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Old 10-07-2013, 09:30 PM   #721
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Is it reasonable for a young couple just starting out to buy a house in their preferred location - especially in the $1 Million range. That was never a possibility for me as a member of the "older generation". Buying a house meant living quite a distance from employment - a choice to make.
What's quite a distance? 10 miles from work? 20 miles from work? 30 miles from work?

Am I saying it is REASONABLE for a young couple to buy that? No. But 30 years ago that same young couple had opportunities to do so. My in-laws bought a 4 bedroom house in one of Toronto's better neighbourhoods 2 years after they graduated (he from law school, she from undergrad). And she was a stay-at-home mom. Of 4 children. It is completely disingenuous for you to pretend that we can achieve the same sort of financial security in this day and age.

My Mom was a teacher and my Dad was a laborer - they didn't make very much money at all and bought a house in 3 years after moving to Canada. As refugees. In Toronto. Yes, they worked hard, but it was also actually affordable. Today? They'd be living in some shit apartment.

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And who had these stable jobs with fat pensions?
Literally almost every member of my parents' social circle and my husband's parents' social circle.

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By the way, if all these homes are worth $1 Million or more, are we not living in a time of prosperity?
Yes and no. Keep in mind that in Toronto, over the last three years, single family homes have risen 35% in price. This is to say nothing of the similarly steady rise in the 3 years prior to that. My parents bought their current house in 2003, and in 10 years it's more than doubled in price. Do you think that our salaries have doubled in price? Right.

So what's happened is that older people who bought their homes many years ago at a reasonable cost - yes, I know mortgage rates were higher but even so, homes were more affordable (an example are my in-laws who bought a house for $140K in 1981, which is now worth about $1.8-$2M) are now putting them on the market, but who is buying? Wealthy young couples (rare) or foreign investors (common) or middle/upper middle families who took on inappropriate debt loads, with bank approval (fairly common).

None of this suggests we are living in prosperity.
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Old 10-07-2013, 09:31 PM   #722
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That was your experience. Mine was different in 2004, as it was for many I graduated college with.

But times are a lot different now, as it has been repeatedly pointed out in this thread. For you to simply label younger people as not being willing to work hard or make sacrifices is condescending. I get the impression that you don't want to bother to understand how tough it is for millions. You have no idea the headaches and heartaches I've had since 2008, and your judgments are the last thing I, and plenty of others, need.
Then you greatly misunderstand me. I have no interest in labeling a generation of people, nor do I have the basis to do so.

But, from my experience, when people don't like the results the obtain, complaining about circumstances never helps them move forward (lessons I've lived through as well).

It doesn't help to operate under the belief that it was easier for someone else, because it wasn't.
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Old 10-07-2013, 09:43 PM   #723
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Then you greatly misunderstand me. I have no interest in labeling a generation of people, nor do I have the basis to do so.

But, from my experience, when people don't like the results the obtain, complaining about circumstances never helps them move forward (lessons I've lived through as well).

It doesn't help to operate under the belief that it was easier for someone else, because it wasn't.
If I misunderstand you, it is because of how you are coming across. Your tone is condescending. You seem to see only your point of view and no one else's.

Yes, some people do complain about circumstances when things don't work out the way they want them to. But there are many who pick themselves up and start over again. They are not a rarity.

I say things were easier because I knew they were in 2004. Like I've said too many times here, the job hunting and hiring process is so much different now than it was before 2008.

It also doesn't help to operate under the belief that if you were able to do it, others can. There's a huge gray area with that belief, especially now.
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Old 10-07-2013, 10:04 PM   #724
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I spent last year learning about real estate and the FHA seemed like a decent thing. But 3.5% of $600k or more is nothing to sneeze at.
It is decent, if there is inventory and price to support it. But you still have to find a lender willing to extend you a loan, and the best lender we could find was still only willing to lend us much less than we would need, and there was no inventory at that price that worked for us. So we rent. There are worse things.
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Old 10-07-2013, 10:18 PM   #725
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It is decent, if there is inventory and price to support it. But you still have to find a lender willing to extend you a loan, and the best lender we could find was still only willing to lend us much less than we would need, and there was no inventory at that price that worked for us. So we rent. There are worse things.

Agreed. Renting is not a bad thing at all.

I imagine there are many young, professional couples in the same situation.
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Old 10-08-2013, 09:57 AM   #726
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on a home that is priced at $500-$600k, .
This is about an average price for a nice (nothing special) home in SoCal. Something that would be considered middle class anywhere. Since, traditionally the house price per income ratio was about 3:1, you would think that the average middle class income is $200,000. Of course, it's not - it's around $50,000.

And this price is still about 30% (maybe 40%) above baseline trends, even after you adjust for inflation.

