The price of a house on the market has a pretty simple formula: it's what two incomes can pay per month times the interest rate they expect over some horizon, and the expected monthly pyament of the principal (if any).
Where I live, I can stop paying back the loan when the loan is under 70% the valuation of the house, so it's then interest-only after that. And of course there are better uses of money than paying a mortgage: in recent history the stock market has been booming while my mortgage is under 1.5%. Whenever I have €1K lying around, I'd certainly not want to pay back 0.1% of my mortgage when I can save it instead.
If you must do this, then don't use the money on moonshots and pick something with low volatility.
Even if you don’t invest it, if you have other credit (car, credit cards) obviously paying those first is always a better choice too.
Many utilities give an 8-9% interest rate on bonds, with very little risk (Comcast isn't going bankrupt soon). That said, there's no such thing as zero-risk arbitrage.
Why bother?
Renting a house is more or less unheard of. If I want a house I need to buy one (or: “rent from the bank” as it were)
And the market price is basically “what two high income earners can afford if they pay interest only”.
So: if I want to live in a house at all, I need to buy it using borrowed money, and in the window I expect to live in a house (say 10-25 years) I couldn’t make a large dent in the principal regardless, because of the extremely low interest rates (around 1% now for mortgages) and the high prices that come from that. I don’t like it, but I don’t have a choice.
Also regulations strongly favor buying with borrowed money over renting. Interest can be deducted while those who rent from a landlord obviously pay interest too - indirectly through their rent - but in their case it isn’t deductible. So anyone who is forced to rent (e.g because they can’t afford the huge 15-20% down payment or aren’t paid enough to get the mortgage) is pretty much subsidizing the tax deductions of those who take mortgages.
I have a few older friends kicking themselves for not buying a property when they could afford it, rents have risen and there is a very real prospect that they will have to move out of the community they spent their lives in.
If not even this is enough to pursue home ownership, what kind of people are able to afford a house? Honest question.
Old houses belong to older generations, and new houses are bought by rich people. Young people don't stand a chance, for some cities even not with a lifelong mortgage - unless they live in countries like Singapore which explicitly tackled this problem.
You might remember American Standard advertising toilets that we re-engineered for efficiency by aerospace engineers. There's a reason why late-90s aerospace engineers pivoted to toilet architecture. (Hint: Not a passion for the throne.)
No, not really. Unlike in the US, other professions still make more to much more. Engineering pays same to slightly more. Tenured professors make more than most SWEs, but there are some SWEs who make more than that. Lawyers and notaries make much more. Doctors of course make much more. I bet architects make more as well but this one I have not checked. Any credentialed financial job makes at least as much. Managers in any industry will make more than any typical SWE (being a manager is how you typically break into the six figure range). But to answer your question, mortgages are affordable and most people rent.
But this is one of the most expensive cities. You can be lucky and be living in a small town 50-100km outside and if you don't have to commute daily, it's completely reasonable to buy a house (on rates) in your late 20s.
The kind where both partners have top jobs (less common) or receive inheritance (most common).
Only people who bought a decade ago, work in Finance or as a notaries or sold shares in a successful startup can afford it.
- People with 30+ year mortgages
- People living in the middle of nowhere who will work at the same crappy company for the rest of their lives (or lose everything when they are let go)
- People who commute 2h per day
- People who inherit at least 100k
- People who bought their first house 10 or 15 years ago and now think they're invincible because real estate prices have exploded
2- By taking painfully long commutes to cheaper locations.
3- By living with parents/partner. This is not an option for most people, but probably what makes moving to a job a difficult situation.
> what kind of people are able to afford a house?
Apparently, half of Germany can't afford a home.
- https://www.statista.com/statistics/246355/home-ownership-ra...
Yeah, nobody can. At least not without a huge mortgage. That's why house prices are one of the biggest political issues in Europe.
Munich, 28m2 flat, 1 room, built in 2019, price 720.000 EUR, location: right under the train tracks between inner and middle ring.
That's 25.000 EUR/m2 for a hole under the train tracks.
Old 100m2 flats between midle and inner rings go in munich for 1.5 million EUR if they are old and destroyed, and well over 2 million EUR if they are relatively new (2.5-3 million).
That's 15.000/m2 for old buildings requiring repairs and 25.000-30.000 EUR/m2 for new buildings.
So at least for Munich you are off by more than a 150x factor.
Saving 20k/year doesn't even give you 1m2 per year.
If you do not inherit a good amount of money or earn incredible well (like >100.000€) you will forever be a "poor" man in Germany or you can sell your soul for a house and pray that you earn enough till you retire to pay back your mortgage. Taxes are just too high and income too low...
This. I'm a freelance here in Berlin and I pay 950 Euro/month for the (public) health insurance. The insurance covers only myself, while my kids are covered by my wife's health insurance, which is another 800 Euro/month (half covered by the employer).
Note that before moving to Germany I was living in Switzerland, where I had a private insurance that was WAY cheaper that the German public one and had all sort of perks.
I'm currently looking for a house in SW Germany, near the french border. I'd be happy if prices would max out at 2000€/m². I can not renovate a full building (both time and skill-wise), so - including necessary improvements - houses we're looking at start at about 1800€/m² and surpass 2200€/m². And we're not talking about "center of town" here or even "built after 1990". More like "neighboring municipality" or "no way I move so close to the Autobahn Zubringer". Obviously Munich or Berlin are much more expensive, and "middle of nowhere" (like in "also no or little tech jobs") is cheaper.
