The price of a home to you

[Loppan Torkel]

I'm no expert on these things, but I think it's pretty clear that living quarters - homes aren't worth more than what someone is willing to pay for them. Correct?! It doesn't matter if it's a castle if no one wants to live there or buy it.

Buying a home when there's an obvious housing market bubble is generally not wise, but on the other hand, everyone needs to live somewhere. If there's a shortage of homes, prices will continue to rise until the banks run out of loans.

When this happens in a country the prices still seem fair. You get used to them, everyone take loans to buy their home and the prices are similar everywhere.


What's your experience in this?
If you divide the cost of a decent, two room apartment (edit: 1 bedroom, 1 living room, 1 kitchen) where you live, with your annual salary after taxes - what number do you get?

Spoiler :

Close to 4 for me

 

[Borachio]

Yes. That's about right, here, too.

A two bed-room flat might cost you £120,000 and the average income is around £25,000. (Meh! I don't know. Net income might be higher or lower depending on circumstances. And I'm not sure what you mean by "decent".)

In London, though, you're talking much, much more for the flat; but only a bit more for the income.

Location is everything.

 

[Loppan Torkel]

"Decent" as in not extravagant nor crappy.

I avoided square meter because of the conservatives on this site - but to set a standard size to the apartment: 2 rooms means 2 rooms + a kitchen. A bedroom, a living room/tv-room and a kitchen. 55-65 square meter seems appropriate.

 

[Camikaze]

This is all quickly googled data from a smattering of sources - the average Sydney house price is about $610k. Apartments aren't really as much of a thing as in Europe or probably even the US, and are apparently about $9500 per sq m in the centre, $6500 per sq m outside the centre. Average two-bedroom is about 85sq m, so that's about $550-800k. Obviously more expensive if you want to be within half an hour of the centre, less expensive if you don't mind a two hour commute. Average salary post-tax is about $43k, so that means the magic number is a bit over 14. A bit over 7 assuming a dual-income.

This number is a lot higher than it used to be in Sydney (for my parent's generation, for example). Australian culture, like the American suburban dream culture, has generally prized the goal of owning your own home. Europe seems to have much more of a renting culture (perhaps an aversion to debt). But that's essentially the direction the housing market is going.

 

[Borachio]

Hmm. That's a one bed flat. You can buy such things round here. But most people tend to rent them, I think.

edit: Sydney's very expensive!!

 

[Zelig]

People don't commonly buy two bedroom apartments here, we just keep building the city outward and building more cookie-cutter neighborhoods with massive detached homes.

Affordability is fairly good, because oil money.

I wouldn't spend more than ~3x my gross income on purchasing a home, but at current prices it's cheaper and more convenient to rent, so that's what I do. (I spend about 15% of my salary on a nice one-bedroom 75 sq m suite 10 minutes from city center, utilities/internet included.)

 

[Loppan Torkel]

I'd rent too if I could find that kind of deal. Huge for one bedroom..

Sydney does seem expensive. It can't be that costly to produce houses, which means it's likely pretty profitable to build and sell. So it hasn't burst in Australia yet?

 

[Camikaze]

I'm not sure how much of a bubble it is - it's lasted a couple of decades already! New houses aren't that easy to build due to low population density and associated infrastructure limits. So there's an increasing consolidation instead, but that probably raises the cost per sq m; two small semi-attached houses on a block of land costs more than one larger house on that block, and so house-sized blocks of land are a quite attractive investment option, making them harder to buy for non-developers.

 

[Tahuti]

A friend recently brought a close to a quarter million Euro apartment in Amsterdam that matched the OP's description, even though his job is only slightly above national average in terms of income. It is notable that in the Netherlands, housing is relatively expensive compared to neighbouring countries because of a combination of high income taxes and the mortgage interest rate deduction, which also has spillover effects to the private rental markets.

 

[Loppan Torkel]

A friend recently brought a close to a quarter million Euro apartment in Amsterdam that matched the OP's description, even though his job is only slightly above national average in terms of income. It is notable that in the Netherlands, housing is relatively expensive compared to neighbouring countries because of a combination of high income taxes and the mortgage interest rate deduction, which also has spillover effects to the private rental markets.

That's a good question - how common is the mortgage interest rate deduction? They're (some financial guys) are on Sweden about that too. I don't see how they could touch it though.

Also - what number would this friend get? €250K apartment in Amsterdam doesn't seem that pricey.

 

[Tahuti]

That's a good question - how common is the mortgage interest rate deduction?

Almost everyone who buys a home uses it, as you probably will require a decently paying job you have to pay income taxes for.

The only exceptions would be when your income is mainly non-salary (i.e. businesspersons, stock traders) since mortgage interest rates can only be deducted from your income taxes, not capital gains or dividend income, for instance.

Also - what number would this friend get? €250K apartment in Amsterdam doesn't seem that pricey.

