Why Is United States Property So Cheap Compared To The Rest Of The World?

United States property is dirt cheap compared to other international real estate markets. The sooner you realize this fact, the better for your happiness and wealth. Since COVID, the U.S. stock market has been a huge outperformed compared to the rest of the world. Foreign money will pour back into the U.S. Therefore, you had best accumulate your fair share of U.S. real estate now before you get outbid by a foreigner.

One of the biggest conundrums today is trying to understand why the mass media and housing activists keep droning on about how expensive the United Stats property market is. When in reality, U.S. property prices are amongst the most affordable in the developed world.

Actively Investing In U.S. Sunbelt Real Estate In Particular

Cheap US property is why I'm actively investing in real estate crowdfunding deals all across the country. Cheap US property is also why I will hold onto my physical real estate until my children become adults.

Anybody who has actually spent time house hunting in Hong Kong, Singapore, Tokyo, Mumbai, Paris, London, Zurich, Stockholm, Sydney, Vancouver, etc. realize how cheap the U.S. is, including our post expensive cities, San Francisco and New York City.

Do you think I'm just going to London to eat strawberries and cream at Wimbledon? Of course not! As a personal finance blogger who writes from first-hand experience, I'm diligently pounding the pavement to research the truth to share with all of you.

One of the reasons why the housing market will continue to stay strong is because foreign capital will wisely try and buy up cheap United States property. Capital is fluid and capitalists are always seeking the best values around the world.

Look How Cheap United States Property Prices Are

If you don't believe how cheap United States property prices are, have a look at this chart by the OECD (The Organization for Economic Development And Co-operation) as of 2021.

Why is United States Property so cheap? real house prices across the OECD

America is one of the richest countries in the world. Yet, America doesn't come close to having the most expensive property in the world. With a median home price of only $340,000 in America, American property is very affordable in a country as big as ours. In 2024, the median U.S. home price is closer to $420,000, still quite cheap.

What makes New Zealand equal to United States property? Is the country's natural beauty, Lord Of The Rings, and fluffy sheep that valuable? New Zealand is the 69th largest economy in the world by GDP. No, it's clear that New Zealand property is in bubble land compared to United States property.

It makes no sense the 69th largest economy in the world has the most unaffordable real estate in the world according to the OECD? There must bee tremendous amount of policy mismanagement in the form of building restrictions, loose foreign investment regulations, and corrupt government officials who love receiving money under the table.

I'm not saying that all this shady stuff is happening in New Zealand, since they're consistently ranked one of the least corrupt countries in the world along with extremely expensive Denmark. I'm saying that something artificial is happening to cause such a pricing disconnect. Why else is there traffic around a toll road?

Why are Turkey, Hungary, Iceland, Mexico, Canada, Portugal and China more expensive than the United States? The GDP per capita in China is $10,300 versus $48,000 in America. American real estate is cheap relative to income.

Top 1% net worth per individual in America and in other countries 2024

House Prices To Rent Prices By OECD

Another way to demonstrate how cheap United States property is is by comparing house prices to rent prices. Once again, United States real estate is cheap in comparison to many other OECD countries.

Although United States property used to be cheaper on a global scale just five years ago. In the chart below, United States real estate is in the bottom third.

price to rent ratios by country

When prices are out of whack, a tremendous amount of social inequality occurs. When there's enough social inequality, a revolution isn't far behind (see Brexit, Trump, etc). The housing market will likely stay strong for years to come. It's up to you if you want to invest or not.

Platforms like Fundrise make it inexpensive and easy to do so. Personally, I've invested $954,000 through platforms like Fundrise to invest in the heartland of America.

Now let's take a deeper look at why the media continues to believe United States property is unaffordable. It sure seems like the media as an agenda and isn't looking objectively at the situation.

Biased Mass Media Manipulation

Why media has housing wrong

Take a look at this SF-based Wired magazine tweet. You don't have to read the article because it is the same populist verbiage about how it's becoming increasingly difficult for the middle class to afford homes now.

The magazine even goes so far as to write, “A family that makes $100,000 can't afford to buy a house in most U.S. cities.

Are you kidding me? The median home price in America is around $340,000 today. Let's say you put down a typical 20%, or $68,000. Your $272,000 mortgage at 3% is $1,147 a month. Let's add another $200 for property taxes and maintenance for good measure.

Is Wired saying that a household who makes $100,000 gross, or $80,000 after taxes, can't afford $1,347 a month? $80,000 net a year equals $6,667 a month before any 401k contributions. Spending only 18% of your net income on housing is affordable. 

Even if this household only put down 10%, a $306,000 mortgage at 3% still only costs $1,290 a month. Mortgage rates are very low today, which is why everybody should refinance if they haven't done so already.

I personally refinanced to a 7/1 ARM at 2.125% during the pandemic. I'm now paying less in mortgage payments than I was 10 years ago. Check out Credible, my favorite mortgage lending marketplace for no-obligation quotes.

Myopic Point Of View Regarding United States Property

Now you know why there's such distrust in the mass media. Either the writer at Wired magazine is incompetent, doesn't understand basic economics, or the writer has an agenda or all three. One of the best media strategies is to tap into populist angst to make life better for themselves. The more enraged the population, the more views the article will get.

