Recently, I saw an article on CNN Money that looks at the stories of six people priced out of their housing markets. Many of these folks are looking in urban areas on the coasts. As you might imagine, it’s hard for many of them to find affordable homes to buy in these areas.
As I read the stories, I noticed that many of them upped their budgets after facing the realities of what homes would cost. So, instead of sticking to a $250,000 budget, or $450,000, they were increasing what they would be willing to pay to $300,000 or $500,000. Many stretched the budget by $50,000 in order to afford the homes they were looking for, in the areas they preferred — and they still aren’t getting anywhere.
It seems clear that many of these folks aren’t going to be able to buy homes in their preferred areas. Some of them talked about moving to lower-cost areas, while others dismissed the idea of moving to the suburbs, or moving to states with lower costs of living. As I considered the situations, it occurred to me that we place a great deal of emphasis on where we live, and what we want, but we don’t always consider the affordability. You must also think not only of the monthly payment but of the extra costs, such as utilities, homeowners insurance and mortgage protection insurance.
What’s Important to You?
The old real estate mantra is location, location, location. And location really does matter when you consider whether or not you will be happy somewhere. You need to figure out what’s important to you. Many of those in the CNN Money story thought it important to live in urban areas, close to entertainment and cultural options. If you make that a priority, you need to be prepared to pay more for your housing.
But, on the other hand, if you pay more for your housing, will you be able to afford those cultural and entertainment opportunities? You’ll be house poor. I know people who pay a lot to live “near the action.” However, they rarely get to take advantage of the opportunities because almost everything they make goes toward necessities. It’s not just housing (which can be more than 50 percent of monthly income); food and utilities cost more in these areas. In fact, I’ve been able to do more in New York City than a relative of mine who actually lives there. He can’t afford much beyond rent, food, and utilities — even with a roommate.
He moved there for the excitement and for the chance to go to Yankees games and eat at good restaurants. He has yet to do any of that; but I’ve been able to enjoy all my trips to New York because I live somewhere with a low cost of living. I may not live in the center of the action, but I get to enjoy it more when I’m there.
What’s Your Quality of Life?
I know a lot of people who think only in terms of higher salary. They move to an expensive area for the higher pay, only to discover that, even with the higher pay, they can’t afford it. Quality of life diminishes as they try to live close to work. And, of course, if you move to a cheaper, outlying area, you have to give up some of your time in a commute.
For some people, all of these tradeoffs are worth it. There are those who like to live in expensive areas, and can make it work. However, there are some who discover that it’s not all it’s cracked up to be, and they find that the quality of life is unexpectedly low. It’s important to look at your own priorities, and realistically evaluate a location before you decide to move — even if you are getting higher pay.
Compare the cost of living to where you are now, or where you could be if you moved. Consider what else you could do with the money. I have a low cost of living where I live, which provides me with the room I need in my finances to travel to different places, and not worry too much about the cost. I enjoy where I live, since there are cultural and entertainment opportunities within an hour or two, and there is public transit to help me get there cheaply.
Don’t just think about salary, and don’t just consider the location. Think about how they interact with each other, and consider what you might expect, as well as how you could improve your quality of life with a few changes.