Why John & Jane Smith Can't Afford To Buy A house - No, it isn't interest rates

[Account Closed]

Don't blame everything on interest rates - It's because wages haven't kept pace

My wife and I bought our first house in Seattle in 1986 for $78,000. It was in a safe, desired neighborhood, post card view of downtown, view of Elliot bay and in the distance, Mt. Rainier. We paid the going 8% interest rate and our payment was around $700 PITI. I needed to make about $1,945 a month or $23,335 a year (okay, this was back in the ice age, but the interest rate is the same) ;-) I was well paid, making more than needed to buy the house, selling very large computers for a well known computer company. We could afford my wife always being a stay-at-home mom.

The house just sold for $1,200,000 at 8% interest and PITI about $9,330. An increase of 15 1/2 times.

So, if you use the lending industry average, 36% of your monthly income can go towards housing and you would need $25,917 a month income or make $311,000 a year to qualify.

This is particularly troublesome if you understand that 61% of people claim they are living paycheck to paycheck. There is no relief in sight for the average household.

[JD Martin]

Quote from @Account Closed:

Don't blame everything on interest rates - It's because wages haven't kept pace

My wife and I bought our first house in Seattle in 1986 for $78,000. It was in a safe, desired neighborhood, post card view of downtown, view of Elliot bay and in the distance, Mt. Rainier. We paid the going 8% interest rate and our payment was around $700 PITI. I needed to make about $1,945 a month or $23,335 a year (okay, this was back in the ice age, but the interest rate is the same) ;-) I was well paid, making more than needed to buy the house, selling very large computers for a well known computer company. We could afford my wife always being a stay-at-home mom.

The house just sold for $1,200,000 at 8% interest and PITI about $9,330. An increase of 15 1/2 times.

So, if you use the lending industry average, 36% of your monthly income can go towards housing and you would need $25,917 a month income or make $311,000 a year to qualify.

This is particularly troublesome if you understand that 61% of people claim they are living paycheck to paycheck. There is no relief in sight for the average household.

 I get your point but you can't use a specific house to make that argument because neighborhoods, cities, states and even countries change in value and demand and desirability over time. If we pretend you had bought in Detroit, for example, instead of Seattle, there's a decent chance that you would need *less* income today than 35 years ago. There are a lot of Northern and Midwestern towns and cities that have experienced flat or reverse growth during the same period. 

The US has always been a mobile nation. People go where the jobs, climate, political theatre, culture, and other factors are more to their liking, and the places they leave behind often become the new affordable housing areas.