How to Buy a Home You Can Afford

The following is an excerpt from America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need, courtesy of FT Press, imprint of Pearson. Originally published in "America, Welcome to the Poorhouse." Like the author, I've also suggested guidelines for buying a home as well as talked about the economic advantages of moving.

While I can’t wave a magic wand and make homes affordable in high-cost regions, those of you who are currently renting in the Northeast and California may need to consider finding a home in an affordable region that could also be a good investment because the local economy is strong. That was the subject of my first book, The Cost-Conscious Home-Buyers’ Guide, published in 1991.

The solution to the affordability crisis now is the same as it was when I wrote that book: if you can’t stand the heat, get out of the kitchen. If homes are unaffordable where you live, consider moving to where they are affordable.

For my first book I selected 20 areas within shooting distance of the national median home price at that time, $93,000. I also selected destinations that were judged to be among the 100 fastest growing between 1977 and 1987 by the forecasting firm of Data Resources Inc. in Metro Insights. Finally, I eliminated all metro areas that scored lower than 100 in the Places Rated Almanac’s “overall category,” which took into account education, culture, climate, crime rate, and other factors in all metro areas.

As in my first book, in this chapter I am ranking locations by Places Rated Almanac’s ranking of “best places to live” features—because you want to look for not just a job and an affordable home but a desirable destination that will attract potential buyers of your home. To meet my criteria, the regions had to rank in the top 100 of the 379 regions nationwide.

Unfortunately, most of the regions I had picked for my first book either have become so unaffordable that they would no longer qualify or have become “riskier investments” due to the slumping 2008–2009 economy. In addition, because home prices have become ever more unaffordable, I needed a huge amount of wiggle room on home prices—more than tripling the ceiling to $300,000 because if I moved it any lower I’d lose too many top Places Rated Almanac rankings. Yep, that’s how much home prices skyrocketed in 18 years! (All median home prices are from the National Association of Realtors.)

The six regions I chose for this book are Portland, Oregon; Denver, Colorado; San Antonio, Texas; Austin, Texas; Houston, Texas; and Raleigh, North Carolina. These regions were selected based on the following economic rankings: Moody’s Economy.com, requiring that the region rank in Moody’s top quintile, in the top 50 by the Milken Institute and among Inc. magazine’s Top 20.

Moving is not for everyone and you have to consider carefully before you pull up stakes. But if you can’t afford a home where you currently live, it’s worth the time and effort to check out your options.

What’s more, these regions may offer you the same or better amenities than you’d enjoy in your current destination. Whether it’s features such as the gorgeous Columbia Gorge outside of Portland and some of the best food I’ve ever eaten inside of Portland; the multitude of skiing, urban trails, and white-water rafting in the Denver area; the Latino cultural events and rodeos in San Antonio; the mind-boggling array of indie rock, bluegrass, and reggae experiences in Austin; the world-class, year-round symphonies in Houston; or the museums, best-of-Broadway shows, and live concerts in Raleigh, these regions are incredible experiences and affordable places to live. Good luck and happy house-hunting!

Comments

[jeffinweternwa]

Some of the BEST summer weather in the world is the Portland, OR area!! It's typically dry, lower humidity, warm, sometimes hot and dry, a bit windy, long daylight,...the tradeoff is: L O N G dark, damp winters, with very little snow, almost no fall season, just a month of summer to rain season - though snow is 90~ minutes away in the mountains, here it's often drizzle and light rain (we get less precip in a year than typically Dallas, Chicago and New York), cloudy days, damp ground. Portland as a city is eclectic with a lot to offer but, the area surrounding it is typical suburb and not much to write home about. The mountains and coast are nearby and offer much. If you work in Portland but, travel to/from the north or south the I-5 corrider IS a traffic jam. Bettter to live here and work elsewhere against much of the traffic! Living on the WA side of the river (Vancouver, Camas - one of Money magz best 50 small towns BTW, Battle Ground, Washougal, etc., brings lower property taxes than Portland/Multinomah County, (Property taxes are typically low to reasonable in OR EXCEPT in PDX area unfortunately), no income tax in WA and tax free shopping (there is no sales tax in OR but, a quite high and very progressive state income tax) just 30~ minutes away in Oregon - that means a $$ benefit. Newer and less cost housing on the WA side is abundant and prices are still dropping, thought the boom wasn't upward like other areas of the west. Lots to do/see, a moderate climate and cost effectiveness make it a good place to live - especially if you can get away for a few weeks of sun and warmth early in the year! One o many reasons I retired here at age 47!

