A Six-Figure Income Is Needed Just to Afford the Typical US Home
bloomberg.com
bloomberg.com
https://www.fool.com/the-ascent/research/average-house-price...
As someone from the midwest, I push back on the assumption that paying $400k for a house is the typical US experience.
A six figure income now kind of feels like table stakes for a professional job IMO. Not because it's "50th percentile", but because of 15 years of inflation.
I would even say that a lower price and therefore deposit together with a higher interest rate can make housing more accessible (even if not necessarily more affordable).
Although you can 'afford' more sales price with a monthly payment based on a 0% interest loan vs. a 10% loan, it puts you at greater risk.
With a higher interest loan, you have more slack to potentially refinance in the future. Also, taxes and insurance are based (roughly) on the price of the house, not based on the monthly payment.
The 2.5x-3x annual salary was always a rough rule of thumb, but when I hear people talking about 5-7x their salary... there's very few ways where that house makes sense.
https://www.hud.gov/sites/dfiles/Housing/documents/FHA_SF_Ma...
"In FY 2020, the three most populous states — California, Texas, and Florida — had the greatest counts of FHA-insured mortgage loan endorsements. Together, these states accounted for 28.64 percent of such endorsements."
https://www.ncsha.org/blog/fha-2020-annual-report-shows-fhas...
Make of that what you will.
https://www.longtermtrends.net/home-price-median-annual-inco...
But at any rate both are imprecise rules of thumb because they don't account for interest rates. A mortgage at 2.5x salary costs a lot more this year than it did last year.
- Suppose somebody is making $40k/yr in a smallish town. They keep $33k after taxes, at most $31k after food for two people, $20k after getting health insurance, maybe $18k after gas, insurance, depreciation, and repairs on a single vehicle (or else on cheaper than normal public transit), and if they're lucky maybe they have $17k left on average after all other expenses living with few adornments. Utilities and repairs are a bit hard to divorce from the home value, but as a rough lower bound you can expect at most $15k/yr left if you take another $1k off for repairs and $1k for electricity and water. Your home purchase needs to come out of that $15k/yr or less budget.
- Suppose instead that somebody makes $80k/yr. They keep $60k after taxes and $42k/yr after making the same food, utility, insurance, .... payments. They can afford nearly 3x the home of the first individual, not the 2x a naive salary multiplier would indicate.
That effect is even more pronounced with kids or a lot of the other motivating factors (expenses) that lead people to making home purchase decisions sooner, and the totality of the situation is such that for salary multiplier advice to be reasonable you need to constrain the salary ranges in question so much that you might as well just give bucketed dollar value estimates.
(and similarly as it applies to sizing life insurance policies, saving for kids' colleges, buying wedding rings, ...)
The person making 80k a year perhaps could afford a house more than 3x salary, but that wouldn't necessarily be a good idea, since buying as much house as you can afford is probably bad advice.
I agree that the multiple is insufficient to determine what you can afford. I would certainly do a budget before deciding what I can afford, and a rent vs buy analysis.
Though in my personal circumstances I would say somewhere between 2 and 3 times salary was realistic. At 2.75% interest I bought a house that was around 2.8 times salary. That was a good compromise on housing budget verse other things.
Anybody got numbers on this?
> On a year-over-year basis, mortgage purchase applications are down 41%. There’s actually fewer purchase applications now than at the bottom of the 2008 crash.
Dividing the world into two groups, the upper and under, seems to be more about politics and power, and through that lens, many “rich” people are still in the “underclass” as well.
In San Francisco, 100k qualifies you for governmental support services like low income housing.
Because with a population of 800k, San Francisco makes up 0.25% of the 332 million people in the US.
I am sure there are additional areas where people making 100k are not middle class.
I am also sure that there are many more areas where this is not the case.
Politically, it has been very useful to convince underclass voters that they are middle or even, often, upper class, and get them voting against measures that would benefit the underclass including themselves. Trump supporters helped institute policies that massively benefit the actual upper class, at their own expense.
[0]: https://www.census.gov/library/visualizations/2015/demo/dist...
[1]: https://upload.wikimedia.org/wikipedia/commons/0/0d/Distribu...
[2]: https://www.pewresearch.org/social-trends/wp-content/uploads...
Not that the middle class isn't shrinking, but by all measures around half the country is in fact middle class. It feels like people just write in headlines/tweet form now. Facts don't matter.
I think if we’re using a definition of “middle class” based around at least half the population always falling into it, a proper summary here would be that the lifestyle of the middle class continues to deteriorate as traditional assets like homes become increasingly unobtainable.
> I think if we’re using a definition of “middle class” based around at least half the population always falling into it
It is however, a defined income level and there is a wealth of data on it. It has shrunk from around 60% of the US population 50 years ago, to around 50% of the population now.
https://www.pewresearch.org/fact-tank/2022/04/20/how-the-ame...
The definition used in this paper has no ties to actual quality of life criteria or ownership of traditional “middle class” assets (house, car, etc). This is effectively a percentage based definition based around the median income of the country and is more a measure of changes to income inequality than it is a definition of a “middle class.”
Middle class is being able to live comfortably, get 2 weeks of holiday abroad, afford some but not many luxuries, have a house and enjoy children and hobbies without going bankrupt. Maybe every couple decades you get yourself a nice Audi car.
It is very possible that the middle class is shrinking. But you also have to admit that it's a bit harder to notice it of you're a software engineer in the Silicon Valley on $250k a year and full private life and health insurance.
Even as a software engineer with a decent stint in the top 5% bracket of UK salaries (£70,000) I wonder how the hell am I going to afford a house with more than one bedroom for myself, and I'm already luckier than 95% of the country.
I don't know why you guys aren't striking. Interns where I work start at $72k (£60k), with full benefits (the kind across-the-pond'ers think that Americans don't get, which exceed in beneficial-ness their own) and earn WELL over $100k (£84k) the second they graduate and sign on.
Which is more than enough to live comfortably, own a single-family home, and have an annual international vacation
IMO: you need to have great faith in your democratic institutions if you think striking will do anything. As a Millenial, all I have known is austerity. All I have known is strikes earn you fuck all. Hell, you might even be fired for taking a day off to shout in a public square.
At no point in American history was "2 weeks of holiday abroad" a norm for middle class Americans. In 1990, only 4% of Americans even had a passport. By the year 2000 that had grown to 17%. Today it's 42%.
That means Americans today are 10x more likely to have a passport for international travel than they were 30 years ago. In other words, it would have been incredibly rare for a middle class family in the 1980s to go to Europe for vacation. Meanwhile, it's not that rare for a lower-income American to go to Mexico or the Caribbean today.
No, far less than half the country is in the capitalist-economy middle class (the petit bourgeoisie).
About half of the country may be in a particular income segment of the working class, whose entire purpose for being referred to as “middle class” is to protect the upper class by creating a false class division within the working class, but... so what?