What you can afford on a home needs to cover not just mortgage+insurance+property tax, but also HOA dues.

Knowing what people on my team make and having a general idea of their spending (house, cars, childcare, etc), I really don’t see how people do it. Even if people use those affordability calculators and don’t overspend, I can see how easily things can go south.

I don’t have any answers, just rambling observations.

It’s a wristwatch….a stupidly ’spensive one.

There is a definite hierarchy when it comes to watches.

True wristwatch connoisseurs/collectors seem to be enthralled by the sophistication of the movements rather than the “bling” factor.

Watches in this category would be ones such as Patek Phillepe and Vacheron Constantine. Some of them look as plain as a Timex…a PP Caletrava or a VC Patrimony. The more complex the mechanism, the more stratospheric the price.

The next level down would be watches such as Cartier and Rolex where the buyers prefer them for their “showiness” and “brand recognition”…You know…the way people are like “Wow…a Rolex”. The more diamonds, the more expensive the price.

I’m assuming that $75k HELOCer trying to keep up with the “Joneses” would prefer a more outright display of their “Wealth” such as a car. And I’d be willing to bet that the watch of choice of the $75k heloc crowd would probably be something like a Rolex Submariner. It’s the Hummer H2 of watches.

I personally find the whole expensive watch thing a little silly.

It’s the same for all the Home Entertainment gear. I’m sure that Bose, Denon, Sony etc. loved the $75k HELOCers.

OTOH…brands such as Jeff Rowland, Mark Levinson, Pass Labs, Krell, Ayre, Bryston, Simaudio (all made in North America BTW…Canada included) would target the 250k+ group.

Why not sign another 12 month lease and have a heck of a time living it up? By the time you want to buy, prices will have deflated even more. Furthermore, you will have spent time in your new area and be much better prepared to make the final big investment of a home.

The most important thing is that you are planning for a worst-case scenario and you should be commended for that approach.

The price range I am looking at could be paid for with unemployment insurance if I did get laid off. And I have zero debt except for a car loan which I only got due to a need to increase my credit score. I had lived off cash until my 30’s and thus had no credit score!!!

Anyway, I am not buying a house for an “investment” and I will be buying well below my means, at about 11% of gross income.

I probably won’t buy for another 6-8 months but if you are looking to spend money on a place to live things are looking pretty good if the outlying areas are where you want to live for a few decades.

You’ll notice this information was out there in 2005. In 2006 most of the people I talk with were calling the rise in home prices unsustainable. In 2007 there was a panic to sell by the very people who disregarded earlier warnings.

Today it makes absolutely no difference what the predictions were. I think the term on the internet is transparency. Are you today making an informed decision? The answer is no because you can not predict the future.

I know where the economy is headed, I know what impacts my life, I know what I’m capable of, and that’s all that matters.

Reading that page is like an incredibly condensed version of this blog! Tim, I am curious if you ever do a bubble recap/summary post in a few years how closely it will mirror the itulip piece!

No wealthy person would want something like that when you can have a nice flashy Rolex for a fraction of the cost.

;^)

http://www.itulip.com/housingbubblecorrection.htm

“hard and fast rules like that don’t make a lot of sense.”

Over the last 10 years, lots of people making $75k managed to “drive a 540i, vacation in Europe, eat at the Met and wear a Vacheron Constantin” too. Seems like it was part of the problem

Point is that people who can manage their money should have the right to do what they want.

By EconE @ 12:

By deejayoh @ 5:

30% of income as a limite makes sense if you are making $75k or $100k a year.

If you are making $250k plus? Not so much

Not that there are that many people making that much money – but the point is that disposable income grows disproportionately to total income as you go up the income bracket – so hard and fast rules like that don’t make a lot of sense.

The $75-100k person may drive a Camry, take reasonable vacations, eat at Sizzler and wear a Timex.

The $250k person may drive a 540i, vacation in Europe, eat at the Met and wear a Vacheron Constantin.