[texashaze]

Buy whatever you can afford on a 15 year note. That was one of the best financial decisions of my life.

[chynalemay]

you can do that in Texas country, Mich, etc., but in a lot of places in the US, even w/ low prices, it's impossible to afford a 15 year mort., but, don't overspending on a solid 30 year note either. Nor, trade "up" do it often you end up beyond the millionaire next door....

[Terry]

I would describe the OR income tax as quite high all around, and PINO (Progressive In Name Only).

Oregon's top marginal rate of 9 percent kicks in for full-time burger flippers, which means practically everyone is in that top marginal bracket. (And yes, those burger flippers pay more income tax to the state than they send to Washington.)

So yes, the tax is somewhat progressive at or below minimum wage incomes, but flat for income above that.

[Crystal]

Houston is great but you have to like/tolerate warm and humid weather. The summers are even hotter and it rains a bunch. If you can make it through the weather, we have an awesome museum district, great theatres, a fantastic zoo, and lots of shows make it through Houston every year. We're seeing the Trans-Siberian Orchestra for the fourth time this December...always a good time!

Houston's also perfect for real estate...you can definitely get a nice-sized home with a small 15 year loan. Our 3 bedroom , 2 1/2 bathroom, 1750 square foot house was $114,000...with 20% down, our loan was for about $92,000...$740 a month for 15 years plus about $2500 a year in property taxes. We're on track to have it paid off in 10 years total, maybe sooner. My husband is 15 minutes away from work and I'm 25-35 minutes depending on traffic. We're also about 45 minutes away from downtown. So, if you're looking to stretch your money, this is a nice place to be!

[jeffinWesternWa]

intersting my house which cost about $253K "all in" here in Camas, WA, also a state w/ no income tax like TX, has property taxes (100% of valuation - which is typically below market value) based on $199K of UNDER $2500 a year. My electric however runs about $1~ a day year round and heat (Nat Gas), for a YEAR is less than $750 (try those #'s in deregulated south!!), A/c is not needed here but, if you got a 2 story home is nice 2-4 weeks a year. It's also cheap here to live if in WA side of Columbia river!! I'm a 4 time TX resident (San Antonio 2x, Austin, Kileen, Harker Heights), ...Texas definately has nice spring, fall and even winters, though temps can vary 50'F over 2 days but, summers are like Nor'east winters: say goodbye to your neighbors from Memorial Day to Labor day due to the heat, the humidty, especially in East/So TX can be oppresive, musch like the clouds and drizzle of the NW winters. Austin's traffic was terrible in the 90's, not as bad as Houston but, I've spent enough time in Dallas/Ft Worth to se the sprawl and traffic there too! I miss it but, not that much!

[Crystal]

@jeffinWesternWa
Oh yeah, Houston's property taxes are high...2-3.5% depending on the area. We do also pay about $1800 a year for electricity but we don't have natural gas (which is not normal around here...but we like it). But, paying an extra $800 a year on electricity and extra for property taxes seems worth it to save $100-500k on the house depending on where we would move.

Are the home prices similar in Camas, WA as well? The weather could be nice...

[jeffinWesternWa]

I think ALL of TX home/property is cheaper as well as vehicle fuels like diesel and gasoline, however, were not "high" as compared to CA, NY, etc., Camas, just outside Portland and one of Money Mags best places to live is modest: example is a BRAND NEW NICE 2 story 4 bedroom home w/ 3 car garage will be now $300K, 2 years ago it was $425K, a small but, comfy townhome under $200K..mansions galore that sold for $800K -$2M are all about 40-50% cheaper now too, NEW houses have started popping up again after almost a years slowdown..what I have noticed compared to Tx over the lst 20 years is appreciation, when it happens in real estate IS greater here, though one should never buy a home for profit, just hope over the long term w/ axes, repairs, insurance, upkeep, maintenance, etc. to beat renting, which I did in TX and made out VERY well instead of owning (early 91-92 and late 90's/200o)...still you get more house for the $$ in the south but, taxes/utilities and often insurance costs more....

