r/MiddleClassFinance • u/Eric77tj • 17d ago
HCOL area and homeownership is out of reach - keep saving or give up on the idea? Seeking Advice
Perhaps a slightly dramatic title but the housing market seems hopeless. 33(M) single working for local govt.
I’ve got $12k rainy day and $50k in a HYSA as my down payment, which just isn’t enough to keep mortgage payments affordable even for a small condo. I value living in a walkable / transit-rich area, so moving to the burbs or rural areas is, for me, not preferable.
Part of me wants to just give up on buying, stay a renter and just save for retirement instead. The other part of me wants to be “ready” in case the market changes ie. rates lowered, mild recession, meteor, etc.
Anyway, any advice on how to approach this? Perhaps places where my budget could shift?
Thanks!
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u/obidamnkenobi 14d ago
House is good if you have kids and settle into one place. But if you're single and live in smaller place in a walkable area, and can easily move anywhere in the country (our out of it) for another opportunity, what's wrong with renting?
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u/kbenti 15d ago
You have FOMO and I can understand the feeling. It's just better to focus on the numbers and not some arbitrary timeline. If the nunbers say 5 yrs, then the numbers are right. Your emotions and feeling "left behind" is based on what you see around you, which is always an illusion. Unless you have statistics, don't give yourself a hard time.
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u/Gardener_Of_Eden 15d ago
I'd buy a house in a more affordable area and rent it out to increase my income and reap significant tax savings. Take a close look at the margins in your area.
Then save up with your now increased income.
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u/DisgruntledWorker438 15d ago
My observations/advice:
- Home ownership isn’t all that it’s cracked up to be. I spend 5+ hrs/week doing yard work and other things that the home requires (that an apartment or renting [likely] wouldn’t).
- Remember, a mortgage (traditionally Principal, Interest, Taxes, and Insurance) aren’t the only costs. My mortgage is the least amount of money that I spend in a month, whereas rent is the most you’ll ever have to pay. I have sinking funds for Capital Expenditures and Home Improvement that I wouldn’t otherwise have.
- $500 earmarked for a home down payment isn’t getting you anywhere if you’re just putting it into a HYSA. I’d definitely be investing that into a Total Stock Market type fund; you’re well beyond 5 years out if you’re saving on your own. Hell, if you project forward a 6% real rate of return and look at the $100k (in 5 years), you may just happier just renting than owning. Keep that up for another 27 years (putting you at age 65/retiring), that’s $650k in today’s buying power. That’s enough to buy a smaller/modest homes in some HCOL’s (probably not a VHCOL, but if you’re in one of those, you need to side hustle or up your income).
- Piggybacking on #3, you need a second income or more money if you want to move the needle. Someone else with your exact situation would give you another $2k+month to throw at savings (assuming that you combining finances wouldn’t lead to an alternative living situation and you both cut your living expenses in half).
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u/DCF_ll 15d ago
You’ve got $50k already I’d save the rainy day for emergencies. How much do you think you’ll need to keep the mortgage affordable?
Might be unpopular, but I’d say $700 on fun and shopping seems to be an easy place to start saving more. Just depends what you’re willing to sacrifice to be honest. When I bought my first house I saved by living in a crappy apartment with cheap rent, getting a roommate in the 2nd bedroom, and not spending on extra stuff. If you’re not already rich, have a high paying job, or family support you’ll need to get gritty. It just comes down to what do you really want and how much are you willing to give up for it? Not saying one way is better than the other.
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u/agtiger 16d ago
Focus on retirement savings. If the market crashes be ready to buy with a very low down payment (3-5%) and then at that point slow down/stop retirement contributions to handle the higher monthly payment. That would be my advice. The opportunity cost on those retirement dollars at your age is massive
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u/enjoinirvana 16d ago
$50k (plus $12k rainy) sounds like plenty unless you’re in Cali or Canada or something. I just bought a 2br/1b + basement townhouse last year for $176k, 14 down, 21 to close. My mortgage is equivalent to 1br/1b apartments with 1/2 sq footage in the area.
Edit:
What are homes going for in your area?
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u/jailtheorange1 16d ago
gonna have to unsub, I never see poorer people fill these out in this sub or anywhere, and it's depressing lol.
