My Dad was a CPA/banking consultant that spent a lot of time in a world where bankers had to worry about people repaying the money they'd lent them, and one of his insights was "Try not to borrow more than 2X your gross when you buy a house if you can get away with it." It'd been his experience that if you borrowed more than that, you'd have a hard time finding enough money to pay for everything else and have the peace of mind that comes along with consistently earning more than you spend every month.
This rule of thumb was from a different banking/interest-rate environment, but between a respect for my Dad's intelligence and wisdom, doing the math myself, and having a lot of early second-hand exposure to the downsides of financial risk/overextension soon after college I was determined not to buy until we had 20% down, plus escrow/closing, plus a six month emergency fund on top of that - and wouldn't be borrowing more than 2X our annual gross. It took a while, and we ended up not being in a position to buy until I was 40, but eventually got there - mostly because we had the good fortune to be in the market a few years before the present insanity took hold.
What's been confusing to me as an observer is how everyone else is making it work. The monthly nut from the mortgage is low enough that we still have enough money to cover retirement savings, college-savings, health/life/disability/home/auto insurance, car-expenses, vet-bills, dramatically higher property taxes, etc, etc, etc, etc and generally have enough money left over at the end of the month to add a bit of buffer to cushion the blow any time we've been hit by an unplanned expense related to the house, which has been often.
We tend to keep our discretionary spending relatively low, do all of our own yardwork, DIY projects around the house as much as possible, build furniture instead of buying it when possible, stick to PNW centric camping-type vacations, repair appliances/lawnmowers, etc ourselves yadda, yadda, yadda . Having said that - the *only* reason everything pencils out at the end of the month is because we kept a lid on how much we borrowed for the house.
When I see homes going for well north of 1 million dollars in the totally generic Lynwood-area suburb that we live in, I find myself asking - "Are *all* of these youngish couples grossing well over $400K? Are they putting away any money for retirement?" Even if the answer to both questions is "yes," I find myself wondering how that could possibly explain what's going on region/population wide, and how the median couple are covering the monthly nut and keeping a positive balance at the end of the month. Are people just redlining it, throwing caution to the wind, and putting all of their eggs in the housing basket? Is everyone earning vastly more money than the median income/wage stats would have you believe? I've mostly given up trying to make sense of it all, but it's hard to shake the feeling that Herb Stein's dictum that "If something can't go on forever, it won't" will be vindicated sooner than we think.