[Crystal]

Sounds like if we want to move to an expensive area in the future, we should wait for another crash first...maximize the buck since our house wouldn't drop in value as much and we could pick up a nice one elsewhere for a lot less. Good to know.

I loved Washington when my family went there before I started college...the San Juan Islands were gorgeous, Seattle was fun, and the mountains were amazing! I've heard good things about Portland, OR as well...maybe if we ever actually reach "rich", we can get a vacation home up there and wait out the long, hot summers! Ahhh...dreams... :)

[jeffinWesternWa]

And I shall think about a winter home on the TX coast, well w/ the hurricanes, etc., maybe to rent :) Seattle/Bellevue is expensive, though prices have dropped, Gritty Tacoma is now hip and VERY reasonable to live and only an hour from Seattle, the traffic North of Seattle is horrible as is the weather....the San Juans are 10 mos of rain/cool, damp, summer is in the 60's, I prefer southern WA after living outside Tacoma for 7 years, 3~ hours makes a difference in climate! For the better...

[Mike Hunt]

If you want low cost living come to Thailand. Weather is warm year round (hope you like the heat) and lots of good cheap food.

Property prices have gotten really high lately, that said the 2BR 2BA condo in downtown BKK cost me $175K in 2005, still there and it's a convenient place to live. Same place is running about $275K USD now, that's a lot for 1000 SQ feet.

One thing to keep in mind- a house, especially the structure is really a consumable item. If you don't maintain it falls apart and the value drops.

The mentality of housing being an asset that only appreciates and that renting equates with throwing your money away was extremely unhealthy and just not true. Look at the houses in Detroit where people won't pay $1k to buy them- it's because the value is gone, the structure needs to be torn down and rebuilt, etc. Case in point that the housing structure is a depreciating asset unless maintained.

Raw land doesn't always go up, it's subject to appreciation / depreciation cycles depending on what is going on around the land.

Really it would be much better if people thought of their house as a shelter vs an investment.

-Mike

[Crystal]

I think of a house as a shelter with personality...I love being able to change anything I want without having to ask anyone to do it. And when we want to move, it will be worth something. Maybe it won't give us a return or even lose money, but it will be worth something. When we rented, it was just flushing the monthly rent and never seeing a dime of it again.

[Mike Hunt]

Hi Crystal,

That black or white mindset is not correct. Whether you buy or rent you are paying for shelter. While owning you have to pay for property taxes, upkeep, principle & interest. Usually renters can save more money than owners... of course some rentals have restrictions and you need to ask permission so there is a cost to change the lifestyle.

In the end buying or renting is ok but it's foolish to think that by buying you are not paying for shelter.

-Mike

[Old Limey]

Having been retired for 17 years here's another positive concerning home ownership.
We have known several couples where it became necessary for them to sell their home and move into an assisted living facility.
These facilities are generally on very large acreages, in attractive, scenic, and quiet areas, and provide a wide variety of group activities.
The reasons for moving are all health and age related and vary a lot from one case to the next.

Having an expensive home fully paid for is a nice asset to own when it comes time to give up all the responsibilities of home ownership and simplify one's lifestyle by downsizing into something much smaller. In all marriages one or the other will end up being the lone survivor and there will probably come a time when living in a group environment will be a happier solution than living on your own. If you have been a renter your whole life then you had better have a lot of other assets available to ensure that you can live out your life comfortably in whatever manner you decide upon or that your health dictates.

One thing that young people never think about is that the multi-story home that provided all the room they needed when they were raising a family won't seem nearly as desirable to live in if they have had joint replacements or developed other health issues that make going up and down stairs frequently very uncomfortable. We are so glad that we have a ranch style home now that my wife has two artificial hip joints.

[Crystal]

@ Mike Hunt
I said I think of it as a shelter! Did you even bother reading my post before calling me foolish? I like the fact that we'll get some money back when we move. How is that foolish?!

