# Low Rates Prop Up the Affordable Home Price

As promised in yesterday’s affordability post, here’s an updated look at the “affordable home” price chart.

In this graph I flip the variables in the affordability index calculation around to other sides of the equation to calculate what price home the a family earning the median household income could afford to buy at today’s mortgage rates if they put 20% down and spent 30% of their monthly income.

A slight increase in interest rates from 3.35% in December to 3.57% in March caused the “affordable” home price to decrease slightly. Rates dipped a bit in April to 3.45%, and the “affordable” home in King County now sits at \$478,343, with a monthly payment of \$1,707.

Here’s the alternate view on this data, where I flip the numbers around to calculate the household income required to make the median-priced home affordable at today’s mortgage rates, and compare that to actual median household incomes.

As of April, a household would need to earn \$57,121 a year to be able to afford the median-priced \$400,000 home in King County (up from \$49,732 in January). Meanwhile, the actual median household income is around \$68,000.

If interest rates were 6% (around the pre-bust level), the “affordable” home price would drop down to \$356,054—11% below the current median price of \$400,000, and the income necessary to buy a median-priced home would be \$76,742—12% above the current median income. In other words, low rates are basically the only thing keeping prices high right now.

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

1. 1
kdogg says:

Shouldn’t you include taxes and insurance in the monthly payment? Taxes would probably be an additional 1% of the total value of the home, so in this example, you need to add approximately \$400 per month for the taxes alone.

2. 2
Erik says:

So, it takes an income of \$57,121 to buy a \$400,000 house. I make more than that, I live alone, and I would never even consider that price range. I wouldn’t consider over 180, let alone 400.

3. 3
ARDELL says:

RE: Erik @ 2

The general rule of thumb is the loan amount should be between 3 and 4 times your annual gross income. Current interest rates should not change that thinking, unless you are at a point where your current income is expected to rise dramatically in the first few years of home ownership.

I have had a last year medical student or a medical intern, as example, push above the limit as his future income would be that of a doctor, but his current income was that of an intern.

In other words, “expected to rise dramatically” should have a sound basis and not simply be a pie in the sky dream of winning the lottery. :)

Another exception could be in the case of a married couple or engaged couple who have two equal incomes, but are only using one income for the qualifying process.

4. 4
GH says:

great charts.

1. the largest spread between the red and green line (median price minus affordable price) is around 2007. just before prices collapsed.

2. the largest spread the other way (affordable price minus median price) is around the end of 2011.

1) was probably the best time to sell (so far)
2) was probably the best time to buy (so far)

these charts will be very interesting when mortgage rates return to more normal levels(6%-8%) depressing affordable prices; or maybe add a 6% affordability line to the existing chart.

5. 5

Let me echo what Ardell said. Just because a bank will loan you a certain amount and declare that you can afford it doesn’t mean it’s really practical or affordable. If you’re making 57k per year, and common sense says that you should borrow 3-4x your gross income to buy a house, that’s not a 400,000 dollar house, it’s a 228,000 loan or a 280 something dollar house w 20% down.
If you’re making 57k a year gross, you’re taking home about 3800 per month? If you’re buying a 400k dollar home w/ 20% down, monthly payments w taxes and insurance will be in the neighborhood of 1600.
It just doesn’t seem practical to buy a house at the maximum that the bank determines you can afford. It doesn’t leave any room for things like the house needing repairs, paying the heating bill, buying gas for the car, buying clothes, and being able to afford to eat anything other than canned beans. The official determination of “affordable” and real life are two different things.

6. 6

RE: Ira Sacharoff @ 5
Yeah Ira

I’d add too, leave some “underwater” loan elbow room to allow a sale in the near future, because it looks like [per Bernanke] ya can’t sell in the future without more QEs which he hinted would end soon keeping interest rates too low and prices too high. Unless ya bought in with a big bag of cash.

