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My Own Personal Housing Affordability Crisis

Updated: Dec 14, 2023

Starter home in Watertown
The house I almost bought in 2021

If you're anything like me, you're kicking yourself for not buying that three-bedroom, two-bathroom starter home in 2021. You thought to yourself (as I did), "There's no way I'm paying that much money for a house on a busy street, with a 1980's kitchen, no A/C, and no bathroom on the main floor. I'll wait until the market is less "frothy," and prices will come back down."

Well, that was two and a half years ago, and prices still haven't come down. In fact, now I realize that the home price doesn't even really matter as much, and I should have been much more focused on the monthly payment. After all, it's not like I was going to write a check to the seller for $750K. I was going to take out a mortgage, and at the time, the interest rate on a 30-year, fixed-rate mortgage was a little under 3%. My wife and I were prepared to put down 10%—$75K—which we had saved up over the past couple of years, leaving us with a $675K mortgage. At a 2.94% interest rate, our monthly payment would have been around $4,100, of which $2,800 would be principal and interest, and $1,300 would be property taxes and insurance.

That seemed too expensive for us (we do live in Boston, one of the most expensive cities in America, and my rent today is $4,100/mo. for a two-bedroom apartment), so we decided to "wait out the market."

Fast-forward to today, and the same house is worth (according to Zillow) $950K. And what is even worse is that interest rates are now much higher than they were in 2021; a 30-year mortgage today would run me about 7.6%. So that's about a 4.6% increase in the interest rate and a ~25% increase in the home's value. If I bought the home today, put down 10%, and took out a new mortgage at prevailing rates, my monthly payment would be $7,700—NEARLY DOUBLE what it would have been had I bought in 2021!

It isn't like my income has also doubled. In fact, it's essentially the same, except now we also have two kids whose daycare costs us $6,500/mo. (yep, that's Boston for you).

Daycare aside, if I want to keep the same $4,100/mo. mortgage payment I would have had in 2021, then today's interest rates are effectively reducing how much house I can afford. Specifically, a $4,100 monthly payment at today's 7.6% rate means I can afford to buy a home worth no more than about $500K. That's $250K (33%) less than I was willing to spend in 2021, when my family was half the size and real estate was 20% cheaper. Here's a place for sale down the street from where I currently live: It's a 502-sqft one-bedroom apartment. Nice, right?

Okay, so we've established that I'm basically screwed. I missed the boat in 2021. I could have had a ridiculously low iterest rate on my mortgage, but nope, I was convinced home prices would come down, and I took those low interest rates for granted.

As I see it, I now have the following options if I want to someday own my home:

  • Somehow make way more money so I can afford a bigger monthly payment

  • Move to a place where a half-million dollars buys a lot more than a one-bedroom apartment

  • Continue renting and wait for an indeterminate amount of years or decades hoping that interest rates and/or home prices eventually drop enough that I can afford to buy

  • Find a home financed with an assumable mortgage

More on this last option soon...

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