[Old Limey]

@Crystal
I think that for a young person you showed a lot of wisdom in buying a home and especially using a 15 year mortgage. It probably won't be your last home and just think, when it's paid off you will have a large amount of equity that will enable you to move up to your dream home if necessary. If you rented for 15 years what would you have? At most you would have the difference between what you would have spent for rent over 15 years and what you have spent in total for your home. In 15 years your home will be paid for and will certainly have appreciated, and you will haved saved money on income taxes, greatly adding to the benefits of home ownership vs renting.

I have only ever owned two homes - the first was purchased in 1963 for $26,950 and sold for $90,000 in 1977, the one we own now was purchased in 1977 for $107,000 and now at zillow.com is appraised at $1,100,000. It is a custom home on 1/3 acre and at the end of a very quiet court. We have improved it and maintained it in excellent condition. Now that our children have left we are enjoying it even more. The four bedrooms have become, the Master Bedroom, a Guest bedroom, My Office, and Grandma's room. The remainder consists of a family room, living room, kitchen, dining room, 3 bathrooms, 2 fireplaces and a 2 car garage.

Our real pride and joy however is the garden. I have poured my heart into it since we bought the house. We have a gorgeous Japanese style garden with a large pond and waterfall with many very large fancy varieties of goldfish, lots of red and green Japanese Maples, lots of ferns, and many Japanese lanterns, the latest addition being a huge imported Kanjuji lantern made of brown granite that weighs 800 lbs. On hot days we spend many happy hours in the cool shady area by the pond, or on the patio if we want the sunshine. On one side of the house I have a very large vegetable garden where this year I grew masses of heirloom tomatoes, zucchini, butternut squash, english cucumbers, red, yellow, and green bell peppers, carrots, beets, kohlrabi and herbs. On another side of the house I have fruit trees such as oranges, tangerines, plums, cherries, apples, & pineapple guavas. There is also a large rose garden and the vegetable garden has beautiful climbing roses on a fence on one side, about 100 roses in all.

Contrast this with apartment living and its lack of privacy, close contact with neighbors and their noise, nowhere quiet & private to sit outdoors or entertain, or nowhere you can get the satisfaction of growing things yourself.

Home ownership is more than 'shelter', it's more than acquiring a valuable asset, but it's everything about having a wonderful place that you can call your own. Our property taxes are restricted by law to a max. increase of 2%/year and utilities are very reasonable since our winters are mild and because of the cooling effect of the Bay and the Pacific ocean we don't need A/C.

At age 23, Crystal you are way ahead of the game! I once presented at an investment conference in Houston and I can vouch that there are many nicer parts of the USA to live so keep that in mind if you ever decide to move. I saw plenty of gorgeous homes in Houston and the people are very hospitable but the weather and scenery leave a lot to be desired. Parts of the West coast are really nice, especially the San Francisco Bay Area.

[anon]

Renting vs. Buying is a very complicated issue. In my opinion I think that unless proerty values are crazy and renting is considerably cheaper it never makes sense to rent. I have a townhouse in which I rent. I tenants pay $1250/ month. This covers P&I, Property taxes, Condo fees and Insurance. The Condo fees cover everything exterior ( roof, snow removal, windows,etc). If the tenants stayed and rented for 15 years the house is paid and I have an income generating property or can sell for a profit. What do they have? They could own for the same cost or even cheaper on a longer loan.I don't see how they benefit.

[Concojones]

@Old Limey: nice to hear one can keep a vegetable garden in CA! I always assumed it'd be too costly to irrigate, or is that impression wrong? Reason for my interest: keeping a vegetable garden is a fond hobby of mine (uncommon for young people, don't tell me!) and I intend to move to a sunnier climate between this and a few years, and CA is on the shortlist. (Lost my heart there, lol...)