If Bernanke’s dare to get more folks buying stocks soon works, we won’t need more QEs. I’d add to Bernanke’s wishful thinking….if we all buy stocks, where’s the cash bags for real estate? LOL

7. 7
GoBlueInSeattle says:

@Ardell @ Ira – The problem with rules of thumb is that they aren’t very accurate at the extremes. which is the interest rate environment we are currently in. Under a more historical interest rate environment with interest rates on 30 year, fixed rate home purchase money 200 – 400 basis points higher than today, the 3 – 4 times annual income metric roughly works, assuming 30 year term with a front end debt ratio around 28% – 30%. The 3-4 times annual income is rule of thumb to guage whether one’s monthly debt capacity is in line with the loan amount.

The whole metric goes completely out the window when rates on mortgages are running around 3.5%, for 30 year fixed rate loans. 3.5% is “only” 150 basis points less than 5%, but thatt means a 5% rate is FORTY-THREE PERCENT higher! That’s a nearly 50 percent increase in interest cost, for only 150 basis points. Things get screwy when you start with a very low interest rate. In comparison, going from 5% to 6.5%, also an increase of 150 basis points, means the interest rate has gone up only 30 percent.

At rates this low, a buyer could take a loan at 5 times annual income and still have the same monthly mortgage payment on a FIXED RATE as a loan with a higher interest rate at 4 times annual income. In each situation, the buyer’s monthly debt carry is the same, as is their ability to service that debt on current income.

Rules of thumb are a nice starting point for some quick math in one’s head, but you still need to put pen to paper (and calculator).

And none of which has anything to do with anaylsis on resale price risk due to expected higher interest rates in the future once QE ends, as others above have noted. As in my example, an increase of only 150 basis points can take off many 10s of thousands of dollars off what buyers will be able to qualify for on the same income.

8. 8
Erik says:

RE: ARDELL @ 3
If I want to buy a property at a Trustee sale, can I do a 1031 exchange? If I can do that, there really seems to be no reason for me to trade up other than fees I would incur. I would have to make sure the deal far exceeds the fees.

9. 9
ARDELL says:

RE: Erik @ 7

Eric, I really know very little about buying AT the Trustee Sale, (vs short sale or bank owned) as usually that is only for seasoned investors who don’t or shouldn’t be using residential agents like me to buy at the Courthouse steps. For the same reason I am far from the expert on 1031 Exchanges.

You need to ask people like Vestus and the hard money lenders that help you buy the same as all cash at the Trustee Sale. Given you need a lot to be in place to set up a successful 1031 exchange, at time of closing, I would think it would be difficult to pull that off. So you want to ONLY work with people who have been able to work that exact scenario for clients time and again and have a lot of experience with Trustee Sale as 1031 exchange.

Oddly I am not seeing “sale is part of a 1031 exchange” hardly at all these days. It could simply be because I don’t have my finger on the pulse of that type of investor or property. But I used to see it in listing info fairly often, and haven’t seen it in quite some time.

10. 10
Erik says:

RE: GoBlueInSeattle @ 7
It sounds like you are debating with yourself over what a “Rule of thumb” is.

Here is the definition:
“A rule of thumb is a principle with broad application that is not intended to be strictly accurate or reliable for every situation.”

As you can see a “rule of thumb” is not intended to be accurate and reliable in every situation. Sheesh.

11. 11
jack says:

I question the 3 x4 times income rule.

30 years ago a good job would support the household be secure and provide a good pension.

Today, it takes two jobs for most households to buy a house, the jobs are not secure and there are almost no pensions to be see.
I would love to hear how we can reasonably call 3 or 4 times income a good idea when there is less of a safety net today than we had as children.

Furthermore, 3×4 income really only ever made sense in higher income brackets, when you get down to family living on 50- 70k a year, there is little room for error, never mind funding a 529 and a 401k while paying down 4 times income , higher property taxes and vastly more costly healthcare.