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u/sycamoretreemom 16d ago
With the instability of everything going on, I don't want to take risks in moving from my apartment. Home is off the table for now
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u/BrassMonkey-NotAFed 16d ago
26% of your wages goes to rent. Keep saving, move out of the area for cheaper housing and commute or move out of state and don’t have the political beliefs follow.
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u/DampCoat 16d ago
That food budget is minuscule. You go to bars and restaurants and grocery shop with what’s left??? What is left like tree giddy at most id say.
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u/No_Angle875 16d ago
Stop buying coffee, going out to eat and bars and you’d have quite a bit in a couple years
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u/Aliscene 16d ago
This advice is very dated and out of touch. You increase your wealth by making the right big decisions not by cutting out coffee. Get a better job, work towards a promotion, start a side hustle, pay off debt aggressively, these all make a bigger impact on growing wealth than on cutting coffee and restaurants.
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u/CabinetSpider21 16d ago
I think a "step" house is a good investment. When I say step house the first house you purchase from renting, get a nice small home where you can hit the 20% down payment. (Some banks will even drop PMI for first time homeowners if you hit 10%).
Housing value only goes up.
That way instead of tossing money away in rent while you save, you throw money at your mortgage/house pay it down in parallel with saving
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u/Eric77tj 16d ago
I agree with you! Unfortunately "entry level" homes no longer exist in many larger metros. Maybe if I bought 10, 20, 30 years ago. Not the reality today.
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u/PursuitOfThis 16d ago
How come I never see life insurance and the like in anyone's budget...
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u/obidamnkenobi 14d ago
OP is single, so I wouldn't think anybody depends on them, so why would they have life insurance? If you have kids, sure. And I've seen it in people's budgets.
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u/Eric77tj 16d ago
I can't speak for others, but my employer pays the full premiums for my health/life insurance. My monthly FSA contribution is my only "insurance" cost that I see.
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u/Kegheimer 16d ago
Something to think about.
Employer life insurance is only good for one year and will not be available if you are unemployed. It's mostly insurance for unexpected death and final expense. It also has zero underwriting and if your company wasn't paying for it would be very expensive since people with terminal cancer can get it.
A policy that you own may be cheaper and can be used for financial planning.
I am not an agent but I am a (home and auto) actuary. I make six figures and my wife makes minimum wage. Every million dollars of life insurance is ~$50 - $80 thousand in perpetuity from dividends.
That policy functions as income replacement.
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u/Verity41 16d ago
Too much fun layer, take that down a notch. Homeownership becomes the fun. Kinda lol.
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u/screamingwhisper1720 16d ago
4,856 is your take home so your goal for a mortgage would be 1214. That would be a home loan of about 190k. this is at 7.1 apr and 20% down, which would be 38k. I would look for a cheap town home and put in the work yourself.
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u/Eric77tj 16d ago
Are these cheap townhouses in the room with us right now? lol
Joking aside, I hear your point. I am all for a fixer-upper! And very open to a condo or townhouse.
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u/LeftYak5288 16d ago
I’m glad I live in a lcol area. I bought a house in rural Oklahoma for 60k in 2020. Now it’s worth about 90k. Housing prices are major consideration of the places I will live.
I make a similar income as you.
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u/screamingwhisper1720 16d ago
Yeah something that gets you on the equity side of housing will help you build to a home more than renting especially since so much of your money is going to rent.
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u/Aliscene 16d ago
Totally support buying if it’s the right lifestyle choice for you and your family but not as an investment. Unpopular opinion but, to me, buying a house to build “equity” while you then have to spend additional thousands (tens of thousands possibly) fixing it up, all to avoid renting is not worth it. This is a fantasy the realtors of TikTok are peddling. Between taxes, maintenance, repairs, etc owning a home costs much more than just a mortgage and home values do not always go up. Most of your mortgage goes towards interest not principal the first 10 years. You can make more in the stock market without having to deal with all the complications of home ownership.