[Old Limey]

Concojones:
The vegetable garden isn't a problem for water usage - lawns are what soak up lots of water if you want them to look nice in a climate that has zero rain in the summer. My vegetables are in 9 raised redwood beds, each one is 4ft x 8ft x 1ft with great soil and its own watering system, all on timers. I use 3/4in. PVC hoses with small emitters by each plant for most beds. For the carrots and beets I raise the hoses off the ground a couple of feet so that the emitters spray the whole bed. We live in an area where within 50 miles they grow fruit & vegetables that are shipped all over the USA so I am very selective in what I grow. There's no point in growing items that are inexpensive and no better than the supermarket. Salinas is the lettuce capital of the USA, Castroville is the Artichoke capitol, Gilroy is the garlic capital, and superb winter vegetables are grown all along the coast from Half Moon Bay down to Monterey. Heirloom tomatoes for example have qualities greatly superior to supermarket varieties but they have a very short shelf life and could not withstand commercial shipping and handling very well so I pick them only when I need them and pick just the ones that have reached perfection. There is a nearby restaurant that is in the Michelin guide that have their heirloom tomatoes, hand picked and delivered by a nearby grower that specializes in heirloom tomatoes. I attended a seminar by this lady grower and picked up some great tips. I took out my last plants today, they started producing on the 1st. July and have just ended.
Every year I learn a few things about growing vegetables and try to make each season better than the last.

[Crystal]

@Old Limey
Your house sounds gorgeous!!! Ours is obviously smaller and doesn't have as much garden room, but I love my Double Knockout Roses and Sun Proof Lily Turf. The roses bloom 9-10 months of the year!!! I'm trying to get a new Crepe Myrtle to take off...it wasn't in a great condition when I bought it, so it may take another year or two to get it really lush. It will be a vibrant bright red when it finally takes off...

We currently rent out the third bedroom for $500 a month to pay 2/3 of the mortgage, but after my husband finishes graduate school, we have plans for it to be a great guest bedroom/hobby room. My husband uses the second bedroom as his office/man cave...the place to escape when I can't see myself watching another college football game. :)

Since we've been overpaying the mortgage since we bought our home 2 1/2 years ago, it will be all ours in less than 8 years...I am sooooo looking forward to at least a few years with no housing payments!

And yes, I've seen a ton of nicer places to settle than Houston. My dad is a Civil Engineer for DOW and we've lived all over, including The Netherlands and Argentina. I've also travelled for work and loved San Diego while I was there. But, I married a native Houstonion who absolutely loves his city. Plus our families are around here too. I don't mind the idea of staying here as long as my hubby's cool with continuing our major trips every year. We are huge fans of Las Vegas and really enjoyed the Caribbean cruise we just took this last summer. Houston will probably always be our home, but I'll travel until I cannot possibly travel anymore!

Anyway, thanks for the words of encouragement! Also, I would like to thank you for all of your upbeat posts. I do love seeing what is possible with frugality and common sense!

[Old Limey]

Crystal:
You're quite a businesswoman! You seem like a power couple on a fast track to becoming wealthy. I really wish you all the luck in the world. It sounds to me as if your easiest path to wealth might be acquiring rental properties. If you can handle dealing with tenants it's a very good way to succeed and you don't have to deal with volatility like you do with the stockmarket. The depreciation, expenses etc. make great tax writeoffs. A few rentals and you may even be able to almost avoid paying income taxes. I had a beautiful rental condo for many years, a block from the beach, it is fully depreciated and has increased in value from $125K to $750K. I didn't want to pay huge capital gains taxes if I sold it, and we lost interest in going down there after the kids left home, so now my son, his wife and 8 year old granddaughter live there rent free, he is also doing a great job as the President of the Homeowner's Association.

San Diego would be my second choice after the Bay Area. We used to take our other granddaughter there every year and go to Sea World, the Zoo, the Wild Animal Park, the Scripp's Oceanography Institute, and Old Town, whenever I wasn't overseeing my granddaughter in the hotel pool. We stayed at the Sheraton on Harbor Island each year and had a great time. I keep trying to get her to do it again but she's 21 now and has other interests. Travel is one of our passions also, this year we went on a river cruise in the South of France, next year we're going to the Canadian Maritimes and then repeating a wonderful trip down the Rhine & Moselle in Germany. You're too young for river cruises, it's all seniors like us.
I will try to find double knockout roses, I had never heard of them but they appear to be available in our area, we have something similar that they call carpet roses but the blooms are much smaller.