12. 12
Erik says:

RE: ARDELL @ 9
Yeah, it’s my primary residence, so I don’t qualify for a 1031 I think. It’s another law that favors people that are rich and trying to get richer. It seems like there are very few laws that help those of us that haven’t already established wealth.
This world seems very unfair. Rich people push laws that make them richer and keep us working folk down. That’s why wealth stays in families for generations. I’m obviously not a fan of that. It’s unfair that kids are born into wealth and then they act like they are great cause they inherited money and bought a few properties on the advice of their economic adviser.
I live in Kirkland. There are many examples of young guys that are really arrogant that inherited their dad’s money. They are dumb and lazy, but all the laws favor them.

13. 13

RE: GoBlueInSeattle @ 7
I’m not making a rule of thumb. I’m giving a concrete example. The example Tim gave stated that it would take an income of 57121 per year to buy a 400,000 dollar house at today’s interest rates. If you take home 20% less than your income, that amounts to 3808 per month. With 20% down, the monthly payments at today’s interest rates including property taxes and insurance will be 1929 per month. So more than half your take home pay would go towards your housing cost. Not wise.
People buy houses for different reasons. Some people think of it as a place to live that feels like their own. In certain areas it’s as cheap to buy as it is to rent. Some people don’t want to be beholden to landlords, whatever.
If the primary objective in buying the house is as a financial investment, then what interest rates do should have a very significant impact. Interest rates are probably going to stay under 4% for the next year or so, and home inventory is likely to remain pretty low too for the next year or so. Beyond that is anybody’s guess, but there will be a significant pressure to let rates rise. If you’re buying a property because you intend on selling it at a profit in a few years? I just hope you know what you’re doing. Those are some pretty dark clouds on the horizon. It ain’t all sunshine and birds.
And if you’re the example given, the 57,000 a year dude buying the 400,000 dollar house?
You can’t afford it.

14. 14
3rd Generation says:

“12. Erik
May 24, 2013 at 2:34 pm | Permalink ”

This is a blog for Adults.

Want some cheese with that whine ?

Grow up.

15. 15
ARDELL says:

True, and if you can’t afford a decent home and environment for your family for 3 to 4 times annual gross, then by all means use the opportunity to that purpose. BUT if you can afford a decent home and environment for 3 to 4 times gross, you don’t need to stretch to 5 times gross just because you “can” and go get thyself a McMansion. There are other important things in life over 30 years time you can use that “excess” on.

16. 16
ARDELL says:

RE: Erik @ 12

Eric…all you have to do is live in the “primary residence” for 2 years to get a better advantage than a 1031 Exchange. I don’t think that’s too much to ask to qualify as a “primary residence” exemption vs a fix and flip project. It can’t merely be your “primary residence” while you are fixing your flip.

17. 17
wreckingbull says:

RE: Erik @ 12 – If you are trying to build wealth by flipping properties, you will be very disappointed. You should consider yourself lucky. Many of us had to save for years before we bought our first homes, due to much more stringent LTV requirements than today.

18. 18
doug says:

It takes twenty years at least for a new bull market to start in one that has crashed.
So we are looking at 2028 for realestate to go back to 2008 levels.

The prices you see today have a lot more to do with government intervention and 2% ARMs

The big investors (Blackrock etc.) are selling like crazy to mom and pop real estate operations that are hoping to rent or flip at a profit. This game will end badly for Mom and Pop. By this time next year we should be well into the biggest economic crash in the history of America.

19. 19
No Name Guy says:

“In other words, low rates are basically the only thing keeping prices high right now.”

In most cases, situations tend to revert to the mean.

As a man who plays the odds, I’ll play that things will revert to the mean. Will I be right all of the time? Nope……but hey, if I win 4 out of 5 equal sized bets (where I manage my nut so I don’t lose it all if the first couple go bad), I’m still way ahead.

How does this apply here? Interest rates and historical norms of “affordability”.