The great irony is that those people who can afford to go into the journalism industry probably don't come from poor families. If you were poor, you'd study an in-demand major like engineering or computer science so you could land a well-paying job out of college and help support your parents who sacrificed so much for you! Only the well-to-do can afford to study a soft major and willingly enter a struggling industry.

Besides having a populist agenda, Wired magazine is also disrespecting all of you who don't live in San Francisco, New York, Seattle, Miami, Boston, Denver, Los Angeles, San Diego, and Washington D.C.

That's right. If you guys don't live in one of the 10 most expensive cities in America, those of you who live in the other ~4,000 cities with over 10,000 people don't count. 

What Wired and other media organizations writing about unaffordable housing are really trying to say is:

Families making $100,000 a year have a difficult time affording a home in the top 0.01% most expensive cities in America.

or

Because I can't afford to buy a home where I work and live, most people can't either.

Talk about being myopic. It's interesting how the largest media organizations in America who like to complain about high real estate prices are mostly based in New York City, Los Angeles, Boston and San Francisco. Their writing clearly ignores the 50% of you who do not live where they live.

Being biased is unavoidable. It's why organizations are so homogenous in their demographic makeup. I’m proud of most journalist who seek to report the news in a just manner. I’m annoyed at biased media who conveniently ignore facts, such as income and job growth as a reason for a fundamental rise in prices.

To consistently ignore the heartland of America is INSULTING. The brazen disregard for half of America is exactly why Hillary lost.

Why Some Americans Don't Understand How Good They've Got It

Here are reasons why I think Americans don't realize why United States property is so cheap. If Americans knew how cheap U.S. property is, they'd buy a lot more. At the moment, foreign real estate investors are buying up U.S. property.

1) They believe everything they read by the mass media.

If you live in one of the most expensive cities in America and only earn $48,000 a year as a journalist, then of course you're going to write about how unaffordable housing is, and extrapolate your situation with your company's platform.

If you start believing everything you read in the news, then of course you're going to take on their biases. Instead, it's up to all of us to read with a more critical eye. Be just as critical with my writing as well.

2) They haven't traveled around the world. 

Once they get outside the country, they'll realize how truly awesome America is. Everything from real estate, to cars, to gasoline, is so much cheaper here in the States. Do you really want to pay $85,000 for a Toyota Corolla in Singapore? Do you really want to pay $1,500,000 for a 500 sqft studio in Knightsbridge, London?

If you don't have money to travel to London or Singapore to see how truly outrageous prices are, just surf the web and see for yourself. Supposedly, only 60% of Americans own passports.

3) They're too lazy to do any research.

Even surfing the web for comparison property prices in Stockholm takes moving your fingers about 50 times. Instead, it's much easier to just trust a headline. We expect everything to come to us in America.

As a result, we fail at speaking a second language fluently while many of our friends in Europe can often speak three languages quite well. Just look at 18X major champion Roger Federer. He's a professional tennis player, not a professional linguist, and he speaks three languages fluently (German, French, and English).

4) They want to believe what they want to believe.

Have you ever believed in something so hard, only to later realize it wasn't? Have you ever been so adamant in your belief that you disregarded reality? Like seeing the light after breaking up with your crazy girlfriend or boyfriend. What were you thinking?

Obviously, you weren't when you thought you were in love. Once we believe something to be true, it's really hard to change our minds.

United States property is cheap compared to UK, France, Spain, Germany, and Italy

5) They're frustrated at their own situation.

Just because they can't afford to buy a $1.6 million median-prices home in San Francisco or New York City on a $100,000 salary doesn't mean you can't buy an awesome middle class home for $350,000 wherever you live.

As we come out of the long pandemic, the demand for United States property has never been higher. Finally, Americans are waking up to how good they have it! Real estate is my favorite asset class to build wealth by the average person.

Long And Strong United States Property

The reason so many foreigners are rushing to buy U.S. property is because they realize how comparatively cheap U.S. property prices are. Foreigners also believe America offers one of the world's best lifestyles with the most upside opportunity.

Therefore, if foreigners realize the U.S. value proposition, it's a good idea for Americans to realize our own country's amazing value proposition by owning a piece of America too. Domestic institutional real estate investors are already trying to buy up as much U.S. property exiting the pandemic as possible.

To appreciate how cheap American real estate real is, Americans need to gain perspective. Go inhale some toxic air in Beijing for a month or hopelessly try to find a well-paying job in Milan. Or try and get a high-paying job in Canada while you freeze your butt off. Only then will we truly appreciate our good fortune.

If the U.S. housing market gets as hot as the Canadian housing market, I could easily see another 30% rise in U.S. real estate prices. Canadians come to America to earn higher wages, not the other way around.

Why is United States real estate so cheap compared to Canada's real estate

So Why Is American Real Estate So Cheap?

The reason U.S. property prices are so cheap is because we have a large land mass, a stable government, a world currency, a deep bond market, strong IP protection, incredible productivity, a strong work ethic, property rights, human rights, a desire for equality, clean air, drinkable tap water, a deep education system, and innovative technology.

Not owning at least a primary residence in such a great country when foreigners are beating down our doors to buy is foolish long term. We're going to hear the same complaints from the same people 10 years from now.

Foreigners see U.S. coastal city property like U.S. coastal city inhabitants see middle America property: great overall value. But before the tidal wave of new foreign money comes crashing down on the heartland on top of fluid coastal city money looking for new opportunities, I want as much exposure to the heartland as prudently possible.

