It's their money to spend how they like.  As long as they can afford the home and don't come later to you for a handout (which seems unlikely given they gave you 25% of your own home), there's no harm, no foul here to get mad about.

If they gave it to us my wife wouldn't have to work in a crappy job. I wouldn't have to work in my cushy job. She is over it now but I get where she is coming from.

I really don't understand where you are coming from or what you are trying to get out of this. I've said my opinion and I'm cool with it. If you re-read my initial post I said my wife was pissed but she is over it now. The reason I get where she is coming from is that they spend way over what was required and it was a dumb financial decision. We could use that money in a lot more efficient fashion. I think though that you are not grasping the significance of this in our lives - its not a big deal to us and its not something that we think or talk about at all now. It seems that it means more to you than it does to us.

We did get a handout of purchasing 25% of our house however my in-laws own that 25%. I can see the scam in this because they only get that money back if we sell or if they die so its an extremely good deal. I think that this should be put in perspective though - my in-laws are multi-millionaires and its not like my wife is spoilt at all. She has been working for years and continues to work her backside off. She also cooks, cleans and takes care of 3 kids without any other support from her parents. My parents have also gifted us $20k at least over the course of our marriage and helped out significantly via taking care of our kids typically one day per week at various stages of the kids lifes. We don't ask for any help or request it but for instance my parents are retired and have a massive retirement fund and when the market went up 20% they gave each of their 3 children $10k. Yes these are all hand-outs but they are definitely not hand-outs that result in lifestyle changes for us. We live well on our incomes and if we get to FI it will be 99.9% based on our ability to save our own incomes.

Do you have any further questions or points you are trying to make ? I'm happy to answer as honestly as I can.

[steveo]

If you have a household income of $200k+ and you save 50% or more of your income, the housing market isn't as bad as it looks.

Agreed but the average household income is something like $66k.

I think we're on the same page - this market sucks for a lot of people, but it's not that bad for high earners. I find it pretty funny when people on 300k complain to me about the market being unaffordable.

It's unaffordable if you want to retire soon

It does put a big dent in your retirement plans however if you earn 300k surely you can still pay off your loan in 5 years time and then save quickly for retirement. Houses are the expensive item in Australia. I think groceries and other expenses aren't that bad.

[dragoncar]

If you have a household income of $200k+ and you save 50% or more of your income, the housing market isn't as bad as it looks.

Agreed but the average household income is something like $66k.

I think we're on the same page - this market sucks for a lot of people, but it's not that bad for high earners. I find it pretty funny when people on 300k complain to me about the market being unaffordable.

It's unaffordable if you want to retire soon

It does put a big dent in your retirement plans however if you earn 300k surely you can still pay off your loan in 5 years time and then save quickly for retirement. Houses are the expensive item in Australia. I think groceries and other expenses aren't that bad.

Yep, I agree.  I'm just very aware that I could retire NOW in another area or work an extra few years to get an expensive and possibly overpriced home here.

[HappierAtHome]

If you have a household income of $200k+ and you save 50% or more of your income, the housing market isn't as bad as it looks.

Agreed but the average household income is something like $66k.

I think we're on the same page - this market sucks for a lot of people, but it's not that bad for high earners. I find it pretty funny when people on 300k complain to me about the market being unaffordable.

It's unaffordable if you want to retire soon

It does put a big dent in your retirement plans however if you earn 300k surely you can still pay off your loan in 5 years time and then save quickly for retirement. Houses are the expensive item in Australia. I think groceries and other expenses aren't that bad.

It depends on the house you buy, too, of course. We earn something like 270k as a household and will try to buy a house in the 600 - 650 range. Mustachian principles of living simply and buying the smallest house that can meet your needs still apply regardless of the housing market and your income. This helps me to not get too caught up in the hype of OMG! The market is crazy! I HAVE to buy a 1M house! Which I see among my peers every day. YMMV.

[CheckEngineLight]

This is something that is EXTREMELY difficult in GTA (Toronto).  House is insano pricing.

