

 How Long Will You Need to Save to Buy a Home In Your City?  - JumpCrisscross
http://www.theatlanticcities.com/housing/2012/08/how-long-will-you-need-save-buy-home-your-city/3085/

======
greghinch
I really don't understand the obsession with owning a home. So many people I
know expend their entire savings on buying a town home or a condo or some
other place where you might as well rent an apartment. But the dream of "being
a homeowner" is somehow worth it. It's always struck me as something of a con.
Any tax benefits you might see are offset by the much higher monthly mortgage
payment.

* note my experience is based on living primarily in SF and LA, so if you are willing to put up with Middle America I'm sure you can find much better value

~~~
rayiner
Say you take out a $400,000 loan for a $500,000 place (this will buy you a 3BR
high-rise condo in downtown Chicago). At today's rates, your mortgage payment
will be ~$2,000/month. Your first payment on that house will be $600 principal
and $1,400 interest. In a condo, your HOA fee will be maybe $800-1000/month.
Depending on your tax bracket, your tax savings will be ~$400/month, which
will cancel out your property taxes. So your total cost is $1,400 + $1,000 =
$2,400. Market rent for the same 3BR high-rise condo is probably $2,500 to
$3,000. Moreover, while your rent will go up 2-5% each year, the interest
component of your mortgage payment will actually go down (2-3%/year over the
first decade). Finally, when house values appreciate, you'll capture that
increase rather than your landlord.

~~~
greghinch
I see how you're doing the math, but I think you're presenting it misleadingly
to say your monthly cost is $1400+$1000. First of all you left off the $600
principal; you may recoup that in a sale but you still gotta pony it up every
month. Second, your $2000 a month mortgage payment seems low on a $500k home.
Talking to realtors and friends that have bought, the rule I've been told to
go by is plan $700-$800 per $100k for mortgage and property taxes (not
including any HOA). So that means a cost of $3500-4000 PLUS HOA dues every
month. Even if you are offsetting $1000 of that with tax benefits, renting for
$3k still looks attractive, especially if you factor in the cost of
maintenance of a period of 10 years or more. Between two homes I've rented
I've not had my rent increased once by a landlord in the past 6 years.

~~~
rayiner
It's not misleading, it's accurate. Your principal payment is money you'll get
back on sale (or can borrow from if you need liquidity). It's qualitatively
different than interest or a rent payment that you'll never get back.

My number is roughly in line with the $700/100k figure. I'm assuming 20% down,
so the loan is for $400k. If your credit is excellent, and you don't live in
one of the high-tax areas, $2000 loan payment + $500 taxes is doable.

As for rent increases, I've never not had a rent increase in 8 years of
renting in Chicago and Atlanta. It's standard practice in the city.

~~~
greghinch
Well it does matter from a practical sense in that you'll need to write checks
for $2500 a month (plus HOA). You may recoup $5000 or so in tax relief at the
end of the year, but you still had to come up with that money in the first
place (let alone save up $100,000 which is no mean feat, even if you're making
a low six figure salary like a lot of professionals in their late 20s/early-
mid 30s).

I guess my bottom line with my original comment was, I can think of a lot
better uses for the money, time, and effort it takes to buy a $500,000 condo,
and to me the returns in my quality of life vastly outweigh any sort of long-
term security you might feel from owning a home

~~~
salsashark
Don't forget the cost of improvements and remodeling for a home you own? Home
owners will probably need to update at least the bathrooms and kitchens before
they sell, which can be an investment of >$20k. Not to mention the costs of
repair, which you don't take on in a rental...

------
rayiner
Surveys like these always highlight how Chicago is underrated:

New York: $275 Los Angles: $236 Chicago: $112 San Francisco: $459 Washington,
DC: $164

Housing here is comparable to places like Richmond or Raleigh, except it's got
the public infrastructure of a world-class city with 10 million people. Even
if you live in the suburbs, you can take the extensive commuter rail system
straight to downtown.

~~~
cageface
The weather is a deal-breaker for a lot of people, I suspect.

~~~
kiba
People estimates weather as a major concern in their daily life when
considering moving to another city, but that's not really true.

It's like buying a brand new car. Sure it's nice and cool looking, but
eventually it becomes just a transportation option to get you from point a to
point b. Or it could be like that you're going to buy a house with a pool.
However, you'll rarely actually use the swimming pool.