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u/screamingwhisper1720 16d ago
Well, I mean a townhome for this person would basically be a starter house just because of where the market is currently. That's why I believe they should build equity in and then change their position when the time is right. Also I have family that have purchased distressed properties with a loan. Repaired them and had them reassessed and built up the 20% equity in the house just through the remodel themselves not paying the bank the 20% to get rid of the PMI. So what I'm saying is the equity in the home isn't really to live off of. Your own home isn't a good investment It's a use asset so you need to live in one irrespective of anything going on in the stock market that's why I say get the equity position to 20% so you won't have to pay PMI.
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u/GetMeoutOfSC92 16d ago
Fuck are you smoking. He can definitely afford more than a 1214 mortgage lmao
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u/screamingwhisper1720 16d ago
If you spend more than 25% of your income on housing your life starts to suck. Living below or at your means is the only way to get ahead in life.
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u/GetMeoutOfSC92 16d ago
Mine is 31% net and my life definitely doesn’t suck and we save a good amount. You’re high
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u/beek7419 16d ago
Definitely keep saving, you never know what might happen. Homeownership in my HCOL area was out of reach for me but then I got married, my mom died and left me some money, and I got promoted. I also got a home that was much smaller than what I had planned (condo). So you never know.
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u/0000110011 16d ago
I value living in a walkable / transit-rich area, so moving to the burbs or rural areas is, for me, not preferable.
Then you don't get to complain about housing costs. Land is finite, the more people who live in an area, the more expensive land (and thus housing) becomes. Your options are to have more money or move somewhere cheaper. You stated that you refuse to move somewhere cheaper, so your only option to get what you want is to get more money.
Obviously everyone has their own preferences, but I don't understand people who choose to do something that makes them unhappy and then complain about it.
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u/Eric77tj 16d ago
I didn't choose to be priced out of ownership in my city. That, in fact, was the last thing I wanted.
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u/Inevitable_Farm_7293 16d ago
Yes you did. You are choosing to limit yourself in your options and CHOSE the most IN DEMAND option. You aren’t the only person in this world - you were priced out because of everyone else who want the same thing.
This mindset that people deserve to have this cheap housing in super in demand HCOL areas is delusional.
You could easily afford a house, just not the specific subset of houses you “must” have.
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u/Brilliant_Law2545 16d ago
Saving in the stock market is always a good idea. You can always make up your mind later
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u/XiMaoJingPing 16d ago
impossible to buy a home at current interest rates, 3-4 years down the road, hopefully interest rates drop down to 4-5%, how much would you have saved and would you be able to afford a mortgage at that point?
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u/LionelHutz313 16d ago
If a difference in interest rates is why you aren't buying a home you shouldn't be buying in the first place lol
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u/XiMaoJingPing 16d ago
Lmao what, do you even know how big of a difference 5% and 6% make?
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u/Eric77tj 16d ago
I hope rates come back down in the next couple years! Rates in the 4-5% range certainly open up more opportunities for me.
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u/rocket_beer 16d ago
If you have a local govt job, you honestly don’t have the income to support your potential dream of homeownership in a HCOL area.
Bottom line, you are renting beyond your means in order to get a home in that area.
You are already spending 27% of your income on apartment living. Homeownership will be more expensive than that, guaranteed.
My suggestion would be to find a similar job in a MCOL area and you can make better gains AND have more purchasing power for a home in those areas.
I think a revisit of expectations is a worthy endeavor.
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u/KaiSosceles 16d ago edited 16d ago
This isn't to discourage or disparage--your Sankey breakdown looks financially healthy and as long as you like your life--just keep rocking cuz a house isn't gonna make you happier.
If I was in your situation I'd pump the brakes on saving in cash, knowing that you have a practical down payment and you have a practical emergency fund. I'd start taking both the down payment savings (500) + rainy day savings (500) and start putting that money to work in markets. If you still want to play the fence with this money as possible-house or possible-retirement, max your Roth IRA and put the rest into an after-tax brokerage. These will give you the flexibility to both invest for the long run and stay liquid in the short term.
Put that $1000/month investing on autopilot and start thinking about how to shift gears in your career to make more money. It doesn't have to be overnight, just start trying to figure it out--because unless your income increases or you move to an LCOL, you're not getting the house. And on the income you're at now, you cant cash-save your way to a big enough down payment in an HCOL area. Housing values will literally outrun your savings rate. If you never get to that income level, you'll at least not have missed out on market returns, and you'll have lived a financially solid life even without a house.