10 (EDITED, misread the OP)

It still is extremely small sized and while placed in a highly respectable neighbourhood, it is not the inner city (for Americans, that is where the really well-to-do hang out in European cities). An equivalent apartment in the inner city of Amsterdam probably will come close to the million range, if it isn't already. I wager €250K possibly buys a mansion in a major Belgian city, for comparison.

 

[El_Machinae]

Hmmm, 'bout a quarter of my before tax salary.

 

[downtown]

Housing in Washington DC is horribly expensive, and is probably the biggest reason why I hate living here. I live in a pretty frumpy, not-great-location, one bedroom apartment (the only perk is that the building has a pool)...around 61 square meters, and pay over $1,400 for it, and that's probably a little underpriced. Finding a decent, 2 bedroom house in a neighborhood where you life isn't in danger would easily be half a million dollars. A condo, perhaps a little less.

At just my income, a home in DC is about 10 times what I make....but my wife works too, so together, it's closer to 6 times our combined income. If I stay here, it's possible that I would actually *never* be able to afford to buy a house.

 

[Bamspeedy]

Newly constructed 3 bedroom house (no previous owner). 105 sq. meters on the main floor, and pretty much the same area for the (walk-in) basement, though half of basement is unfinished since it's basically storage. 1 bathroom, but have space already set aside to create a second one. Kitchen/dining room/tv room are not really separated by a wall or anything so they are more like areas instead of rooms. Little office in the basement. Appraised for 147k, assessed at 120k, mine for less than either amount and with 0% interest (but with some strings attached).

Of course a bit too rural for the tastes of many people here.

 

[civvver]

You can't buy apartments here in Michigan. But a 1 bedroom costs about $700 a month in probably the cheapest place you can find, but in a decent area. A 2 bedroom about 1000 sq ft will be around $1000. To rent a 1200 sq foot freestanding house with 2-3 bedrooms is about $1300 a month. To buy the same house, depending on where it is and how updated it is is about $120,000-150,000. It's kinda weird, school districts drive a ton of the home values here so the exact same house 5 miles west can sometimes cost 50% more.

But if you want a ratio thing, my house, 3 bedroom, 1300 sq ft, ratio of cost to purchase to my income after taxes is about 2.3. Of course when I bought it, it was 4 or higher, I've had a few salary increases since then.

I think a better metric might just be price per sq foot. Homes here are anywhere from $100-130 a sq foot depending on how nice they are.

 

[Borachio]

Houses in the US always seem cheap to me. I think you maybe get double the size for the same money. Locations being equal.

A lot of that has to be due to all that land you have.

 

[warpus]

The cost of my house divided by how much I make.. after taxes? 4.5 (when I bought it)

I bought my house in 2008, when all hell was breaking loose down in the U.S. So it seemed like a gamble, but the housing market here has been holding steady and rising slowly.. just as it has before the crisis. So it seems like the financial crisis didn't really affect housing prices where I live, but prices were low to begin with.

It's definitely been a great investment. So far the value is up $40,000 or so, and last year I did my first refinancing.. My monthly payments are down $200, while at the same time I make more at work. Living costs are going down, while I pull in more money at work.. I don't increase my standard of living when I get a raise, so all in all that means more money ending up in my savings account, which is awesome for my travel, because that's essentially my travel fund.

 

[sophie]

The average rent for a San Jose 1 br apartment is $1834.

I currently make $13.10/hr for 40 hrs/wk, but I'm only allowed to work 1040 hours for the whole year. Assuming I don't take another job in the offseason my take-home (before taxes) for the year averages to 1135/mo. This means that the amount of money I have leftover after rent is $-699.

I could live in the apartment for 6 months and have $262 (before taxes) leftover after each month. As noted earlier, the minimum wage in SJ is $10/hr. I'm making $3/hr more than those people are and I'd still be in the red after paying for housing. On top of that the SJ minimum wage of $10 is actually a dollar higher than the California state minimum wage which is $9 (it's set to go up to $10 in 2015 or 16).

 

[Loppan Torkel]

I think a better metric might just be price per sq foot. Homes here are anywhere from $100-130 a sq foot depending on how nice they are.

The interesting thing for me is to see how large the debt usually is compared to the income. What's a reasonable price for a home? price per sq foot won't say much.


I also know a much better metric than price per sq foot...

 

[civvver]

Actually price per sq foot or meter says a lot because you're looking at two different things here, is the home a good price and can you afford it? They aren't really related. A house that costs a million dollars might be an awesome deal but I still can't afford it. There are some really great houses around here that are reasonably priced but still out of my price range.

In general I have heard financial planners say you don't want to spend more than 30% of your month income on housing before taxes. So if you make $5,000 a month your mortgage or rent shouldn't be more than $1,500. But it depends on where you live, as that's not possible in some places like San Jose. California is just outrageous in general for housing prices.