~~~
wallywax
Speak for yourself. My happiness went up massively when I finally left Seattle
for California. And my feeling about that hasn't changed over time.

~~~
richardjordan
Yeah, I'm gonna second that. Once I moved from the UK to Silicon Valley - no
matter how much I love "back home" and the fact that London truly is one of
the great world cities in which to live - there's no way I'm moving back to
that weather. It is very hard to leave.

------
chao-
Speaking from a team bootstrapping our company out of Houston, we wouldn't
have stood a chance anywhere else, especially anywhere near the Valley. We
were running off savings for the longest time, and so a month's worth of
expenditures in most places lasted 2-3 months here, easily (the company and
team's cost of living all combined, primarily rent). It gave us the time to
figure out which way was up with our business. And the times one or two of us
had to get some income on the side, employment was readily accessible.

Buying a house might even be in the near future for one of our founders, and
that's only possible at the prices around here.

Slightly unrelated: I'm surprised to see the average weekly wage out in
Detroit so high ($1,015), given all the tales of woe you hear about it.

~~~
hessenwolf
(maybe there are only a few people employed?)

~~~
autodidakto
What's strange about the current recession is that unemployment is high
(especially for low skilled workers) but productivity (for the employed) is
hasn't gone down[1]. This might explain the Detroit number.

[1] <http://www.econtalk.org/archives/2012/08/ohanian_on_the.html>

------
arocks
In Indian cities (especially metros), housing prices have risen beyond the
reach of the average wage earner. Despite several projects still languishing
unsold, the prices have been artificially kept high by greedy builders. This
puts tremendous pressure on single income families even if they earn well
above median salary.

~~~
ashray
I think Indian cities are suffering from a serious real estate bubble. The
value that you get out of a property is really questionable. I'm just talking
about services (electricity/water/sewage), road networks, air quality, water
quality, public transport, surrounding neighborhoods, etc. Not to mention
build quality, finish quality, and other factors. A nice property in New Delhi
can cost close to $1M USD. That's say a 3 bedroom apartment in an upscale
area. Land, of-course costs a phenomenal amount more. Mumbai prices are even
higher.

At that kind of rate, I'd rather put my money elsewhere (you can buy great
property pretty much anywhere on the planet for those prices..), especially
somewhere that can offer a better quality of life.

.. waiting for it to pop .. if it ever will _sigh_

------
tlb
Average weekly wage vs Median price per square foot. Smells like data cherry
picking.

~~~
drusenko
glad i'm not the only one that noticed that. would be really great to hear why
they weren't consistent for comparison purposes.

------
ethank
Los Angeles. You buy a house and its a trade off between commute and cost per
square foot. I HATE LIVING HERE. Often.

I spend 90 minutes in a car every day, and while I love my house, my commute,
gas cost, lack of public transportation, etc sucks. It also forces everyone to
be so insular. No one socializes outside of work because we have to drive
forever to get home.

I had a glorious three years where I lived .75 miles from work and it made the
town better.

~~~
tsotha
Why don't you move closer to work?

~~~
ethank
Million dollar houses, or small houses with no yards. We have to live in the
burbs.

I also did live closer to work but changed jobs.

------
rawatson
I think the author could have chosen better data for this calculation. There
are a few unusual factors:

* Why use average income? Why not median family income?

* Why use median $/square foot, and then assume a 2000 square foot house? Why not just rely on median sale price?

I looked up the data for San Francisco, where median family income is $81,136
and median home sale price is $705,000.

Using the same methodology but with these income/price numbers, saving up for
the down payment on a home in San Francisco takes ~14.5 years instead of 20.6.
I'm not sure how this compares to other cities, but I think it's a bit more
reasonable of an estimate of how long it takes to "save up for a house" in San
Francisco.

------
kurrent
Vancouver, BC here.

Medical science will have to make strides in prolonging life if the average
person wishes to ever to buy their own home here.

Average Weekly wage = $860.57 Median Price = ~$700/sqft

------
se85
I live in Sydney Australia, so to me these prices look fairly reasonable in
comparison.

To give some of you non-aussies an example...

The average price for 2 bedroom victorian era terraces (hundred year old plus
buildings) with next to no real land except the land the property sits on in
sydney can be anywhere from 800k (AU) to millions of dollars.

Our interest rates are also higher then US.

~~~
nl
According to [1], apartments in the Sydney City Center are $11K/sq m. If my
math is correct, that is around $1000/sq ft.

