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neardc neardc is offline
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meri75 wrote :
I'm a little confused. Are you saying your home is worth $150K? Or that you need a salary of $150K for your home and BAU living expenses? (You might have to really dumb this one down, I don't have a brain for numbers at all.)

Also - I have read your comments, how do you correlate between yourself and your Dad's life? I mean, you've written before you don't have children; is it a reasonable guess on my part your Dad was a father at your age? And therefore skews the correlation somewhat?
It appears that he's saying that his home is worth well over 500k (given that he would need a salary of $150k to buy it now -- even with no down payment on a salary like that you would be approved for a mortgage well over that amount based on limiting your debt payments to no more than 28% of your monthly net pay), and that if he had to pay even a couple hundred dollars a month in child support (much less $1,000) it would send him spiraling into homelessness. (Presumably, though, he's already in the house he owns and so can afford it on whatever salary he earns now...).

As I already indicated via the calculations in another post (as have others), the assumptions he's making when comparing his standard of living to his father's are way, way off.
- November 7th, 2009, 01:46 pm
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LizziePooh wrote :
Hi Meri,

I think he just means that one assumes that the next generation does better than the previous generation so to determine if he has succeeded you would need to determine what would be the amount in today's dollar.

But don't quote me on that - nearDC, Cardguy and DL lost me a long time ago. What is CPI anyways?
Hmm ... well, it is true that my salary is more than that of my Dad and the majority of my aunts and uncles. But, I don't think it would be a smart move (on my part) to compare my standard of living to theirs ... when they were my age, our interest rate on loans was avergaing 17%. I'm paying around 9%. Also, we did not have GST until 2000, which in my (very hazy on this point) mind, leaves me thinking I should actually be in a financially better position than my previous generation. I know I get the full benefit of Super, Dad had hardly any and Mum none at all.
- November 7th, 2009, 02:00 pm
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neardc neardc is offline
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meri75 wrote :
Hmm ... well, it is true that my salary is more than that of my Dad and the majority of my aunts and uncles. But, I don't think it would be a smart move (on my part) to compare my standard of living to theirs ... when they were my age, our interest rate on loans was avergaing 17%. I'm paying around 9%. Also, we did not have GST until 2000, which in my (very hazy on this point) mind, leaves me thinking I should actually be in a financially better position than my previous generation. I know I get the full benefit of Super, Dad had hardly any and Mum none at all.
Yeah; 25 years ago here they were at @14% for a fixed rate 30-year mortgage. Quite a bit different from today! And, you had to have a downpayment of at least 10% -- there weren't any of the creative financing mechanisms available today. When I bought my place in 1989, my rate started at 8 3/8% and then went up to 10 3/8% in the third year (of course I've refinanced since then so my current rate is something below 6%).
- November 7th, 2009, 02:10 pm
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D_Lion wrote :
I need approximately $150 k salary to afford the home I own, based on customary mortgage approval criteria; it is (I suppose still) possible to get other forms of loans and buy similar homes on less than that. This was the least expensive house readily available (without an unacceptable wait) when I moved here, which was constrained by my job – if I didn’t move I’d be out of work. I consider any form of mandated payments to an ex-partner which would drive me below that to be a moral abomination, as it would – in theory, based on factors like loan underwriting criteria – drive me into homelessness, which I do not consider acceptable. However, that is still not the neighborhood I ought to be in, based on my employment qualifications.

LizziePooh has it correct: I consider it a minimal expectation that people with comparable ability maintain their standard of living over generations – and they should be gaining standard of living over time, due to productivity gains.

The data comparing my father’s income and housing cost is to illustrate just how badly off-track the US is (especially for men) in terms of falling real standards of living. All things being equal, as an equally-educated, equally-skilled person, I should have the same standard of living. This means I should receive a wage which provides the same articles of consumption. I do not, and by close to a factor of ten. Whether or not I have children is not relevant to that fact; children are substitute consumption (one form instead of another), but not a change in total consumption. The benchmark element I use is housing, as it is the largest (after taxes) cost, and most essential.

In any case, similar rates of inflation occurred in university tuition and health care (though the latter is more change in quantity consumed than change in the price level.)
Okay, I think I am following your train of thought here a little better now. I have a few observations:

~ I do not believe you should rule out the comparative differences in your life to your Father's, as you don't have children. One of my Aunts and Uncles were unable to have children ... they were able to afford better quality housing well before my parents and other aunts and uncles who had children. They had 'luxuries' the others couldn't afford - such as a boat, overseas holidays, the newest in electronics and cars etc.

~ If you are going to use the cost of housing as one of the basis points for your analysis, then I think you also need to take into account things such as tax reforms (if you've had any - we have here, which is why I bring it up), changes in interest rates - therefore affecting how much borrowing power you have plus the type of loan (eg mine is P+I) and market swing and the factors as to why there is - or has been - market swing and whether or not those factors are applicable today. If, for example, there was less market swing, less property tax, less insurance costs, less interest rate etc - then yes, it is likely the comparative assurance you are seeking will not be in place.

~ All things being equal: I think your premise here is flawed. I've mentioned previously I didn't attend Uni after high school. I have 30 cousins in total, about half went to Uni. With your premise - you'd be expecting the Uni Graduates to have the higher salary bracket?
- November 7th, 2009, 02:33 pm
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neardc wrote :
It appears that he's saying that his home is worth well over 500k (given that he would need a salary of $150k to buy it now -- even with no down payment on a salary like that you would be approved for a mortgage well over that amount based on limiting your debt payments to no more than 28% of your monthly net pay), and that if he had to pay even a couple hundred dollars a month in child support (much less $1,000) it would send him spiraling into homelessness. (Presumably, though, he's already in the house he owns and so can afford it on whatever salary he earns now...).