Interest rates WILL go up. Sub 1% treasury yields are NOT historical – they will revert. 3.5% rates on a 30 year fixed is NOT a historical norm, they will go up. When, not if, when (and I have no idea when that’ll happen, just that it will) prices will come down as The Tim notes in the quoted text.

Do not buy a home to live in as an “investment” – you’ll be a muppet to slaughter. A home to live in is shelter first and foremost. If you buy, buy because you want a stable place to live and the circumstances are right for you. Buy to live in because it’s less expensive than renting over your (at least) 10 year time frame. That you also actually have a reasonably stable income stream over a 10 year time frame. Remember that you actually have to pay off the principal.

Borrowing 4-5 times your annual GROSS income is a fools errand caused by thinking in terms of monthly payment. Think about it. How long will you have to work to pay off that debt? 4 to 5 YEARS before taxes is what we’re talking about. Before feeding yourself. Before clothing yourself. Before maintaining that home. Before the costs of raising a family. Add those other drains on your income and then realize that if your in hock for 4-5 times your GROSS, you’re a debt serf. Don’t be a fool and put yourself into such a situation.

A home lived in is, in fact, not an investment, but a liability (yes, but a liability with the utility value of providing shelter). It COSTS money, it doesn’t make money. Cash going OUT is a liability, not an asset. Oh sure, it MAY at some point in the future produce a lump sum cap gain, but that does nothing until that distant future time and as we all saw in the bubble popping, cap gains are FAR from guaranteed.

In addition, consider the opportunity cost. If you take on 4-5 times your annual gross, in lieu of a more traditional 2-3 times, you’re locking up about 2x your annual gross in a liability, instead of having it available for true assets (e.g. things that bring money IN). As an example, take that 68,313 median income. 2x that is 136,626. At 3% yield (easy with a nice portfolio of Dividend Aristocrats to name but one way to do so) that’s almost 4,100 a year in cash in, or about \$340 / month.

Be very wary in the current environment.

20. 20
ARDELL says:

RE: doug @ 18

I hate to use my 5th and final comment to respond to this, but wth?
“It takes twenty years at least for a new bull market to start in one that has crashed.”

Really? 20 years for “a new bull market to start”?
What dark hole are you pulling that piece of info from?

There are bulls, bears and pigs. Maybe one could make a case for the “pig” market only starting up once every 20 years. But a bull vs bear market? We wouldn’t even have bulls vs bears if the shift only happened every 20 years.

21. 21
Ron says:

RE: No Name Guy @ 19 –

“As a man who plays the odds, I’ll play that things will revert to the mean.”

I feel the same way and the question is when will that happen. My bet is that the Obama admin will continue dumping cash into the system to hold rates down until he is out of office in Jan 2017. That was the approach smart nations took after the crash and the conventional wisdom is that it’s still too early to stop QE. The US is still in an epic post-credit crisis recovery while most other economies are either in a recession now or heading in that direction.

I don’t see how interest rates can be allowed to rise in the near term considering how it would impact housing and peoples pocket books. The US appears to be on the edge of recession. Slow growth at best.

Bush/Chaney made a conscious decision to attack the wrong country for the wrong reasons and dump over \$1 trillion into Iraq. Those of us in Seattle who are literate protested against their arrogance before the attack but still our tax dollars are gone. Well not completely gone – Halliburton/Chaney was the biggest benefactor of that war, of course….Chaney was a Halliburton stockholder running up to that war. Enron cash fueled their campaigns – another scam on the American people.

Now the Obama admin is dumping over \$1 trillion into the US economy trying to prop it up.

Let’s all remember that the republicans were going to let GM and everyone else go bankrupt 4 short years ago when the crisis hit. That would have been an epic disaster.

At least the current admin is dumping cash into the US and sincerely trying to help US citizens.

Excuse me while I go fry up some tofu and hug the tree in my backyard!