The funny thing is - prices have skyrockets since 2000, while wages have basically stayed the same.

The housing market is still being manipulated by the big banks and the government. They're not releasing many of the foreclosed properties into the market - this creates the "shadow" inventory.

Either wages will have to soar to catch up to price, or house prices must drop dramatically before things return to the norm.
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Old 10-08-2013, 10:43 AM   #727
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The housing market is still being manipulated by the big banks and the government. They're not releasing many of the foreclosed properties into the market - this creates the "shadow" inventory.
That's not necessarily true in all markets.

In Toronto, the biggest issue is that we have run out of space. I am referring to Toronto proper, not some exurbs that are 2 hours away. This has created a shortage of single family homes and a surplus of condominiums. There was a recent study that showed that since 2010, condo prices have stayed flat while the prices of single family homes have increased 35%.

I live in the west end of the city in a nice neighbourhood, but nothing posh. It's one of the few neighbourhoods that's still quite close to downtown (13 mins on the train) but is also unique in that the lots are fairly large by our standards. Think 50'x130-150'. When you have houses downtown on 14' wide lots that tells you a lot. Our neighbourhood is comprised of post-WW2 bungalows, we are talking about tiny things of maybe 1000 square feet on large lots. The trend is to buy one, tear it down, and then build a fairly massive modern two-storey home. Our house is 4-5 years old and that's exactly how it came into existence. About 40% of the houses on our street are now new, the rest are just a matter of time. In order for you to buy one of these tear down bungalows, you are looking at an expenditure of $600K. Then you have to build your house which will easily run you another $500K or so.

I'm not saying it's within everyone's reach and most people are in far too much debt. Canadians are pretty much as bad as Americans when it comes to personal debt load.

I just wanted to show you what you're getting in some of our neighbourhoods for $600K...a house that you'll raze the following week.
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Old 10-08-2013, 11:10 AM   #728
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That's not necessarily true in all markets.

In Toronto, the biggest issue is that we have run out of space. I am referring to Toronto proper, not some exurbs that are 2 hours away. This has created a shortage of single family homes and a surplus of condominiums. There was a recent study that showed that since 2010, condo prices have stayed flat while the prices of single family homes have increased 35%.

I live in the west end of the city in a nice neighbourhood, but nothing posh. It's one of the few neighbourhoods that's still quite close to downtown (13 mins on the train) but is also unique in that the lots are fairly large by our standards. Think 50'x130-150'. When you have houses downtown on 14' wide lots that tells you a lot. Our neighbourhood is comprised of post-WW2 bungalows, we are talking about tiny things of maybe 1000 square feet on large lots. The trend is to buy one, tear it down, and then build a fairly massive modern two-storey home. Our house is 4-5 years old and that's exactly how it came into existence. About 40% of the houses on our street are now new, the rest are just a matter of time. In order for you to buy one of these tear down bungalows, you are looking at an expenditure of $600K. Then you have to build your house which will easily run you another $500K or so.

I'm not saying it's within everyone's reach and most people are in far too much debt. Canadians are pretty much as bad as Americans when it comes to personal debt load.

I just wanted to show you what you're getting in some of our neighbourhoods for $600K...a house that you'll raze the following week.
Sure, I understand that near downtown in a great city will always be expensive. But they still have a relationship to income. These homes you are talking about seem to cost about $1.1 million ($600k for property - another $500k for new construction). Is the average income for these homeowners between $300-400k per year? If not - these houses are probably over-priced.

It's a problem across the board. People think they're getting a discount because the value of a home went down 20 percent (yet forget that it increased 500 percent since the year 2000).

It's a problem when every person in the world can leverage their money - because somewhere in all this mess is the "real value" of the item (in this case a house).
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Old 10-08-2013, 11:21 AM   #729
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It's also the case that when houses are rising at 10-12% per year, you get into the situation where a lot of people start thinking, "I'll be priced out of the market if I don't jump in now" which leads them to take on large debt.

Our federal government has started curtailing this behaviour a bit. For example, you cannot purchase a house that is $1M or more unless you have a 20% downpayment. For most people it is prohibitive, as they do not have $200K+ lying around. Under $1M, if you don't have a 20% downpayment you are slapped with pretty high insurance costs which run into tens of thousands of dollars.
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Old 10-08-2013, 11:33 AM   #730
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What's quite a distance? 10 miles from work? 20 miles from work? 30 miles from work?
The commuting distance for the L.A. basin can range from 20 to 100 miles. The ability to purchase a home with a yard means hours of travel per day. This has been the standard in L.A. for at least 40 years. The continuing increase in population causes this given a finite space for building homes.