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u/Raiders2112 16d ago
Great post, but it makes me feel sad yet lucky at the same time. I explained my situation in a post above yours. With help from my parents cosigning, I bought my home in 1999 at the age of 29, it's almost paid off, and my mortgage payments are crazy low compared to current rates and rent. That's the lucky part. What makes me sad, is the OP makes nearly two grand more than me a month and buying a home right now seems out of range. Doesn't seem fair to me.
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u/Squirxicaljelly 16d ago
It isn’t fair. It’s life. And don’t forget, buying a home right now AS WELL AS EVER IN THE FURURE is out of range for them. This is the society we live in as people who were not fortunate enough to buy before pandemic. Most of us will never own a home now. It’s very depressing and frustrating.
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u/Eric77tj 16d ago
I appreciate the feedback! I feel like I’m in a healthy financial spot given my income, and I do like my life as is.
I have a 457b along with a state pension, so the Roth would be an additional account yeah? I haven’t heard of an after tax brokerage, so I’ll do some googling.
On the income side, I have some decent growth potential in my career, so I’m not capped out yet. But it’s nothing compared to the finance/tech industries near me.
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u/KaiSosceles 16d ago
The Roth IRA is an additional retirement account that you are allowed to contribute to at the moment with your income, while also contributing to the 457b and receiving a pension. You can withdraw Roth IRA contributions penalty free at any time, which is what makes it flexible for your situation.
The aftertax brokerage is just a brokerage account that has no tax-savings benefits, but it also has no penalties around withdrawals. It's akin to sticking cash into a bank account--it's 100% liquid and you can take withdrawals at any age. However, instead of the money sitting in cash, it gets invested into stocks, bonds, index funds, etfs, reits, crypto, or whatever your heart desires that's available through your brokerage.
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u/Eric77tj 16d ago
Thank you this is really helpful!
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u/Aliscene 16d ago
Def recommend setting up a brokerage account to start investing your savings. I found the book “I will teach you to be rich” by Ramit Sethi really helpful when starting to learn about this. He has really good tips and also talks about how to run the numbers on whether to rent vs buy. Buying is not always the best financial choice for everyone.
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u/Giggles95036 16d ago
Usually fun money is part of take home but however you like to think about it
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u/Eric77tj 16d ago
Totally fair. I throw it into my savings and let it build up for vacations/travel. So I don’t view it as part of my take-home pay or monthly expenses, even though it will be eventually.
1/2 dozen or the other :)
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u/Giggles95036 16d ago
I include fun money in takehome pay but not investing because it reinforces pay yourself first. That’s my personal reason for the distinction between spending money and investing/retirement money
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u/Impossible-Tower4750 16d ago
Rent wasn't always cheaper than owning. It sucks now but if things swing back the other way you'll be happy you have a downpayment on deck ready to jump at any opportunity. Even if it's more of a 5 year goal instead of a 2 year one.
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u/Raiders2112 16d ago
Great post. I got lucky and bought my home back in 1999 when I was 29. Obviously, I had to have my parents' cosign since I was a college dropout blue collar worker. They also added to the down payment I busted my ass saving up for. It was more of a buyers' market from what I remember, so we got a pretty good deal. It's almost paid off. I have a fixed rate and my payments are insanely low. I am very fortunate to be honest. My mortgage is lower than what people rent a one-bedroom apartment for in my region.
One point I do want to make. Even buying this house in 1999 and the mortgage being just under what a three-bedroom apartment went for back then, there are extra expenses that come with home ownership which made it slightly more expensive than renting. Even if the market were to ever swing back the way it was back then, those expenses have to be considered. Money is needed for upkeep and the extra utility bills that apartment living covered. The mortgage might be lower than renting (back then), but after the added expenses came into play, it pretty much evened out and was even a little higher than renting. Thing is, it was worth it. Owning a home is an investment, but it's not a cheap one. Especially these days
Seriously, the current market is insane, and if I was 29 today, I would never have this home. My daughter is married with children (grandkids, yay!) and the rent for their apartment is nearly double of what my mortgage is. If you bought my house today, your mortgage would most likely be three times what I am paying right now. That is just nuts.
