All in very gross approximations:
|Average household salary:||$60,000|
|Less 25% Federal Tax:||$45,000|
|Less state tax & SS:||$40,000 |
|Less food, gas, insurance,|
Say the misses wakes up one morning and - taking my father's advice - says, "I think I'll make more money. Yes, I think ... yes, that's what I'll do. Make more money." Her boss, agreeing with her sound logic, increases her income 133% to $60,000. With their household income now at $100,000, well above the 25th percentile of all American households, this fictitious family should have no trouble affording a home. Unfortunately, because the family is young (or because they were stuck in the Peace Corps for two years) and this would be a first home purchase, the couple still cannot afford a house in the hyper-inflated market.
If any young couple wishes to buy a home where they work (not move to Porterville or Detroit to pursue a career in home flipping), then it takes superstar circumstances: income in the top 10% of all Americans, rich parents donating 10% for a down payment, or buying a home and renting out the downstairs to a random family from Craigslist. This is not the way our parents or grandparents experienced first-time home buying. For many of them, the difficulty of buying a $450,000 first home is inconceivable because they are already sitting on an $800,000 track home.
On a similar vein, Rachel and Rob find it tragically amusing that home sellers can't seem to find anyone to buy their $500,000 nondescript homes with hastily installed granite counters and hardwood. We know that the intrinsic value of the home is probably closer to $200,000, and that the other $300,000 is "entitlement equity." If you want your home to sell, don't lower the price by $10,000, lower it by $150,000. That's still a reasonable return on investment.