But anything marginally close to a railway track, Autobahn or federal road or any bigger city at all is far more expensive.
That town is pretty much "Arsch der Welt", though they now have 50MBit/s internet since a few years. Next city (a small Kreisstadt) has multiple super markets and is 20km away. Mobile reception in the town is okay, I think they just skipped 3G for a decade and now partially swap 2G for LTE. Public transport to/from the Gymnasium [45m bus drive] is three times a day: Going there in the morning, and returning for 13 and 18 o'clock (so pupils can get to and from school for both the regular 6 lesson days and the longer 10 lesson days). For anything else you need a car; an electric car might work, since for most interesting hacker jobs you only need a total range of maybe 150km per day (outliers in both directions apply). OTOH, even if people might seem a bit skeptical of newcomers at first, they turn out to be super friendly. After all, it's easy to know everyone by name if you're just 250 people.
Where I live (Saarland) the "Bodenrichtwert"[0] alone is usually between 80 and 120 Euro for the "affordable" areas I looked at. So little chance getting more than a ruin for 100 Euro/m².
[0] For non-Germans: The "Bodenrichtwert" is the average price per m² of "raw land", that is, excluding improvements like houses. It is updated every 2 years to include recent sales in an area.
That's like buying an utterly broken, old Porsche for scrap value and then wondering how repairs like a new engine and a new $everything are costing you a fortune.
I ask that question and I make now nearly 6 figures.
Before it was passible to buy a flat and pay it off, now prices are where you wanna sell it in 30 years or so.
German mortages are known for the requirement to bring plenty money of your own.
- House price: 450K euro
- In Europe you usually need around 30% of the house in cash (20% for down payment and 10% for paperwork and the like). This means you need 135K euro saved. Saving 18K euro/year => you need to save money for 7 years
- Now you get a mortage for the 70% of the 450K euro (315K euro). Now depending on how much you want to pay every month, we get different outcomes. Let's say you are willing to pay 1500 euro/month of mortage: this means (roughly) you will be paying your house for around 17 years
- This all implies you will be earning 60K euro (or more) per year over the next 24 years of your life. Let's say you are at this moment 25 years old, so you'll get your house paid when you are 50.
This is the panorama for people who are supposed to be the top 10% tier in the society (in terms of gross income) in a country like Germany (but applies to any other western European country as well). Not bad, but not good either.
According to this statistic[0], that should be 39.1% (numbers are for net income, but top two brackets should fit 60k gross income). In a household with two working people that both have semi-decent jobs you'll have that (and with tech job + basically any other job, you'll beat that).
> Let's say you are at this moment 25 years old, so you'll get your house paid when you are 50.
Yes, that sounds about right, and from what I can gather isn't too different from how it worked in my parents generation. What do you expect? That you can pay off a house in 10 years?
[0]: https://www.bpb.de/nachschlagen/zahlen-und-fakten/soziale-si...
That being said: after the war, housing was destroyed and had to be rebuilt, nowadays it's there already (and more than enough if I look at my family and others around us). The only problem is that now one doesn't need the lower third of incomes to build it and so it has become a playground for financialization games which basically make sure that wealth will steadily be reallocated one family with too many kids at a time...
10% down payment is quite common currently in Germany for a house.
The interest rates are just so low that waiting to get a loan and buy a house is mostly money lost by not getting that stupidly low interest loan.
In the UK, you wouldn’t pay more than a few thousand for a lawyer and associated conveyancing fees, and the vendor pays the realtor (usually in the range of 0.5-1.5% I believe).
We do have stamp duty (tax) which can be substantial eg 15,000 on a 500,000 property.
I swore to my wife that I'm not paying almost 20K to the person giving me a tour of a house.
Seems like selling houses might be a better job than software.
I can see a scenario in which inflation rises and increased mortgage rates deflate the current overvalued housing market.
I'm not looking at any undetermined future point in time, if I'm ranting about housing prices it might be not unrealistic that I'd like to buy one in the next few years - and I've seen absolutely zero indication that the prices would suddenly drop by 20-40% to the point where I'd call them reasonable, like 15 years ago.
https://www.interhyp.de/ratgeber/was-muss-ich-wissen/zinsen/...
The incredible increase in house prices tracks a dramatic decline in interest rates. Interest rates were at 1% last year, below inflation! I have no idea how interest rates will change in the next few years, but I do know they will not decline at the same rate as over the past 10 years. As soon as they go up, the prices will decline.
Things will be different on the far future. The exact point when it will change is a matter of speculation, and all the warnings about timing the market apply. You implied a high certainty that nothing will change, ever, and talked about 15 years things.
There is a high likelihood that nothing will change in 5 years (even though COVID19 reduces those odds a lot, because a bunch of people just died). And there is very high likelihood that things will change a lot in 40 years. Time things at your own risk.
Don't believe the hype. The average developer salary is enough to feed a family of four, you just won't be able to buy a house in a sought-after suburb on a single salary.
This money also has to be paid upfront, and so is yet another hindrance for young, first-time buyers.
That's the only way.
> On the other hand, if you choose to go the student-like route (living in Wohngemeinschaft and not eating out too much), you can easily manage with just 1.200-1.500 EUR per month, and save the majority of your salary.
I know it may be an unpopular opinion, but saving 18K Euro/year leads you nowhere (first world problems, I know) if you would like to buy a decent house (not flat) in the suburbs of a medium-size German (or western European) city. Decent houses cost around 450K Euro (or more).
Edit: Let's start a revolution :) https://news.ycombinator.com/item?id=26903194