What constitutes a "starter home"?

[disneysteve]

On the local morning news, there was a story about Philadelphia being named the 2nd most affordable city for 1st time home buyers. They then gave an example of a $275,000 "starter home".

Am I that out of touch with reality that a 275K home would be considered a starter home for many people? Using the 2.5x income guideline, that means you need to be earning 110K. Are there that many people making that kind of money at the beginning of their careers? Even at 3x income, that's almost 92K of income.

We bought our home in 1994 and it isn't worth 275K today 22 years later. I realize we bought very modestly and didn't spend 2.5 or 3x income but I still don't see 275K as being a starter home for most people just starting out unless people are earning a lot more than I realize.

[rennigade]

Thats another example of the media brainwashing society into spending more than they should. If they keep saying that $275k is the norm for a starter home people will start to believe it and be more willing to spend that much money.

Its propaganda as far as im concerned.

[bjl584]

I have no idea what the medias definition of "starter home" is, but if I had to guess it's anything that the bank will approve the average young couple for with 10% down.

[creditcardfree]

I think it could be a starter home for some people in some markets. Our last house which we sold last year for $255K, was bought by a young couple. It was not their first home (they had a condo nearby first). Our young neighbors next door, it was their first home. Although, they didn't buy theirs with a finished basement, so paid less. They both worked, the wife was a nurse who worked with brain injured children at a hospital. If you save up a downpayment and both spouses work, it is possible for that priced home to be a starter home. The other thing that makes these larger homes more affordable is the low interest rates.

[disneysteve]

anything that the bank will approve the average young couple for with 10% down.

Or 5%, or 3% more likely. That's part of the problem.

I think it could be a starter home for some people in some markets.

Certainly that's true. There are some people who do make good money right out of the gate.

If you save up a downpayment and both spouses work, it is possible for that priced home to be a starter home. The other thing that makes these larger homes more affordable is the low interest rates.

I guess if both partners work and make 50-60K, a 275K home would be reasonable. How common is that, though? A household income of 100-120K would definitely be well above the median.

As for the interest rate, I think that's part of where people get in trouble. They focus on the monthly payment rather than on the total cost.

[Fishindude77]

My son's was $60,000 and my daughters was $75,000 both within the last five years. I felt like they made wise choices by purchasing homes that will be easy to pay for no matter what life throws at them early in their careers, and if they put a little sweat equity into them they should profit a little if / when they upgrade. Can also stay put and live on the cheap for a long time if that is their decision.

[tripods68]

The median price home where we live (near Sacramento) is $320,000. State: California.

[disneysteve]

My son's was $60,000 and my daughters was $75,000 both within the last five years.

Do you mean that's what they paid for their houses? Wow! Where is that? We paid 142K in 1994 and that was cheap back then.

[disneysteve]

The median price home where we live is $320,000. State: California.

And what's the median household income in that area?

[dawnwes]

that does seem high for most of the country.

When we lived in Los Angeles, one of the factors that had me agreeing to move, was the housing. I realized my children may not be able to afford to buy in the area when they grew up. Our 1500 sq. ft. home sold for almost 600K.

We now live in NC where homes are lower cost, but still higher than a low cost of living area.

You can buy a 1500-1800 sq. ft. older home in a decent area (decent schools, etc...) for just over $200K. You won't get fancy vaulted ceilings or granite kitchens, but you can find a decent home. Any less than that you are getting into sketchier neighborhoods or going down to smaller homes.

However, if you want to live IN the city, like up near the downtown area, you will be hard pressed to find a home under $800K no matter what the size. It is a bit of an odd market here.

Dawn

[Fishindude77]

Those were purchase prices, we are in the midwest, there are literally thousands of perfectly nice houses that can be purchased for under $100,000.

The wages in California are not 3 to 4X the midwest, and do not justify the increased housing prices. An average young person has no business buying a home there. Get the hell out before you get trapped into a "house poor" lifestyle.

[dawnwes]

Those were purchase prices, we are in the midwest, there are literally thousands of perfectly nice houses that can be purchased for under $100,000.

The wages in California are not 3 to 4X the midwest, and do not justify the increased housing prices. An average young person has no business buying a home there. Get the hell out before you get trapped into a "house poor" lifestyle.

Wages never justify anything, but supply and demand do.

[disneysteve]

The median price home where we live (near Sacramento) is $320,000. State: California.

Wages never justify anything, but supply and demand do.

That's something I've never really understood. We always hear how home prices are crazy high in certain areas, like parts of California, and that the prices are way above what people can afford. Yet those homes still get sold at those prices, which means somebody is buying them. Otherwise the prices would come down. That's how supply and demand works.

[Joan.of.the.Arch]

$3

I found a source for median household income, 2015, in the Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Metropolitan Statistical Area. It was $61,091.

In the city of Philadelphia, household income was $34,207 by a Pew Trust report (which is an interesting document http://www.pewtrusts.org/~/media/leg...tisticspdf.pdf

I wonder how old are these starter home buyers? Are they already well into their work years? Has the average starter home buyer rented for 15-20 years before buying and has higher than median income?
----

Oh wait. I was thinking that the $275,000 was supposed to be an average starter home. It was just one example of someone's starter home.

This reminds me of how in 2009, 2010 the news was full of stories about how hard people with a decline in income from ,say, $300,000 to $240,000 were suffering the recession. Couldn't repair their leaky plumbing, could barely pay the nanny, had to sneak in and out of their own house for shame of being seen by the neighbors in their new lowly state, etc. I remember that exact story and we discussed it here On SA.

[tripods68]

".

Am I that out of touch with reality that a 275K home would be considered a starter home for many people? Using the 2.5x income guideline, that means you need to be earning 110K

Median Priced
Existing Single-
Family Home
Northeast 242,200
Midwest 163,500
South 189,600
West 311,500

The housing federal affordability index 2016 changes every month. So those making between 60 to 100k a year income can qualify with a decent down payment, and where you buy. West Coast $311,500 crazy expensive!

While many of us preach good savings advice, have a plan/budget, Dave Ramsey principle, etc, the rest of the country are ignorant about personal finances. To them, its about "keeping up with the joneses". Take away those easy-to-use credit cards/reward points system, and opt to a more direct payment like CASH-ONLY system (sorry Visa, AMEX), the mindset will shift into a more prudent spending habit for entire country (spend only what you can afford). The concept is easy to grasp, yet way to difficult to follow.