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I have written several times that I don’t use spreadsheets or budgets. However, once when buying our first home I spent endless hours with paper and pencil trying to determine if we could afford a house and for how much?
It was 1971. I had gotten out of the army 18 months before and we had one child. Connie stopped working in July 1970. Mortgage interest rates were about 7.5% and you needed a 20% down payment.
I drew a grid on a piece of paper. One side had monthly mortgage payments and the other monthly property taxes. The idea was to look where the two intersected to see what we could afford. We agonized over the grid for months regularly concluding there was nothing we could afford.
Our income that year was $12,575. The current median household income is estimated at $78,171.
Nevertheless we kept looking for a house. We found one that seemed ideal. The ad said it was $25,000. When we called we were told it was a typo, the price was actually $35,000 – the grid didn’t work.
The current median home value in the US is $318,124. Where I live it’s about $580,000.
The next house we found in the same town was $29,000. The grid was close so we took a chance and bought it, struggling a bit each month with the payments and wiping out our cash for the $5,800 down payment.
Actually we were helped by Veterans college benefits. They were based on my number of dependents and the VA benefits exceeded the cost of my night courses so the tax-free difference helped pay the mortgage for a few years.
The house was built in 1918 as attested to by the newspapers stuffed into the walls for insulation. The furnace was oil converted from coal – a fair amount still in the coal bin. But we had our dream home or so we thought.
After all, there was a fireplace in the dining room, a detached garage, a new oil burner and all the amenities of 1918. Turned out the fireplace was fake and stuffed with an old blanket, the garage was about to fall down and the oil burner so old that when it stopped working that winter it couldn’t be fixed. Many windows were broken and nearly all cords and weights were broken so windows would not go up or down – 1918 remember. There were no home inspections required back then and nobody cared about the oil tank in the basement.
We were two young apartment dwellers looking through rose colored glasses. But we made it work – until we were about to have our fourth child and one bath wouldn’t cut it, so four years later we did it all over.
I made a new grid. The mortgage rate in 1975 was 9.5% so the old grid didn’t work.
The “new” house was built by the owner in 1929. It had a converted coal furnace, the oil tank was under the driveway, quite regrettable when we sold the house 43 years later and moved to our condo, but the fireplace was real and although the garage leaned a bit, it’s still standing.
Compared with the house buying and moving experiences of many people we are pretty dull. We never lived in a actual new house, we moved – a mile and a half away – once. We never had a family room, master suite, walk-in closets, or laundry room. Our basements were unfinished and spooky.
We were focused on living within our means, perhaps less. We made it work on one income by choice. I like to think that lifestyle allowed us to pay for college, eventually buy a vacation home (we rented it in the summer) and to accumulate a pension – staying with one employer – and assets that allow us to live in retirement as we choose and where we choose.
Our life has been pretty dull by most measures, a bit old fashioned in fact and definitely not one that younger people, not even our children, can relate to.
People see us at our destination in retirement, but not on the road toward it.
NOTE: as is clear from the numbers above the ratio of income to the cost of a house has changed significantly. At the same time the size of homes, the amenities included has also risen because Americans demand larger and more. That in turn has raised prices for older homes such as my original houses. In addition, government policies have encouraged home buying creating demand and even today a house can be purchased with a minimal down payment, even 0% in certain cases.
Gee, those were the days. I got out of the USAF in Jan of 1972 and by the middle of 1973 we were within a couple of months of the birth of our first child. I think I was making about $775 a month and couldn’t qualify for any kind of new loan. My wife was no longer working, nearing the end of her pregnancy. We found a home in Fremont, CA that was for sale. It had an existing FHA loan, and in those days if you had enough cash you could assume the loan without any qualification. During my four years as an officer in the AF, my wife had worked and we had really saved our pennies. We ended up buying the house for $29,200. The loan we assumed was at 5.75%, and making the payments took half of my monthly income.