Outside the city center the prices are roughly half that (so a little more
that San Francisco). According to the same data source, average weekly pay is
around $1064.

[1] [http://www.numbeo.com/cost-of-
living/city_result.jsp?country...](http://www.numbeo.com/cost-of-
living/city_result.jsp?country=Australia&city=Sydney)

~~~
bmunro
But if you compare figures for both cities from the same site:
[http://www.numbeo.com/cost-of-
living/compare_cities.jsp?coun...](http://www.numbeo.com/cost-of-
living/compare_cities.jsp?country1=United+States&country2=Australia&city1=San+Francisco%2C+CA&city2=Sydney)

You'll see that prices for just about everything are higher in Sydney. Except
apples, oranges and tennis court hire.

Salaries are slightly higher in Sydney (according to that site), but not
enough to make up for the increase in costs.

~~~
se85
This is correct.

Its definitely not a 1 to 1 comparison because of the crazy cost of living
here.

Theres also the jump in the amount you get taxed (disregarding additional
things we have to pay for such as private health care/medicare levy,
superannuation, etc), so even if you were earning say 100k a year, you
automatically lose a quarter of it before you ever see any of it.

Most people I know that live in the city do not have a salary that exceeds 50k
a year, so all of this plus the cost of housing is leading to several
generations of renters instead of home buyers. I dont actually know a single
person in the city that has a mortgage, everybody seems to be renting because
few people can afford to have a mortgage in the city.

I can only speak from my experiences knowing the people I know, but I know
many people from all walks of life, so i doubt my view is that biast.

I pay as much in rent for a 1 bedroom apartment in the sydney than I would
with a mortgage for a 3 bedroom home well outside of the city.

Heres another example of how expensive things are here that always makes my
blood boil - a bottle of coke is going to cost you 4-6 dollars at your typical
convenience store.

When i was last in San Fransisco 4-5 years ago, It cost around a $1.50
including tax.

------
thomasfl
Wanna really have a laugh (or cry if you're Norwegian)?

Oslo $ 970 / sqft

In Norway you have a 28% tax decuction on interest paid, but it seems more
likely to be a case of tulip fever. Still 85% own their own homes in Norway.

------
usaar333
> As the table below shows, in San Francisco you’ll need to work 20.6 years at
> the local average wage of $1,478 per week in order to save enough for a 20
> percent down payment on a typical 2,000 square-foot home.

Well, it's a good thing that most homes are much smaller than 2,000 sq feet in
SF. It's also a good thing that if you are buying a house you probably have a
2nd income.

Those two factors alone should reduce time to save to 7 years or less.

------
reefoctopus
FHA loans require 3.5%, and a typical conventional loan requires 5%. There are
also housing programs in some areas that will help with a down payment. For
example, the House Charlotte program recently contributed $7500 towards a home
for a friend of mine.

20% is only required if you don't want to pay private mortgage insurance.

------
dtwhitney
Although I understand that there is more than numbers behind the decision to
buy or rent, people may find this calculator helpful in deciding:
[http://www.nytimes.com/interactive/business/buy-rent-
calcula...](http://www.nytimes.com/interactive/business/buy-rent-
calculator.html)

------
kzahel
It's extremely depressing how expensive property is in San Francisco!

~~~
bostonvaulter2
At least it is significantly more affordable than in Honolulu even though the
prices are more expensive. This is because pay is low in Honolulu, one of the
costs of paradise I guess.

~~~
shuzchen
Also, if you work in San Fran, you can take your high wage and go spend it on
a cheaper house out outside the city. You've got BART and caltrain and lots of
roads to take you to work. Here in Hawaii there's no such escape.

------
hcarvalhoalves
Wanna laugh (or cry, if you're a Brazilian)?

São Paulo $ 969 / sqft

With an average income of $ 783. And the land tax is probably a lot higher,
too. Rio is even higher.

------
metaphorical
Is it a bit weird to compare average weekly wage to median square foot price?

Shouldn't it be median household income?

------
ido
Interesting to see Detroit has a similar average wage as prosperous southern
California cities...

~~~
maxerickson
From what I can tell, the wage data doesn't capture unemployment and is tied
to the place of employment. It includes unemployment benefits, but it doesn't
factor in people that are not working and not receiving benefits. So it
doesn't really do much to capture the overall economic situation of the people
living in the reporting areas.