Easiest Way To Invest In American Real Estate

The easiest way I can do so is through a real estate crowdfunding platform like Fundrise, where you can invest as little as $10 per fund. Fundrise eREITs have performed well and with low volatility since the company began in 2012. The company currently manages over $3.3 billion and has over 500,000 investors.

You can also check out CrowdStreet, a real estate platform that focuses on individual deals in 18-hour cities. 18-hour cities have lower valuations, higher cap rates, and higher growth rates. The spreading out of America is a real trend thanks to technology and the pandemic.

Sooner or later the money is going to start pouring in. With inflation picking up post pandemic, the demand for real estate is heating up!

I've personally invested $954,000 in real estate crowdfunding to ride the wave and earn income 100% passively.

Explore the heartland today

My International Background

For reference, I have lived in Manila, Lusaka, Osaka, Washington D.C., Taipei, and Kuala Lumpur for the first 13 years of my life. Then studied abroad in Beijing, Shanghai, Rio de Janeiro, and Sao Paulo for undergrad and business school. Traveled to over 50 countries (most recently Czech Republic, Austria, Hungary, and France) and speak Mandarin, English, and terrible Spanish. If you can't trust me, then trust Rick Steves!  I'm always on the lookout for cost of living comparisons.

For more nuanced personal finance content, join 65,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. Everything is written based off firsthand experience. 

152 thoughts on “Why Is United States Property So Cheap Compared To The Rest Of The World?”

  1. Where you live in the US really does make a difference. I live in a nice small-to-medium town away from any large cities. There are plenty of houses for sale here under $100,000, or you can pay in the range of $200,000 to $400,000 and get a very nice house. Those same houses would cost double or more in many large US cities.

    And yeah, I’m sure that jobs don’t pay quite as much here. But there are some good-paying jobs, and remote work can be done from here as well as anywhere.

  2. Do you really want to pay $1,500,000 for a 500 sqft studio in Knightsbridge, London? – You can hardly compare the median house price in the USA to the highest priced place in the whole of the United Kingdom. And just because the USA has lower house prices in the OECD, does not mean that the house prices are not expensive, it just means that they are less expensive then the rest of the OECD, but still expensive.

  3. Gennadiy from Belarus

    “To consistently ignore the heartland of America is INSULTING. The brazen disregard for half of America is exactly why Hillary lost.”
    I agree that property in USA is very cheаp, compare to the rest of the world , especially HH, where rent by the bunk exists for single people.

    I do not believe that heartland of America is a good choice for the investor on a margin from my experience. I do not believe in to upside for the investors. Inflation adjusted increase of property value could be 0.
    I drove a lot through heartland. Once I stayed in April in a town with population 500 and 3 two story motels on one intersection. I had the selection out of 180 rooms, What would be the average occupancy and cash flow.?

    My mom has a rental (500 sq foot, current market price-50000)in in the Old country. It is her inheritance from her parents. It is located in the industrial area. Average renter stays – 7 years. Average time between the renters-2 weeks. Median earned income in the city-700/month(country-500). Median income in IT- 1700-13% income tax/month. Her SS retirement check-200. Rent income after taxes -200/ month. But it is a country Capital with population of 2 mln out of 9 mln population .(Like DC+NoVA in comparison to VA). Landlord market.

    In august of 2011 we bought a condo in VA as an investment. 1220 3/2 for 106 with a down payment-%25. Selection was incredible and I was ready that prices can go down another 3-5 %, but we wanted to buy for our son and his roommates before the school starts.
    My wife picked that unit over the unit 1340/3/2-102 because of the view from the windows.

    In July 2013 condo was ready for rent. I was able to rent it out for 1000 from the February 2014 тo IT worker (pay stubs for the last 6 months provided) with a recent bankruptcy. Herself and her 17 y/o son and her 36 yo brother. 9 month on the rent-market. 8.500 out of pocket direct losses.
    After 3 month of payments she lost he job and she started to play the renter’s games. ( Her BMV SUV still was on a parking lot. No straggles) . I evicted her(and her brother and her son and her boyfriend) in January 2015. Unfortunately for me the whether was nice and warm. I wanted temperature -20 and 40 inch of snow. Another 5 th. out of pocket.

    No competition. Bad market. To much of new construction. And no high paying jobs for lazy bums.
    We sold this condo for 118 in the summer of 2015. I got a profit in a form of education.

  4. Try living in Vancouver, Canada. The average house costs 2 million dollars. A brand new build is at least 3.1 million. A 1 bedroom condo is at least $450,000. Real estate in USA, except New York and Los Angeles, San Francisco is so cheap.

  5. Man to buy a decent house in aus that isn’t a run down shit hole nowhere near the city (3 or more hours) it is going to cost you 450k at best and that’s still not in the nicer areas and probably 2 hours nd to get a little closer let’s say an hour probably 800 and that’s for a 3-4 bed house that’s reasonably new well in Sydney this is the case but it’s just sky rocketing all the time lately

  6. Ok, so usa is cheap. The question is: How can
    foreigners buy so much real estate in our cheap
    country, when usa people cant. Do foreigners make
    So Much More Income than usa people or are usa
    people taxed so high so much that foreigners can
    buy our country and usa people can barely
    survive. Thank for the opportunity to comment.