1st house: 4:1
2nd house: 3.5:1
3rd house: 3:1
Next house tbd, most likely 3:1 again

For our income level, going 1:1 is pretty much either 3hrs out of the city or pretty 'harsh' area.

+1

Where I am the average house price in my part of the GTA is in the mid 700s.  At current prices our household income would be 3.xx:1

When I bought it on my own it was 5:1, but my income has gone up drastically and our finances are joint now as well.

[totoro]

House price to income measures are not something I pay attention to.

The truth is that you are going to get ahead fast if you buy in a high income market and have a multi-family property that pays your mortgage for you.  Much better off than if you buy a SFH in a cheap market that you pay off in full through your own hard work and after tax dollars. 

Now, some of you might not want a multi-family because you don't want to hear other's noise.  I would point out that carriage houses and farm properties that allow secondary dwellings are pretty common.  Don't like managing tenants?  Run the numbers over ten years including all the tax aspects and see if you still feel that way.

The real question is not how low the price to income ratio you can achieve, but whether you have considered how you can use the golden opportunity created by incredibly cheap leverage to live for free and build equity.  Are there caveats?  Yes, just like with stocks you can't cash out in bad times.   

[urbanista]

House price to income measures are not something I pay attention to.

The truth is that you are going to get ahead fast if you buy in a high income market and have a multi-family property that pays your mortgage for you.

In Australia (at least in the capital cities), this is simply not possible. Any property, be it single-family/multi-family or apartments block will run at a loss, i.e. mortgage payments (assume 80% mortgage-to-value) are significantly higher than the rent.

[zurich78]

I'm in Southern California (Orange County specifically).

When I bought my house back in 2011, it was 3.9x my annual salary.  I know that seems high but a 2 bedroom condo is at least $350K around these parts.

[totoro]

House price to income measures are not something I pay attention to.

The truth is that you are going to get ahead fast if you buy in a high income market and have a multi-family property that pays your mortgage for you.

In Australia (at least in the capital cities), this is simply not possible. Any property, be it single-family/multi-family or apartments block will run at a loss, i.e. mortgage payments (assume 80% mortgage-to-value) are significantly higher than the rent.

Maybe.  I'm not sure.  Most properties where I live will run at a loss given that the average SFH in a mediocre neighbourhood is over $500 000.  It took a long time to find one that did not.  Eighteen months in fact.

What I am absolutely sure of is that if you go for a SFH vs. a multi, the SFH will have a greater loss and less opportunity to build equity.

I am also sure that if you bought in your market five-ten years ago your appreciation would have been pretty spectacular.  That said, there is always a risk of a bubble bursting. 

Looking at a longer period of time you will find that house prices generally keep place with inflation at least.  Leverage turns that into a miracle of financial growth.

[MayDay]

First house was about 3x. Stupid decision in retrospect as renting would have been way cheaper.

Second house is about 2x. That's about the cheapest we could find that wasn't wayyyy out in the country or needed lots of work.

We are casually looking for a new house in the 1.75x range, but the lower pricec will largely be eaten up by transaction costs. We missed out on a duplex that would have been 1.5x. We stupidly assumed the selling price would be way higher so we didn't pursue it. Oh well.

[CommonCents]

Why should your wife be mad?  It's their money to spend how they like.  As long as they can afford the home and don't come later to you for a handout (which seems unlikely given they gave you 25% of your own home), there's no harm, no foul here to get mad about.

If they gave it to us my wife wouldn't have to work in a crappy job. I wouldn't have to work in my cushy job. She is over it now but I get where she is coming from.

If you re-read my initial post I said my wife was pissed but she is over it now. The reason I get where she is coming from is that they spend way over what was required and it was a dumb financial decision.

That actually wasn't clear from the above posts, that you/she were pissed because you thought it was a dumb move, rather than because you/she wanted the money so you/she wouldn't have to work.  Thank you for explaining.  I'm good now.