As I already indicated via the calculations in another post (as have others), the assumptions he's making when comparing his standard of living to his father's are way, way off.
Wow - your repayments are limited to 28% of your after-tax salary? I wouldn't be able to afford a home if it were limited here to 28% of my take-home pay!

With the way my loans are structured, if I suddenly had to find an extra $250/month for child support - I would be forced to sell and go back to the renter's market.
- November 7th, 2009, 02:40 pm
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neardc wrote :
Yeah; 25 years ago here they were at @14% for a fixed rate 30-year mortgage. Quite a bit different from today! And, you had to have a downpayment of at least 10% -- there weren't any of the creative financing mechanisms available today. When I bought my place in 1989, my rate started at 8 3/8% and then went up to 10 3/8% in the third year (of course I've refinanced since then so my current rate is something below 6%).
My first home, I bought it in 2000, and I did have to provide 10% down-payment. My interest rate was 6.4% (I think!). My current home, the interest rate is 5.55% (the 9% is for another, smaller loan - I keep confusing the interest rates - sorry!) and I was able to borrow 97% of the building price, as I had nearly 50% equity in the block of land where my home now stands.
- November 7th, 2009, 02:45 pm
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meri75 wrote :
Wow - your repayments are limited to 28% of your after-tax salary? I wouldn't be able to afford a home if it were limited here to 28% of my take-home pay!

With the way my loans are structured, if I suddenly had to find an extra $250/month for child support - I would be forced to sell and go back to the renter's market.
It's a guideline that lenders used to follow quite closely, but haven't been so much in recent years with some more creative financing options...lol. But, the idea is that housing shouldn't consume more than a quarter or so of your income. So, when figuring out how large a mortgage you are eligible for, lenders look at your income and your debts and make their calculations assuming that total housing monthly payments shouldn't be more than 28% of your pay per month, and that total debt payments (e.g., adding in car payment, revolving debt, etc.) shouldn't be more than a third or so of income... (I based it on net pay in my post above--for an even more conservative figure--but I think lenders use gross pay...).

Now, what you can afford is a different issue; that's really up to you to determine. I knew when I bought my house that I could afford more than that because my other living expenses were low. Someone else may have other kinds of expenses or saving plans that lead them to decide that they can afford less than what the bank would be willing to give them (after all, just because the bank is willing to give you a certain amount doesn't mean that you can't borrow less!).
- November 7th, 2009, 03:28 pm
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meri75 wrote :
My first home, I bought it in 2000, and I did have to provide 10% down-payment. My interest rate was 6.4% (I think!). My current home, the interest rate is 5.55% (the 9% is for another, smaller loan - I keep confusing the interest rates - sorry!) and I was able to borrow 97% of the building price, as I had nearly 50% equity in the block of land where my home now stands.
It sounds like you're doing great!
- November 7th, 2009, 03:29 pm
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meri75 wrote :
Wow - your repayments are limited to 28% of your after-tax salary? I wouldn't be able to afford a home if it were limited here to 28% of my take-home pay!

With the way my loans are structured, if I suddenly had to find an extra $250/month for child support - I would be forced to sell and go back to the renter's market.

And Meri is a manager.

This is more aligned with my reality.

Responding as well to your prior post, I actually don't know the rate applicable to my father's era, but we will assume it is before the late 1970's "stagflation."

Federal tax has not changed much, though property tax has insane inflation (7.1% CAGR in NJ.)

NearDC's valuation result is far off, though it doesn't really matter since I bought the least expensive house available within the time frame I had to make a purchase if I was to retain my employment. Yes, that is surely an unusual situation, but it does not really matter either.

I will accept your idea that a person without children may choose to buy more vacations, etc, but that is not germane to the issue of whether available salaries are sufficient to afford available homes - which for many Americans they are not.

I think most American's housing is income-constrained; concordantly, any income reduction leads to a housing reduction.
- November 7th, 2009, 04:07 pm
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neardc wrote :
It's a guideline that lenders used to follow quite closely, but haven't been so much in recent years with some more creative financing options...lol. But, the idea is that housing shouldn't consume more than a quarter or so of your income. So, when figuring out how large a mortgage you are eligible for, lenders look at your income and your debts and make their calculations assuming that total housing monthly payments shouldn't be more than 28% of your pay per month, and that total debt payments (e.g., adding in car payment, revolving debt, etc.) shouldn't be more than a third or so of income... (I based it on net pay in my post above--for an even more conservative figure--but I think lenders use gross pay...).

Now, what you can afford is a different issue; that's really up to you to determine. I knew when I bought my house that I could afford more than that because my other living expenses were low. Someone else may have other kinds of expenses or saving plans that lead them to decide that they can afford less than what the bank would be willing to give them (after all, just because the bank is willing to give you a certain amount doesn't mean that you can't borrow less!).
Thanks for that, how very interesting!

Roughly 55% of my take-home pay goes into loan repayments. About 85% of my take-home pay overall is already 'taken' for regular periodical payments. The remaining 15% I use for groceries, utilities, clothes, rates, etc etc. My lender used my take-home pay to work out my 'borrowing power'! Hindsight is a wonderful tool - I just wish I had it available at the time. If I knew then what I know today about the evil, evil credit cards, I would have avoided them like the plague!
- November 7th, 2009, 05:34 pm
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