    1. The real answer is that countries like Canada and Australia offer citizenship opportunities to wealthy Chinese and Russian investors and have no real capital controls or taxation schemes that that prevent foreign buyers from parking their money in real estate. London is also a favorite destination for this.

      For the wealthy Russian or Chinese person, their fortunes are tied into Putins whims or in China whether there is a sudden anti corruption crackdown. In addition the pollution is insane in Chinese cities, for the same $2mm to buy a Shanghai apartment, the quality of life is incredible in Vancouver. So it is prudent for the wealthy elite to move as many assets they can abroad. And this has been systematically happening to exacerbate the affordability problems in these countries. In the US you can get a green card by financing a business more than $500K but that still has a few hassles compared to other countries. There are checks to make sure the business is legit etc and there is some fraud but the problem is not as widespread. I would say NYC has a lot of this (you can see lights off in most upscale new condos at night) with foreign billionaire types buying condos via LLCs. But that is a different buyer who looks at value at least somewhat and not someone wanting to escape their country.

  7. The fact isn’t that we can’t afford them after we get a mortgage. It’s that we can’t afford to save the 10-20% down payment while most Americans spend more than HALF their income on renting. Not accounting for the absurd inflation of education and the difficulty finding a job that actually pays you what your worth(in a country where tipping is considered culturally mandatory to level out our lowest paid individuals incomes). I personally am a suicide intervention specialist(worth $16-24 an hour), I work at a chain store unloading trucks and stocking the store(making $12.25 an hour, before taxes which are 25% of my income. Not to mention the lack of accessibile health insurance my generation has been cursed with and even if we do have health care there are a limited number of providers for that specific insurance, particularly low income as providers are basically doing their work for half the price they’d be paid from private insurance. The fact is the poorer communities (over 50% of Americans) walk around on a daily basis with zero savings. Many Americans rely on public assistance to simply afford groceries.
    Between the cost of living(which in my area no person working 40h a week minimum wage can afford to their own apartment even if they dropped 100% of their income into it. I reside in the lowest priced one bedroom in my city at $1070 a month), the cost of health care(I pay like $400-1000 a year on that and I’m actually insured privately through my parents until I turn 26), the cost of food(the government has calculated that each individual who has zero income to $800m only requires $150-195 a month), and the cost of basic necessaries like electricity water sewer and garbage(we’ll leave heat out because honestly most of us simply use blankets when we’re cold and leave the lights off as much as possible to avoid increased costs) (I sink like $200-300m into these basic necessities and I don’t even have air conditioning or heat in my apartment).
    My bills usually add up to $1600-1800m and I make $10h after taxes. I’d have to work 45h a week to afford that not to mention my student loans I have to pay off because I decided at a young age that college was a good idea to keep myself out of poverty.
    Unfortunately like most companies do mine keeps most of its employees under the 32h a week that would legally require them to give us benefits. So I make much less than my personal bills add up to, like most Americans which means my credit is shot, like many Americans who took out government loans to afford college, which my government decided my parents should have paid for…I was raised by the state so my parents don’t apply to the equation.
    The simple fact is Americans are not buying homes because a the option isn’t accessible, not because it’s beyond our price point. Mortgages are much cheaper than rent. And renters know this so they jacked up the prices without laws or regulations and now no one can transition from renting to buying without being upper middle class or better.

    I share a one bedroom with someone now…and I still sink 100% of my check into living expenses. It’s an economic problem that people are overlooking.

  8. Tony Graddon

    The reason why New Zealand has the world’s most unaffordable real estate is very simple. New Zealand has zero Land Tax.

    When there is zero land tax there is nothing to suppress real estate speculation and there is no penalty for holding land vacant or under-developed.

    You can easily see the effect of Land Tax in the different states of USA.

    The healthiest economies in USA tend to be in the states that have Land Tax rates above 1.5% pa, such as New Hampshire – recently ranked as #1 by Politico.

    California, thanks to Proposition 13 (1978) has average Land Tax of 0.8% per year and now has four of the ten most unaffordable cities in the world. In the 40 years since Proposition 13, California’s economy has not thrived. When wealth goes into land prices the there is less wealth available for the productive economy. California’s pre-college education raking has fallen from top 5 to bottom 10, simply because the cities are prevented from collecting revenue to fund education. Several cities in CA have filed for bankruptcy.

    Most of the world’s unaffordable cities have Land Tax rates less than 1%.

    In Australia there is no land tax on primary residence and there is also a 50% tax concession on capital gains (fixed rate since 1999). Sydney and Melbourne used to be affordable, but have climbed into top 10 most unaffordable cities since 1999.

    Housing affordability is no mystery. Look at the way the government taxes Land and you will always find the reason.

    It’s all government policy. Therefore it can be changed.

    1. Ping! You’re spot on here, Tony. David Ricardo, Adam Smith, JS Mill and Henry George had it pretty right when they said unearned land rent needs to be taxed away for markets to be able to work properly. The neoclassical economics taught in our universities no longer accepts this, though: “Nothing is unearned!” So, we have the phenomenon of tax regimes favouring private capture of land rent–especially by banks–generating increasingly greater bubbles in land prices. By definition, of course, land price bubbles have a habit of bursting. Seems we’ll have to wait for the next bust for our kids to be able to afford a home. Or, we can cut taxes on labour and capital and capture more land rent via land value taxation.