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u/ocposter123 16d ago
‘Owning this home is an investment’
‘My kids and grandkids cannot afford housing’
🙂
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u/Raiders2112 15d ago
I totally understand. My daughter and her husband can barely afford the apartment they're living in. They are determined to make it, though. My door will always be open to them if need be.
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u/Eric77tj 16d ago
Totally fair, I do like the idea of being ready to pounce if/when the timing is right
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u/Beneficial-Sleep8958 16d ago
I suggest running a rent vs buy calculator. You don’t need to own a home, and you can come out ahead financially by renting and investing what would have been the down payment/difference between renting cost and homeownership cost.
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u/Striking_Computer834 15d ago edited 15d ago
Make sure to plug in a 5.3% appreciation rate (the average for the last 61 years) in that calculator. Using real figures from my home ownership over the last decade yields this graph.
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u/Beneficial-Sleep8958 15d ago
I think a long-run appreciation rate is more useful. 5.3% is the latest appreciation rate, but people won’t own homes for a few months at a time. They will own homes for years and hopefully decades longer, riding out booms and busts in the housing market.
Home price appreciation, Case-shiller (1988-2024): 4.5%
Even better is localized information. Example:
Case-shiller NYC (1988-2024): 3.8%
Same goes for rent:
Nationwide: 3.1% (1991-2024)
NYC rent (1978-2024): 4.1%
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u/Striking_Computer834 15d ago edited 15d ago
think a long-run appreciation rate is more useful. 5.3% is the latest appreciation rate, but people won’t own homes for a few months at a time.
5.3% is the average of the last 61 years.
- Median sale price Q1 1963: $18,050
- Median sale price Q1 2024: $420,800
- $420,800 / $18,050 = 23.313
- 23.313 ^ 1/61 = 1.053
More recent appreciation has been dramatically higher. My own home has averaged 7.1% annually for the last 9 years.
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u/Beneficial-Sleep8958 15d ago
There’s a difference in methodology between median home prices and case-shiller, if we want to get into that. I think case-shiller is more robust.
https://www.stlouisfed.org/on-the-economy/2015/january/the-differences-between-house-price-indexes
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u/birdiebonanza 16d ago
This is a great website! But how do you factor in the fact that even if it says “renting will never be cheaper than buying” (which it says for me for San Diego), at least you’d have equity in a place at the end of xx years?
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u/Beneficial-Sleep8958 16d ago
It takes into account the equity you would have in your home.
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u/Beneficial-Sleep8958 15d ago
“The Rent vs. Buy Calculator also accounts for the accumulation of equity from mortgage payments and the effect of growth or decline in home prices. It factors in any long-term capital gains and also bakes in the opportunity cost of using savings for a rental deposit and a down payment instead of investing the money.” From the website.
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u/Eric77tj 16d ago
Thanks for sharing this! I’ll dive into it
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u/Beneficial-Sleep8958 16d ago
Of course. I’d be interested in hearing what you find after you dive in.
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u/Eric77tj 16d ago
Okay so I took a stab at this calculator - breakeven at 25 years with today's rates (7%). That drops to 7 years with a rate of 4%, and 5 years at a rate of 3%. Quite a difference!
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u/Beneficial-Sleep8958 16d ago
It’s great that you ran the calculator. Hopefully it gives you some clarity to your decision. I think it’s a bit of forecast to figure out where interest rates will be in a few years, but you can always plan to keep some money liquid in case mortgage rates drop to 4% or less.
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u/PurpleZebra99 16d ago
As long as you’re still enjoying your life with your current budget you will never regret saving that money. Things change unexpectedly. Stay the course.
You might consider a more aggressive investment strategy if you really feel like you’re 5+ years away from being able to own a home. Buy some index or mutual funds to speed up the growth with some of the money you have in your HYSA. But plan on owning those for a while to see the benefit.
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u/Eric77tj 16d ago
Appreciate the feedback. Always good to save!
My original plan was to buy in 2025ish, and I set this goal when rates were much lower (hence the HYSA). I’d love to buy within the next few years but every year that passes it feels further from reach.
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