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Am I saying it is REASONABLE for a young couple to buy that? No. But 30 years ago that same young couple had opportunities to do so. My in-laws bought a 4 bedroom house in one of Toronto's better neighbourhoods 2 years after they graduated (he from law school, she from undergrad). And she was a stay-at-home mom. Of 4 children. It is completely disingenuous for you to pretend that we can achieve the same sort of financial security in this day and age.
Yes and no. Keep in mind that in Toronto, over the last three years, single family homes have risen 35% in price. This is to say nothing of the similarly steady rise in the 3 years prior to that. My parents bought their current house in 2003, and in 10 years it's more than doubled in price. Do you think that our salaries have doubled in price? Right.

So what's happened is that older people who bought their homes many years ago at a reasonable cost - yes, I know mortgage rates were higher but even so, homes were more affordable (an example are my in-laws who bought a house for $140K in 1981, which is now worth about $1.8-$2M) are now putting them on the market, but who is buying? Wealthy young couples (rare) or foreign investors (common) or middle/upper middle families who took on inappropriate debt loads, with bank approval (fairly common).
None of this suggests we are living in prosperity.
Let’s look at a couple of things to balance the equation when comparing the generations. First, when our parents purchased homes, they were not in the most desirable areas. They purchased in relatively newer areas. We can’t use our parent’s neighborhood as our frame of reference. Personally, we put off purchasing a home to stay in a specific area and could have purchased a house years ago (the trade-off being an hour drive morning and night – thus a less “desirable” area).

Second, take a look at household budgets. The average home had one television, one land line phone, and the very well to do could get a VCR. Today, we have multiple televisions, cable/satellite, TIVO or other DVR service, home internet, multiple mobile phones with unlimited data plans, etc. We tell ourselves these are necessities now. Our home buying power is reduced by the additional monthly expenses we are willing to incur.

Third, you mention interest rates. When we rented, our neighbor purchased his $150,000 home in the late 70’s with an interest rate at 20%. That equates to a monthly payment of $2,500. Today’s interest rates would allow one to purchase a home valued at $560,000. Imagine having a 1970’s income, yet being able to purchase a half million dollar home.

We can achieve financial security today; we just have to be as patient as our parents and adopt their priorities. Their financial security occurred over their lifetime. Paying off a mortgage was the ultimate goal (where today, people re-fi to turn equity into spendable cash), personal savings was a part of the monthly budget and the scope of their “necessities” was far more limited.

What I believe has hurt us, in part, has been the shift to a more consumption based society. When I was in college, I was surprised by the prevailing attitude that students wanted the lifestyle of their parents, yet 30 years earlier in their own lives. And you can have that, but not with financial security (home ownership, savings, etc.) at the same time.
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Old 10-08-2013, 11:42 AM   #731
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Let’s look at a couple of things to balance the equation when comparing the generations. First, when our parents purchased homes, they were not in the most desirable areas. They purchased in relatively newer areas.
You are making a pretty sweeping generalization. My parents bought in an established suburb (21 miles from downtown TO), my in-laws bought in one of Toronto's most established neighbourhoods. So factually untrue for both of my examples.

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Second, take a look at household budgets. The average home had one television, one land line phone, and the very well to do could get a VCR. Today, we have multiple televisions, cable/satellite, TIVO or other DVR service, home internet, multiple mobile phones with unlimited data plans, etc. We tell ourselves these are necessities now. Our home buying power is reduced by the additional monthly expenses we are willing to incur.
This is true. We didn't all have our own bathroom when we were growing up and we didn't all have a cell phone, etc. Some of this is not exactly a 1:1 comparison as you are making it seem because the cost of technology has decreased rapidly such that 1 TV purchased 30 years ago may actually be equivalent to 2 or 3 purchased today. But generally, the point stands.

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Third, you mention interest rates. When we rented, our neighbor purchased his $150,000 home in the late 70’s with an interest rate at 20%. That equates to a monthly payment of $2,500. Today’s interest rates would allow one to purchase a home valued at $560,000. Imagine having a 1970’s income, yet being able to purchase a half million dollar home.
Yes, interest rates were higher. But you fail to mention the inflation that the housing market has experienced, which inflation has been all but nonexistent among income. HUGE omission.

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When I was in college, I was surprised by the prevailing attitude that students wanted the lifestyle of their parents, yet 30 years earlier in their own lives. And you can have that, but not with financial security (home ownership, savings, etc.) at the same time.
I hear this all the time. I don't think it bears out, sorry. I can't speak for your parents, but mine and those of my friends got married, had kids and all owned homes by the time they were 30. My husband and I are in our early 30s and we are unique among our friends in that we own a house and own an urban house on top of it. You can claim all you want that our parents were patient, but patience isn't going to get us anywhere without inflation positively impacting our salaries. It is simply and patently untrue that we are in the same situation.