    2. Finally, after reading dozens of responses, I,Ve now found one that acknowledges the real reason for high prices. It’s the land that increases in price, due to scarcity, amenity, services and accessibility. A house, like any building, will deteriorate over time, and become worth less, unless maintained. Not so the land. It’s just there! And, with increased population, it will become more valuable. But the landowner hasn,t created that value. It’s the community around him that cretea the value, so it could be taxed away with no loss to the owner, and great benefit to the rest of the public, including buyers.
      Interesting that so much of the commentary is on San Francisco prices. It was there that Henry George first proposed these ideas. Check out the Prophet of San Francisco. You will find your answers.

      1. No loss to the owner? Do you have any idea how much face any self respecting billionaire on this planet would loose, if it ever got out that he didn’t double his billions every 10 years doing nothing? Just what kind of planet to you think those billionaires are running here? heh heh

    3. This is a great comment. Unfortunately, governments are hard to change b/c people are hard to change. Once you give people incentive or a break, they will ALWAYS vote to keep such a break.

      Prop 13 will never go away in California.

      That said, I did sell my SF rental house in 2017 (bought in 2055). The price was too good to pass up, and although there is a RELATIVELY low property tax amount, I was still paying $23,000 a year! NO THANK YOU!

      Instead, I used the proceeds and diversified into the heartland through real estate crowdfunding for a potentially higher return.

      I’m so much happier not having to pay huge taxes and deal with PITA tenants!

      Sam

    4. Tony, Im sitting here in San Antonio Texas, where property taxes are among the highest in the nation at about 2.2 percent with median home prices among the lowest in the country, and possible THE lowest amoungst thriving economies(2.8% unemployment) I can vouch for the validity of your comments. Are road are new, and increase in size BEFORE they reach traffic jam status and always have been in the 60 years ive been here. Never any water or electric problems either. I’m always bitching because our city government never quits finding new parks or public uses for my tax money, they’re RICH by most large city standards (7th largest in US). I want to thank you for your post because I had no idea why new zealand was so desirable that people wanted to spend 4 times as much (income/housing cost) for a home there. your answer (THEY DONT!,BILLIONAIRE speculators are forcing them to!) explains it all. thanks for keeping my from scratching my few remaining hairs out, trying to figure out what the F was going on! -and giving me a whole new appreciation for what local government has done to PROTECT me with high taxes. It never occurred to me that I might never have been able to afford the nice house I live in if it weren’t for those taxes keeping billionaire speculators OUT of this market.

  9. I honestly can’t agree with you more Sam. Americans really have it good.

    I recently wrote a post comparing the average income of $50k in the US can easily afford a house worth $200k, but it is not the case with average income in China of $20k to afford a $500-$1M condo in Shanghai or Beijing.

    Now that’s reality.

  10. Im in Australia and a basic 3 bedroom home with 2 bathroom is 1.5m in the outer suburbs of Sydney. Car registration is $1200 per year. Petrol is $1.50 a litre and my wage is 65k per year. I wish we had US house prices.

  11. Terry Pratt

    Maybe it’s the down payment that is unaffordable for Americans? Heck, one can buy a 3BR house in my area with a mortgage payment lower than rent on an average 1BR apartment, but there’s no way I’m going to come up with an adequate down payment or mortgage-worthy ratios in the foreseeable future.

  12. I think it’s mainly because United States have so many investment alternatives. People have a lot of faith in the stock markets compare with other countries. In countries especially the BRIC countries, people don’t believe in stock market. People jump in for a short-term speculation, and jump out to dump all their money in the real estates.

    I think this also contributes to the recent low market volatility. I’m starting a humble tiny blog, mainly jotting down my own thoughts on investing. Reading your blog has been huge inspiration for me.

  13. Read Picketty’s book on Capital in the 21st century. He offers several reasons why income/capital ratio is demonstrably lower in the U.S. than around the world from a long-view economic perspective (though admittedly I don’t remember most of them).

    One I believe had to do with relatively high immigration to U.S.; immigrants may earn salary but not have accumulated enough capital overtime to afford investment (or maybe moved here out of persecution and don’t trust illiquid investments). There were a few others I can’t recall offhand.

  14. Sam,

    Your blog site has the best resource and I have been learned a lot. Thank you very much. Recently my credit union just approved $750K HELOC at 4.25% on my primary home in Fremont. I am going to use the fund to purchase a SFH rental property all cash. My question is that can I write off the HELOC interests on my primary home? How much interests maximum for tax write off? Should I go ahead to refinance the $750K HELOC of my primary home with lower interest rate? Thanks advance for the answers.

  15. Hi Sam! My first question here. Really like your blog and you do a very good job so appreciate your insights. Talking about platforms like Realtyshares, how do you go about evaluating if a certain property is a good investment? I am not a real estate investor yet but have money saved that I want to invest for a decent return (dont we all!). I have a hard time justifying to myself that all investments advertised on these platforms will pan out as planned and there could be a risk to return of capital. One option is obviously to diversify preferring the heartland – but given two options in say the Midwest, how to determine which property is a better bet on a risk adjusted basis. Thanks!

      1. Awesome. Looking forward!
        On related lines platforms such as Realtyshares seem somewhat too good to be true. This is a gut feel not based on any data. When Yale endowment is generating meager returns with highly paid experts, why would they not put more money buying into such platforms squeezing out retail investors like myself?