This home had 1150SF and had been built about 1960. In looking at homes one of my mandatory requirements was that it be in good shape and not need any repairs for a while. It had 3 BRs and 2Ba, and no family room. For us it was great. A few months after buying I got a nice raise, changed jobs in the company, got a company car and life was pretty good.
Four and a half years later, I had been promoted, we had a second child, and wanted a house with a family room. We found a home just a few blocks away. We were able to sell our existing home for $62,000, and the new 1500SF home was $68,000. And as I was making more, I was able to qualify for a CALVET loan which was at a subsidized rate of 6.2%, much below the market.
Nearing the end of 1979, I got promoted and transferred to Seattle. We had one 4 day trip over Thanksgiving to fly up and find a house. The company would have bought my home in CA, except that the market was still hot, and we quickly sold that home for $92,000. We found a new home in a new development which had 2500SF that we bought for $99,000. We still own this one.
I just looked at Zillow and our first home is now valued at $1.4M while the 2nd is at $1.6M. Despite these numbers, I don’t believe that houses that you live in are investments. The California numbers aren’t representative of much of the US. And, while $1.4M sounds like a lot it represents a 7.9% return over 51 years. The real return after taking out the costs to maintain it and pay the taxes would be much less. None of my neighbors from 51 years ago doing the same kind of jobs today would be able to buy their old homes. Only a pair of tech workers each making $200k+ could afford the $9000/mo payments for an 80% loan.
I love reading your articles, Dick. Doug and I were about ten years behind you and Connie in our home-buying experiences and moved much more, but I can still relate. We purchased our first home in 1981. It was built in 1928, cost us $67,000 and the interest rate was 14.75%. It was a small house in a very nice neighborhood, so when we sold it ten years later, it had appreciated so much that we were able to pay off the mortgage on a second home we had purchased in a lower cost part of NYS and live mortgage-free in that other home (at least for a while, until the move after that)…
Both my parents and in-laws owned 2 homes in their ~50 years of marriage. They both had inner-city Philadelphia homes, and then moved to the suburbs in the 60s. Both my parents died in their home (actually Vicky and I had bought the home in 1994 and they stayed with us). Vicky’s dad died in his home; her Mom later moved to a series of facilities – first independent, then assisted, and finally memory care. Her Mom moved in with us for her last few weeks and died in our home, the same one my parents died in. All in all, my family owned that home from 1965 to 2021. My parents bought it for $22,000; we sold it for $475,000. Lots of memories in that home.
Oh the good old days when people had a 20% down payment and rarely suffered foreclosure.
Of all the relatives I grew up in the biggest house. Mom was so proud of our big house. I thought our house was big. Looking back the house was actually only 1450 square feet.
They bought that house in 1952 for 12k, paid it off in 10 years, and lived there for another 40. That’s sure not how we do things today
Indeed it isn’t. I grew up in a one bedroom apartment with my parents and two sisters. My parents couldn’t afford a house until my father was over age 60.
Good post. I really like the thought “People see us at our destination in retirement, but not on the road toward it.” That’s so true.
We too lived below our means, although that was hardly heroic, on a physician’s income. We have owned 5 homes sequentially, and lived in the current one since 1988. I suggested to my two adult sons that the maximum mortgage amount they qualify for is not necessarily what they could afford. I advised them that in addition to the monthly mortgage payments including property taxes and insurance, they should deposit cash into a personal escrow account they can tap for unpredictable but inevitable future out-of-pocket costs for repairs and maintenance. I suggested this should be 3-4% of the current house value annually. Our financial goal was not to become wealthy per se, but to achieve financial independence and security. Now entering our seventh year of retirement, we are comfortable and can easily balance spending on necessities and luxuries for ourselves, along with gifts to family.
Moving five times is pretty scary to me.
I mis-typed. It was four houses. Starter home in 1977, a better one in 1978, third one in California for residency in 1985, then returned home and moved into our present home in 1988.
During our 47 year marriage, we moved nine times: 3 rented apartments, two rented houses, four purchased houses and one stay with our son and wife for a year in their house. I sure know how to pack, and to downsize! 😄