[Crystal]

@Old Limey
My grandparents and I hang out at their place in the woods every month or so...usually taking a walk after a meal that definitely includes Bisquik. :)

I recently made a timeline of my maternal grandpa's life including places he lived, jobs he had, and some of the personal stuff in between. He even told me about some of the earlier family tree on his side. Interesting to say the least. Now I'll get my grandma talking...

Oh, I reread your previous post and saw that you thought I was 23. I'm actually 26, but you probably saw in a different post sometime that my husband and I bought our home when he was 23 and I was 24. Didn't want to mislead anybody...

Double Knockouts grow into a large bush but have smaller blooms than what I consider a "real" rose (like the ones you can buy by the dozen). I like them since they bloom so often, are disease and bug resistant, and are a bright pink/red. I love color!

[Concojones]

@Old Limey: you see, vegetable gardens as I know them are 1,000-1,500 sq ft --yes I'd grow even stuff I could buy in the supermarket, just for fun--, no raised beds. You might remember them from your youth in the UK. And a sq ft of vegetable garden probably requires more irrigation than a sq ft of lawn (depending on the vegetable - carrots and the like need a moist soil). But okay, I take away from you that a vegetable garden is entirely possible with a few extra measures, so that's good news. Thanks for the info!

[Mike Hunt]

Crystal,

Didn't mean to use the word foolish especially in your case as it's quite commendable to pay off your mortgage so fast and to take in extra money from a renter. The only words that got me fired up is "throwing my money away by renting." In many markets (usually the bubble areas on both coasts) renting is a more affordable option than owning with a lot less hassles. In Houston that is the other way around.

Best,

Mike

[Old Limey]

Concojones:
My father's vegetable garden in England was planted right in the dirt as you described and he grew vegetables to save money. During the war he had what was called an "allotment" at a local park and grew even more stuff because there was severe rationing in England. He also kept bees and chickens.

Raised beds are the way to go, they are sometimes called "The French intensive cultivation system" because the output from a raised bed far exceeds that of plants planted in the dirt. The main thing with them is that you can control the soil, fertilization, weeds, watering and soil moisture so much better than the old fashioned way.

When there's just two of you there's no point in growing more than you can consume. Our freezer is already full of items we will be using this Winter, such as stewed apples, plums & tomatoes, as well as many containers of various types of homemade soup. Our items are also healthier, just look at the amount of sugar and salt in items from the supermarket. Big Business has changed America's tastes for the worse by adding unhealthy items to their foods, hence the prevalence of diabetes and obesity compared with France for example, where people shop almost entirely in farmer's markets. Sodas need to be outlawed because of the ultra high sugar content and the addiction by young people.

[Jacob]

that's a great point. People must look, find and buy the houses that they CAN afford. Avoid the foreclosure by paying correctly all the debts is the most important step. People can do this just by choosing the right property, with the value that can really fit on their finance plan. I don't know why some insist in buying houses that they can pay in the future... It's a call for foreclosures!

[AdamCO]

old limey --

glad home ownership worked out for you. you had a 1000% return over 20 or 30 years.

unfortunately, those days are gone and won't be reproduced by someone young getting in the market now. the older generation sucked all possible returns out of their home to the point of crashing the market. life was way easier for you. you could move anywhere in the country and buy a home for 3 or 4 times your annual income, and your spouse didn't even to work. those of us in our 20s face $500/month medical premiums, $300/month student loan payback, and mortgages well over $1500 for a plain old house in a decent place to live.

i'm bitter, i guess. but from my perspective i see the older folks had things easy compared to where we are today. regarding housing, i see older people who worked menial jobs and were able to responsibly afford a house. they got older, bought cars and swimming pools with the gains from the "smart investment" and they constantly pat themselves on the back about. good luck working as a nurse or teacher and buying a house where i live. those who tried have or are being foreclosed on.

i don't imagine those in ohio or georgia can really relate. but in much of the country the kind of life the baby boomers enjoyed is impossible to anyone in their 20s or even 30s unless they have a trust fund.

i guess at the end of the day i don't need some baby boomer telling me i should pay ten times my income for the same house they paid three times their income for 20 years ago.