        1. The endowment returns are pretty miserable this year. They have a lot of exposure to international markets which did poorly.

          One of the reasons why the Yale endowment wouldn’t get into real estate crowdfunding is because the size of the market so far is too small. Real estate crowdfunding is for the retail investor.

          With over 25 billion in assets under management, even allocating 1.4% of Yale’s fund would take up the entire capital markets supply of RS so far! They just announced raising $300 million on their platform.

  16. Ten Factorial Rocks

    Good post Sam. US real estate is relatively cheap compared to not just OECD countries but many developing markets as well. I give an example about Bangalore, India in one of my blog posts – didn’t want to post the link here in case you have a policy against it. It’s hard to imagine a 3 bedroom apartment being sold for $500K in Bangalore, where average income is around $500 a month and poor infrastructure and regulations stifle the economy. Yet, quite many are buying there! Is it a bubble? Who knows, that’s what they were saying for the last 10 years, no sign of bursting yet.

    The biggest reason is the world is queuing up to buy American debt so cheap, in addition to all other valid reasons you mentioned. It doesn’t mean we all should run to buy Midwest real estate befor the foreigners. High paying Jobs and aesthetics (or snob) value determine premium real estate and comsidering that, a $2 million SFH in the Bay Area may be far more promising as an investment than a $200K similar property in Kansas or Idaho.

  17. Jihong Park

    You are ignoring the huge discrepancy in home prices within the USA. Places such as SF and NYC are unaffordable even for people making $100k. Yes there are places in the USA such as the rust belt where the prices are cheap, but there are no decent jobs there.

  18. The Alchemist

    *snicker* Sorry, some of the prices noted here for other parts of the country just make me laugh… or is it cry? Went to a couple of open houses this past weekend. The one in the kick-ass location up in the hills (but just barely) featured 2 bedrooms and 1 bathroom. It has a carport rather than a garage. The “front door” opens directly from the carport into the kitchen, and the washing machine is directly behind the door when you open it. Where’s the dryer, you ask? Why, out in a shed in the carport, just a few steps outside that front door!

    Now, granted, a great location, and a lovely large, level back yard with a couple of planter boxes and a hot tub. The open living room/kitchen half of the house features one wall that is completely windows— breathtaking! With a bit of a view across the Bay to the East Bay hills.

    The asking price: $1.05 million. What will it likely go for? I’m guessing $1.2m, easy.

    I hate Facebook. And Google. And Apple. But especially Facebook.

  19. While I agree with the sentiment of your post (that we need to read critically with an eye out for bias, and not assume that every click-bait article applies to us), I have to disagree with you on this point:

    “If you were poor, you’d study an in-demand major like engineering or computer science so you could land a well-paying job out of college and help support your parents who sacrificed so much for you! Only the well-to-do can afford to study a soft major and willingly enter a struggling industry.”

    If only that were true! Being on the edge of poor meant that my family didn’t really know how to advise us kids on what college major to pick, or what college to go to. They just strongly pushed that we should go to college, full stop. I think they were actually glad to hear that I had decided to be a film major, because hey, Hollywood is where the money is, right?

    The problem is that poor people tend to think of getting rich in terms of celebrity – you get rich through sports, or by becoming a wildly famous actor, or something like that. They can’t rightly advise their children to pick lucrative, safe majors when that’s the baseline for making money that they understand. Journalism may sound like a good major to some parents because, hey, if your kid is good at writing, they’ll make the most money doing what they’re good at, right?

    1. You make a good point. Hopefully more and more parents and students will do some due diligence on in-demand majors / jobs / companies / fields to make better financial choices, if earning more money is important to them. The internet should serve to provide free and easy color on what provides the best return on investment.

      All my friends who studied journalism, writing, and art for their college majors come from financially stable to wealthy families because they could afford to pursue their passions. They knew that if all else failed, they had their parents to back them up. And their parents also encouraged them to pursue their interests.

      Conversely, the large majority of my friends who are engineers and software engineers come from middle class to lower income families. Many are immigrants whose parents wanted to come to America for a better life. The demographic may just be b/c I live in SF and the area is so diverse.

      I’ll check out your story!

      Thx

    1. Its because Germany’s population is declining. As a result housing supply exceeds demand, therefore prices drop

  20. “The reason U.S. property prices are so cheap is because we have a large land mass, a stable government, a world currency, a deep bond market, strong IP protection, incredible productivity, a strong work ethic, property rights, human rights, a desire for equality, clean air, drinkable tap water, a deep education system, and innovative technology.”

    Shouldn’t most of these factors contribute to expensive prices, given the desirability of the US as a place to live?

    1. Exactly. Therein lies the conundrum and the opportunity. A good investor must step back and try to see what other people are not seeing. If you can recognize a trend, things get much easier. Let’s revisit this post 20 years from now.

  21. Life in smaller cities sucks. I lived in the Midwest and could afford a giant house but instead I got a modest 1,500 ft house and saved tons of money. Money was great but I’ve nowhere to spend that money.

    I moved and am now living in NYC, double my income, and save as much. I managed to buy a modest 1,200 ft house but my life is now super entertaining.

  22. Fiscally Free

    When taken as a whole, property prices in the US are very reasonable, but I think prices in the places people actually want to live (Los Angeles, San Francisco, and New York), are pretty crazy.