Did your parents pay $45K per year for undergraduate tuition or even more for graduate or professional programs?

Did your parents compete with hordes of wealthy foreign investors from Asia and the Middle East when they were buying real estate?

It also needs to be pointed out that we work HARDER than our parents did, for all the accusations of being lazy. Sorry, they weren't pulling 80-100 hours in the corporate world and answering their blackberries at 3 am like we've had to do.
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Old 10-08-2013, 11:50 AM   #732
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also, using the late 1970s 20% interest rate is really misleading -- that was a uniquely bad period for interest rates and a bad baseline to make a comparison.

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Old 10-08-2013, 12:13 PM   #733
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And income (I added them near the botton, blue=nominal and red=inflation adjusted) has remained relatively flat for the last 13 years - when adjusted for inflation, it's even worse. Looking at this SoCal chart - you can see why the current housing price to household income ratio is still way off course...

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Old 10-08-2013, 01:22 PM   #734
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The commuting distance for the L.A. basin can range from 20 to 100 miles. The ability to purchase a home with a yard means hours of travel per day. This has been the standard in L.A. for at least 40 years. The continuing increase in population causes this given a finite space for building homes.
And SoCal has also been sprawling to meet demand for the past 40 years. It was not until the Housing Boom in the 00's did prices get out of hand, and they have not come back down.

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Imagine having a 1970’s income, yet being able to purchase a half million dollar home.
That $150,000 house in 1970's is probably more like $750,000 today. In the 70's a $150,000 house was 15 times the average income of $10,000 per year. If we use the same ratio today using a $50,000 average annual salary - that would make that same house $750,000.

Looking at the charts, the average house price in the 70's was about $20,000-30,000. Which is keeping in step with the historical 3:1 ratio of house price to income. Now, it is more like 10:1 in Socal, probably more like 6:1 in other areas.

The take away is this - the numbers demonstrate it is much more expensive to have the baseline American dream than it was for our parents.
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Old 10-08-2013, 01:26 PM   #735
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You are making a pretty sweeping generalization. My parents bought in an established suburb (21 miles from downtown TO), my in-laws bought in one of Toronto's most established neighbourhoods. So factually untrue for both of my examples.
We are all operating from sweeping generalizations. Our experiences may differ.

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Yes, interest rates were higher. But you fail to mention the inflation that the housing market has experienced, which inflation has been all but nonexistent among income. HUGE omission.
I’m not omitting the increase in housing prices; I’m showing that one factor alone has given our generation 5-6 times the purchase power over someone buying in the 1970’s (averaging for the era still gives us far more purchasing power through interest rates). Incomes do not need to increase at the same rate as home prices since we have lower interest rates. So, to say our parents had it easier is not as true when we understand the costs they faced.

These lower interest rates, combined with increased demand, lower regulatory standards for borrowing, influx of government money to prop up market segments and a supply that does not keep up with population growth all lead to much higher prices.

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I hear this all the time. I don't think it bears out, sorry. I can't speak for your parents, but mine and those of my friends got married, had kids and all owned homes by the time they were 30. My husband and I are in our early 30s and we are unique among our friends in that we own a house and own an urban house on top of it. You can claim all you want that our parents were patient, but patience isn't going to get us anywhere without inflation positively impacting our salaries. It is simply and patently untrue that we are in the same situation.
You own a home in a desirable urban area? I guess I miss your source of discontent.

We did not purchase until our late 40’s. Should something have been done to make it easier for me?

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Did your parents compete with hordes of wealthy foreign investors from Asia and the Middle East when they were buying real estate?
This is a natural result of the globalization of the economy. I see it in our neighborhoods as well. I’m sure it has helped boost the value of the home you own.

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It also needs to be pointed out that we work HARDER than our parents did, for all the accusations of being lazy. Sorry, they weren't pulling 80-100 hours in the corporate world and answering their blackberries at 3 am like we've had to do.
I knew my statement would be an easy target, especially if quoted incorrectly. I too share that seemingly 24 hour work cycle, with smart phones and webmail keeping me tied to the office. Instead of generalities, let’s go with what you know. Do you think everyone works as hard as you? What percentage of the population puts in the hours you do? Do you think it reasonable for people to expect the same results you obtain if they don’t work as hard as you?

It will always take more work and more money to remain towards the top of the pyramid (it sounds like you are at least top 20%). As the pyramid continues to grow, and people work their way upward, one needs to work harder to simply maintain their position.

Again, it’s all about individual choices and what truly makes us happy. If the priority is home ownership in desirable urban areas, then the personal cost will be high. If that makes you happy, that is great.
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