22. 22
sam says:

>> I feel the same way and the question is when will that happen. My bet is that the Obama admin will continue dumping cash into the system to hold rates down until he is out of office in Jan 2017 <<

What is low? 3.5-3.75% until Jan 2017?? Probably not. Do you think the democrats will want to be blamed for using Fed's monetary policy to their advantage for such a long time? As someone else has already pointed out, a 150 basis point increase can change a whole lot of things and i am sure we will see that well ahead of the next election. Its safe to say that the rates will be around 5-5.5% by that time. We already know from Fed's last meeting that there is a lot of disagreement on QE3 and the need to taper off QE3.

On a different note, I see a house in the neighborhood that has been foreclosed for about 10 months and not put up on sale. How many homes are the banks holding? I want to look at this data by zip code. Is this available somewhere?

23. 23
Corndogs says:

RE: wreckingbull @ 17 – If it wasn’t for the slack standards, Erik wouldn’t be defaulting on his first home and holed up in a condo he can’t afford to paint. He’d actually be much more fortunate than he is now. He would have been forced to save his money until he was old enough to make a mature decision. Instead, he’s rolling into his 30s with a pocket full of piss and he’s probably more anxious and confused than he was when he was 20..

The Big O is stumping as we speak trying to enact policies to make another generation of Eriks. At least GW could claim ignorance when he was promoting homeownership society.

24. 24
Dirty Renter in Banjo Country says:

RE: Erik @ 12
It’s been this way forever, so don’t spend too much time dwelling on it..
In an earlier post, you said you wanted to be a spendthrift yet, still accumulate wealth.
I hate to be the bearer of bad news, but it doesn’t work that way for folks who didn’t win the sperm lottery. I consider growing up humbly, as one of the blessings of my life. I am so thankful for all I have. In my humble opinion, the most difficult part is that we have to go up the risk curve a bit more than some, due to starting @ zero….and it can cause a few sleepless nights over one’s lifetime.
btw, I’m still laughing about you calling me a bruised apple(upon my request)…lol.

25. 25
Ron says:

RE: sam @ 23

“Do you think the democrats will want to be blamed for using Fed’s monetary policy to their advantage for such a long time?”

Good question. I think it’s less a matter of the democrats wanting to use Fed monitory policy to their advantage and more about political leaders who are scared. Dumping cash into an economy props it up so it is the easy way out. Haven’t countries that tightened early suffered? I think so. Republican rhetoric leading up to the ’08 election was extreme and focused on letting large businesses and institutions fail. How have those policies played out in other countries that didn’t ease?

In one sense, QE has provided time for many to get their ‘house’ in order short of going over some sort of cliff. The national debt is a problem but not as large as many suggest.

26. 26
Corndogs says:

RE: Dirty Renter in Banjo Country @ 24 – “I hate to be the bearer of bad news, but it doesn’t work that way for folks who didn’t win the sperm lottery”

Corndog could help TeenErik with this, it’s pretty simple, just pull the lever till you win the jackpot.

27. 27
Erik says:

RE: Corndogs @ 23
You have taken things with partial truths and extrapolated them again. But you are correct that I make plenty of mistakes and make poor decisions based on my track record.

It is true that I short sold my first home that I remodeled. It was a real bummer cause I worked obsessively, doing all the remodeling myself. I replaced every pipe, rewired every electrical piece, moved a kitchen, added and remodeled a bathroom, turned my basement into a living area, etc. You name it and I probably did it. It was like a sick obsession. I did extensive remodeling that consumed all my life and ended up walking away from it with \$116k tax burden on you and the other tax payers. I didn’t try to do that, but I didn’t want to go down with the ship. Clearly something I failed at, so you got me there.

I have a condo now in Juanita that I only owe \$86k on, which I have done mainly cosmetic remodeling to. I researched contemporary design while going to grad school and made the place really nice looking using the remodeling skills I learned from my first remodel. I really like my little cheap condo.