Disposable income may grow disproportionately but if the spending wasn’t also dispraoportionate there wouldn’t be such things as “luxury” brands.

oh, is that part of the rule too? That I have to spend like that, so I can’t get a loan over 30%? Good to know

thanks for filling me in. I thought I had it figured out.

Part of the “rule”? You warm my cockles.

You were the one that sounded pretty sure of yourself. :shrug: Are you saying people with money don’t spend? I didn’t say that everybody spent like that but as I said…there was quite a proliferation of luxury brands over the last number of years.

Did you miss it?

FWIW, I don’t think pure income makes as much difference (200K vs 100k) as disposable income makes — tax bracket, number of dependents, other expenses(e.g. aging parents) can all make a huge difference.

By deejayoh @ 5:

30% of income as a limite makes sense if you are making $75k or $100k a year.

If you are making $250k plus? Not so much

Not that there are that many people making that much money – but the point is that disposable income grows disproportionately to total income as you go up the income bracket – so hard and fast rules like that don’t make a lot of sense.

The $75-100k person may drive a Camry, take reasonable vacations, eat at Sizzler and wear a Timex.

The $250k person may drive a 540i, vacation in Europe, eat at the Met and wear a Vacheron Constantin.

Disposable income may grow disproportionately but if the spending wasn’t also dispraoportionate there wouldn’t be such things as “luxury” brands.

oh, is that part of the rule too? That I have to spend like that, so I can’t get a loan over 30%? Good to know

thanks for filling me in. I thought I had it figured out.

30% of income as a limite makes sense if you are making $75k or $100k a year.

If you are making $250k plus? Not so much

Not that there are that many people making that much money – but the point is that disposable income grows disproportionately to total income as you go up the income bracket – so hard and fast rules like that don’t make a lot of sense.

The $75-100k person may drive a Camry, take reasonable vacations, eat at Sizzler and wear a Timex.

The $250k person may drive a 540i, vacation in Europe, eat at the Met and wear a Vacheron Constantin.

Disposable income may grow disproportionately but if the spending wasn’t also dispraoportionate there wouldn’t be such things as “luxury” brands.

I would bump up the tax figure to 1.25% –that’s what is commonly used in the mortgage biz when we don’t have exact figures. Plus, once you buy your home, the King County Tax Assessor may increase what is paid now…let’s hope he’s not driving over to the property when he does the assessment. Home buyers should be prepared to have their property taxes increase…

Tax assessment always confuses me. In Australia your taxes are automatically re-assessed to the sale price every time a property changes hands, which seems like the obvious engineering calculation.

Tim’s calculator used a % of sales price for taxes and quite a few properties are now selling well below assessed values. How could the KC Tax Assessor justify driving over to raise the assessment? Or are you saying that the % that Tim used in his example is not the real tax rate? or ?

If you are making $250k plus? Not so much

Not that there are that many people making that much money – but the point is that disposable income grows disproportionately to total income as you go up the income bracket – so hard and fast rules like that don’t make a lot of sense.

Tim, I like the calculator. Do you mind if I post it on our tools section of http://www.ChoiceA.com ? Either a link, or embedded would be nice.

We have kids, pay for child care, save 20% for retirement, a bunch for our kid’s college funds and have a 6 month savings cushion and live a pretty comfortable lifestyle. We just place a premium on our living situation, and are willing to pay that much of our income to get the type of house and neighborhood we want to live in. I suppose we might be sacrificing some things like luxury travel or high-end cars or perhaps early retirement, but none of those matter to us.

I’m not saying this to brag, just to point out that everyone’s definition of “affordable” takes into account different priorities. Even were my wife to have no job, we’d be ok (in that scenario we’d get rid of our childcare expense and while it wouldn’t be a “wash” it wouldn’t be a massive hardship).

Sure, at a certain point it’s too much no matter what priority you place on housing (spending 50% of your income on housing pretty much ensures you won’t save for retirement, college). But I think 30% is totally affordable, as long as you’re not also gold-plating everything else in your life.