    I am seeing this first hand as we sell our house in the LA area. I have an engineering degree and (had) a good job, and we couldn’t afford to buy our house at today’s prices. We could barely afford it five years ago when we bought at the bottom of the market.

    You might not be worried about it, but it is very unfortunate when when normal people can’t afford to buy a house in a decent area. It may be a problem isolated to a few cities, but it still impacts a whole lot of people.

  23. Sam,

    I definitely think it’s cheaper to live in the US except SF, SD, and NY. Here in SD I recently got a small house for about 450k, 2 bedrooms 1.5 bath. Where I am originally from in the midwest I could get a huge house for that, but I am willing to pay the amount because of the weather and the culture. I think people need to remember they are not only paying for the house but the environment as well.

  24. Your First Million

    Great post! And I really agree on many of the points in this article. However, we have to look at things in a relative manner.

    You point out that property in cities such as Sydney, London, Singapore, Hong Kong, Paris etc are much more expensive than US property. There are place in the US where residential real estate regularly sells for $30/sqft or even less (think midwest). However there are also places where real estate sells for $850/sqft and up! (SF, NY, DC… etc).

    Now I would be willing to bet that in some of these countries there are real estate markets where values are as low as some of our cheaper markets. I am sure as you travel inland in Australia, west of Sydney, prices start dropping pretty rapidly. I doubt that home values deep in the outback are anything comparable to the values in Sydney, Melbourne or Brisbane.

    My point is that real estate is a VERY local phenomenon. It is difficult to compare one country with another country… because there are literally THOUSANDS of real estate markets within a nation, all that will vary greatly in value and price.

    Definitely a great read and some good points to think about though!

  25. Sam,

    Enjoyable read. There is a part of the Heartland equation that bears some vetting out. As I understand it, less and less people are living there over time. The economy is having a slow and strange drift as technology replaces more and more jobs, and services become more and more scattered and scarce in the less built up areas. Eventually doesn’t this lead to the possibility of places like Detroit, just eroding as the industry dries up? Also, depending on your standard, your creed, and your ethnicity some of these places end up lot less desirable to live in.

    https://www.pri.org/stories/2016-11-01/americas-aging-agricultural-heartland-any-economic-growth-would-be-welcome is an interesting starting point for some ideas for some numbers to look into. I think with your skillset there is a wonderful article there on the risk of not having anything around you xx the cost of living xx the quality of living.

    1. Every investment ALWAYS needs vetting. The heartland theme is a macro trend. Then one has to diligently look at the numbers to determine which state and which city and which sponsor and which project looks the most attractive of them all.

  26. Sam – Awesome article, I love it when you post ones like this.

    Readers, why do you think American real estate is so cheap? Lots of land and everyone owns a car.

    Why do you think Americans don’t realize how good we’ve got it?
    I think most Americans got burned in the last housing crash in 2008. In their mind they see another bubble approaching. Just talk to anyone on the street about housing, read any local news paper comments, or a local blog. EVERYONE is saying “wow look how high prices are just like last time… it is going to pop soon”. When I see this I just kind of chuckle and it reaffirms that we will not have a real estate bubble. Sadly many Americans are affected by the recency bias of the last crash and they will miss out on HUGE real estate gains in the next 5 years.

    **Sam could you speak to what you are hearing from people in the Bay Area? In Seattle people are calling a top and screaming bubble. Reasons why it is not a bubble: LOW SUPPLY, big companies keep moving in, big companies are expanding current operations, these are not low paid workers, cali transplants think everything is on sale, regulations limit growth of housing supply, physical barriers limit housing….

    With the USD appreciating to a 13-year high, isn’t it obvious there’s tremendous demand for U.S. assets?
    USD will keep reaching new highs as it is the most stable and best currency out there right now. People talk about the Yuan… I don’t think so.

    Why are we letting overseas buyers purchase our properties before we ourselves buy them?
    Vancouver just put a 15%? tax on foreign buyers. Lets see how that affects real estate prices in Seattle where I am.

    1. In the SF Bay Area, the market has peaked and has started to decline for condos, and homes above the $2.5M mark. SFH homes under $1.5M are definitely still strong. But the Chinese are on a respite and job growth here is flat-lining.

      Prices have run up to the point where marginal supply has slightly surpassed marginal demand. I see a 5% – 10% decrease in prices until one or two major IPOs cause the rush again.

  27. Insist On The Truth

    Another thing to point out is that most of these journalists living in expensive cities covering real estate are younger or do not own. When you see prices skyrocket as a renter, you kind of go mad. And then it becomes dangerous because if you cover real estate as a journalist renter, then everything gets clouded.

    It would be great if more journalists would leave their bubble, explore the 4,000 plus cities in America, and get more in touch with all of America’s great people.

    1. I live in a comfy 900 sq ft condo in the suburbs of Chicago that I bought for $72,000.

      Real estate is cheap in the Midwest, even close to major cities. My commute to my office in downtown Chicago is one hour, door-to-door. To live somewhere like I do now (size and proximity to work) in a city like NYC, DC, LA, Boston, or SF I’d be paying triple what I am now in mortgage/HOA fees.

  28. Yes – it is definitely cheap! I think part of it is most of the money is on the coasts, very disconnected from prices in the middle of the country (like that Wired article).