It sounds like you are someone that measures and calculates exact scenarios and I am someone that jumps into things and tries to make them work. I value all of my lessons learned, and I think it’s okay to make mistakes. Here is my favorite quote by Vince Lombardi “It’s not whether you get knocked down, it’s whether you get up.” Eventually after failing and failing, I will have success.

28. 28
Erik says:

RE: Corndogs @ 26
You typed that as I was typing my comment. That’s exactly what i’m doing stupid! Keep trying to make it until I eventually do.

Please put the “s” on your screen name if you are going to refer to yourself in third person. Nobody on this site likes that you can’t even spell your last name correctly. Did you read the previous comments? We don’t like it!

29. 29
Erik says:

RE: 3rd Generation @ 14
Okay 3rd generation of money handed down. You may be an investor, but only cause 2nd generation handed you money and all the rules are in your favor. My guess is that you are someone that is only successful because you had money handed to you from daddy Warbucks. That’s why it angered you when I said that. Enjoy the fact that you never had to work or sacrifice, but be humble.

30. 30
Corndogs says:

RE: Erik @ 27 – So, Erik, in a way you were a victim of circumstances, those circumstances were created by government policies that have been put in place to help low income people afford homes with little to no money down. Your plight isn’t because you didn’t receive an inheritance. The problem is that with socio-economic status comes tribal knowledge. Never under any circumstance should you have bought something as a first time buyer that would not have a positive cash flow as a rental. These tiny little places like the Tim bought, that’s all the real value those places can have. Flipping houses does not create wealth, it creates a 2nd job. If your goal was to establish wealth via real estate, you want other people working to pay you. Your goal should be \$1,000/month positive cash flow….. then \$2,000…. then \$4,000, your goal should always be cash flow. If you had made that your goal at the offset, you wouldn’t have had these issues and your efforts would have been rewarding and continually building toward the future…

Imagine, if you will, TeenErik, going to bed at night and knowing that there are people working around the clock to collect paychecks so they can help you have a worry-free life. Imagine a stream of cash that will increase with inflation and always take care of your basic needs.

31. 31
erik says:

RE: Corndogs @ 30
What do I buy to get a \$1000/mo cash flow? I could probably rent my condo for \$1350/mo. My payment is \$652/mo for an 86k loan at 5.25 percent plus \$400/mo hoa dues that should go down next year. I would only have a positive cash flow of \$300/mo. My idea was to sell after the first of the year and buy something else to remodel through vestus.
If you think that is a bad plan, please tell me. I admit that I don’t have the answer. If you know how to do it, please share.

32. 32
erik says:

RE: Corndogs @ 30
I guess capitalizing on the less fortunate is the only way to do it. I will sell this place next year and buy a 4-plex. I can collect on the hard working renters monthly. In the mean time I will rent. Everyone gets down on me when I talk about selling short, but when I talk about taking advantage of the less fortunate, everyone cheers and applauds.

33. 33
Corndogs says:

RE: erik @ 31
You’re an engineer, go build a spreadsheet that calculates cap rates and ROI. You should be looking to buy multi-units with a cap rate of 9% or more. Also, go make a spreadsheet of your taxes and your write-offs and see how owning multiple properties benefit you tax wise…. also extrapolate what your equity and income might be in the future given different scenarios and consider how you might be able to leverage money to buy more units in the years ahead.

Remember this one thing…. you are not trying to be a millionaire, you are trying establish cash flow…. becoming a millionaire is a by-product of the process. So,go figure it out, you might have to move south or north to get the cap rate you’re looking for, but under no circumstance accept less than 8% cap unless the property can be expanded for more units.

I just told you everything you need to know. Until you have that master spreadsheet and you understand all the variables involved, you are going nowhere. If you had followed this advice from the beginning you would have never bought in 2006/2007, because the purchase wouldn’t have met the criteria of your spreadsheet. This is why Corndog has never fu\$ked up. It’s impossible, and the current value of his holdings are not even relevant to the long term plan. The intent was ever increasing cash flow. that goal has never been compromised.

