Picture This!

You’re 38 (the average age of a home buyer).

You have a household income of $120k per year (about ½ of households make this)

You buy a $500k home (barely above the national average) and put 5% down.

Which means you’re monthly mortgage payment is about $3,100/mo.

Even though after taxes you make about $7,000/mo (so almost ½ goes to your mortgage).

And even though you get a raise each year.

Your mortgage payment goes up too because your home value increases 5% per year (avg increase).

Which means that your tax burden increases (about $300 per year) and your insurance increases (probably another $500 at least per year).

So your monthly payment goes up about $70/mo. Which means you need to get a $2,400/yr raise each year to not be spending ½ your pay on your mortgage.

And that’s not accounting for repairs every year.

27 years later your 65… And you only have half your mortgage paid off…

How is this better than renting? Especially when you can rent for less today??

For reference, a 30 year mortgage under the same conditions would give you a monthly payment of about $3,450/mo.

So you save about $350/mo.

The New Status Symbol

If you read that and felt annoyed… Good!

The real way we fix the housing problem:

• Change local zoning so more single-family homes (SFH) can be built.

• Create incentives for builders to build homes that the average family can afford. The average new build is $720k today.

• Lower interest rates for first-time home buyers.

• Make it illegal for investors with over $X to buy single-family homes

Notice that not one of those solutions involved extending the length of time that American families should pay banks to live in their homes.

Today the new status symbol is a paid-off home.

Second to that is being able to say you have a 15-year mortgage.

Not a BMW, not traveling the world, not Gucci Belts and not whatever else people are wasting their money on these days.

Cool… I can’t afford a 15-year mortgage

I get it, if it were that easy, everyone would have a paid off home.

Here are some thoughts I have on how to make progress on this amazing status symbol.

Coming from someone who currently doesn’t have a paid off home… (we’re on track to have it paid off in 3-4 years)

1. Income matters

It’s going to be near impossible to buy a home with a 15-year mortgage, making $80k per year. Let’s just call it what it is. You need to be pursuing a career that can make $100k+ in the next 5 years. It’s ok to even take a step back in pay if it means more in the long run.

The areas I’d focus on:

• Sales

• Trades

• Software Engineering (coding)

• Digital Marketing

• Data Analysis

All of these have the ability to get you making $20k-$30k per month. Don’t require a ton of schooling, so you can probably pay out of pocket for any education needed. And all of these skills are in demand now/ going to be in the future.

2. Location Matters

I say this as someone who’s grown up in Vermont, lives in Texas with a wife who grew up in California.

You might want to consider relocating.

The difference between an average SFH in the Boston/NYC area and a home in New Hampshire or Michigan is easily $500k+.

The difference between an average SFH in California and North Carolina is easily $500k.

I’m just saying, there are so many amazing places, with amazing people living there in this country, that are more affordable than where you live today.

What would your quality of life look like if you had an extra $2k/mo leftover?

3. Spending Matters

That same mortgage I mentioned in the beginning. If you chose to go with a 15-year mortgage, the monthly payment would be about $4,600/mo.

Now that’s assuming you put $25k down.

What if you didn’t have that $400/mo car payment, that $300/mo credit card bill, and you cut back on a couple of things that really didn’t matter?

I understand that at a certain point you can’t cut back any further. Which is why you need to seriously consider points 1 and 2.

But if you can manage to save up an additional $25k, you will lower your monthly payment by $200.

Putting it all together

Now let’s say you take this year to shift careers. Position yourself to have a household income of $150k in the next 3-5 years.

While at the same time focusing on areas where you can find a house suitable for your family at $400k.

And you follow a strict budget that enables you to put 10% down.

Now you’re looking at a 15-year mortgage with a monthly payment under $2,500 per month while also bringing in close to $10k per month after taxes.

Am I simplifying this? Yes.

Does the housing market stink right now? Yes!

But I want you to see that there is still a light at the end of the tunnel.

And! Most people aren’t going to do this. So if you have a little fight in you, this is actually totally doable.

In case you don’t believe me, here are live listings in Austin.

That’s it for this week!

Hope that was helpful.

As always, please reply with questions. Happy to have a discussion over email any time!

Best,

Dan