Corndog has had people paying him sweaty handfuls of cash since he was 21 years old. That is the tribal knowledge your daddy never taught you….

34. 34
erik says:

Find: cap rate

Given:
Cap rate= annual net operating income/cost (or value)
Assume rent at \$1350/mo
Cost = 500/mo (worst case hoa dues+misc.)
Original amount paid = 92700

Solution:
NOI(Net operating income)= 12x\$1350-12x\$500= \$10200
NO I/cost= \$10200/\$92700 = .11

Conclusion:
Cap rate = 11 percent, therefore I my condo could be a rental.

Is this correct? Do my assumptions look good?

I bought in 2004, bought again in 2011, short sold first purchase in 2012.

35. 35
Corndogs says:

RE: erik @ 34 – Yes, your condo could be a rental, if it’s allowed by your HOA. Check out your tax benefits too if you were to buy a duplex/fourplex.. and look at what your equity will be 5 to 10 years down the road. See what you need to do to finance another place, how long in the future that might be. Get another place that needs a lot of work that you can fix up and have instant equity…. if prices go up significantly you can sell one or both… you don’t have to be at the mercy of the market… than you’ll be in the same groove as the people who are getting rich and just seem to magically know when the right time to buy and sell is.

36. 36

RE: erik @ 34
When you calculate your costs, what does that “misc” include? HOA dues and…Property taxes? Insurance? Allowance for maintenance and repairs? Allowance for vacancy? It’s normally 5-10% of the annual rental income for each, so if you haven’t figured that into the total cost, you should subtract 15% of the total annual income and add that to the costs to get a more accurate CAP rate.

37. 37
wreckingbull says:

RE: Corndogs @ 23 – What do you know, Corndogs and I finally see eye to eye on something. I guess it took shirtless Erik to bring it all together. Time to hug it out, doges.

38. 38
ChrisM says:

RE: Corndogs @ 30RE: erik @ 31 – I can’t believe I’m writing this, but for once I agree w/ Corndogs.

\$1k/mo cash flow is possible w/ a four-plex.

39. 39
David Losh says:

RE: Corndogs @ 35RE: Corndogs @ 33RE: Corndogs @ 30RE: Corndogs @ 26RE: Corndogs @ 23

This is a very concise path to building wealth. It is all about cash flow, and the equity will follow.

The spread sheet is essential, having a business plan in writing is essential. Following the plan is what makes it work.

Truly a lot of good information in these comments.

40. 40
Yaj says:

“As of April, a household would need to earn \$57,121 a year to be able to afford the median-priced \$400,000 home in King County (up from \$49,732 in January). Meanwhile, the actual median household income is around \$68,000.”

-Longtime fan of this blog, and I appreciate the fact that plotting affordability over time requires a consistent formula, but surely you don’t actually believe that anyone earning \$57K a year could actually afford to live in a \$400K house, even if they could qualify for the loan?

Pretty much everyone I know who is actually setting aside enough for retirement, maintains a 3-6 month emergency fund, paying for life/disability/umbrella/property/auto/health insurance, saving for their children’s college – etc, etc, etc – e.g. prudent, responsible people limit the amount that they are willing to borrow to purchase a home to 2X their gross earnings, because borrowing any more would make it impossible to save an adequate amount of money after paying all of their other bills.

Based on your own home-purchasing decision you seem to fall squarely into the prudent-and-responsible camp. Have you ever made a post where you compare the theoretical affordability metric to something more in line with your own experience/analysis of what a prudent-and-responsible person can actually afford to buy?

41. 41

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42. 42
Average Joe says:

Is the following interpretation correct that if you bought in 1Q 2012, and refinanced in 4Q2012, you made the best of the housing market volatility?