    Another thing you should compare to other countries – the mortgage industry. The United States, in addition to having cheap properties as you outlined here, has the best deals on mortgages anywhere. I don’t believe 30 year fixed is even an option anywhere else (which I know you don’t prefer) and the rates are incredibly low. Nowhere else can a regular old person get access to that kind of leverage.

    1. True. Other countries do not offer 30 your terms because their bond market is not as developed, and another thing is, a lot of other countries like even our neighbors in Canada do not allow the homeowner to write off the mortgage interest.

      1. They also don’t have a Fannie Mae that facilitates the 30 year fixed mortgage. Without Fannie, we wouldn’t have 30 year mortgage either.

      2. Bond market, which goes hand in hand with currency stability.

        It is almost too many good reasons. Rather than adding up to a no-brainer, perhaps it is overwhelming to think about.

        I’m going to try to make it to your panel tomorrow night to say hi. I’ll be in the area, but not sure what time I’m free.

  29. It is sensible to focus on the 10 cities with the highest populations when more people live there. I would be hard-pressed to find nefarious intent there.

  30. David Wendelken

    “Readers, why do you think American real estate is so cheap?”

    Population density is low in most places. That’s a biggie. Most cities have plenty of suburban expansion room and Americans love their cars. Where you have geographic constriction and high population the property gets more expensive. We also build roads out to areas that don’t have much in them so development can more cheaply follow. Since the areas outside the city center are different governments, they act to maximize their own tax base instead of to minimize the overall infrastructure cost for the population in total.

    I had a friend from the United Kingdom who had settled in Atlanta, GA some years back. His family members back in the UK referred to his standard 1/2 acre lot as “the Estate” because it was more land than the rest of them owned in total.

    On the funny side, they came to visit him in Atlanta. Friday came and they were to fly home Sunday afternoon. They wanted to pop in the car Saturday morning and visit Disneyworld in Florida, then drive over to the Grand Canyon Sunday morning on their way to the airport in Atlanta. I have to say, that’s an English family that’s as clueless about geography as most Americans.

    “Why do you think Americans don’t realize how good we’ve got it?”

    Because Americans are the most ignorant 1st world population, that’s why. We are not only ignorant, many of us believe ignorance is a virtue to be proud of.

    “Why are we letting overseas buyers purchase our properties before we ourselves buy them?”

    Because we need the money back after we filled our homes with cheaply made Chinese junk to help with our trade imbalance?

    Or because a pure capitalist system doesn’t care about outcomes that improve our national welfare, it only cares about return on investment. That, and property developers are old hands at getting politicians to do what will maximize the developer’s profits.

    1. David: Great points! Additionally – there are burdens/restrictions such car-tax in land-restricted/smaller nations. Gas is prohibitively expensive, particularly, if you consider ‘affordability’.

      In US – somebody else pays-for/absorb the ‘most’ roads (let it be Federal, Defense, or State, Bond, or Toll-supported monies) – hence lot easier for cities ‘expansion’ or connect-to ‘burbs’ (besides having lot of available land-mass!). Ofcourse, Gas is lot cheaper, or., more-affordable in US (if you set-aside the subsidy/failing nations!)

      US prolly drives the most, particularly the big city folks – average miles/commute prolly rivals any other mentioned-nations by ‘double’ or higher! (its a pure guess – happy to see actual numbers). Hence, easier to acquire land, take the risk of home development for the developers/builders. “Lots” are cheaper to develop! In-addition (untold thus far) ‘cheap’ available labor for building construction. Compare this low labor cost to any other nation – you know why houses could be build cheaper.

      If you look at broader aspects of land-use/multiple-uses — in many of the listed nations, land can be used to build Apartments – all of a sudden, your land-cost multiplies because that many more apts could be build on small piece of land !! Unfortunate side affect of this – your homes (dare to say, apartment-homes) in other nations, end up being smaller due to nature of apartments being smaller by design! Hence – higher the cost (to absorb many fixed costs, over smaller square footage). Commercial and residential are often mixed! Since there is ‘commercial’ component added to piece of land to be developed – the land price increases further. The closer you are to a train-station, or bus-stop, or close to a commercial location — “MORE” is the price of land — hence more “apt/home” price!

      Agree that – per-sq foot price, or ‘affordability’ is difficult in other countries, compared to US. But, thats also possible due to “generational” assistance from parents/uncles sponsoring some of the initial costs. Also – multiple families tend to live in a home/apt, than in US. More ‘jobs’ are supporting to pay for that apt/home elsewhere.

      Can go on and on. But, if you ever want piece of action “elsewhere” – go get a piece of un-used/ag land near a city — hold on tight for 30-40 years, you be Rich!! Don’t dream-big though – somebody-else ‘powerful’ will ‘occupy’ your land, as its value increases in future-years! There are not strict/enforced “titling”. Good luck getting “title-insurance” in many of those ‘elsewhere’ nations!

      Can go on – but David’s and the above points should give you better picture regarding the real-estate/affordability aspects ‘elsewhere’ nations.

      Thanks
      SC

  31. 70K for a Corolla?! Holy Cow…..I’m glad I’m in America, where this car costs more than 4x less. But I wonder with the new administration and the call for less regulation, will it drive property prices higher? In that case, maybe I should AirBnB my guest room :-).

  32. Interesting post! I lived in London for three years and Paris for nine years and now live in San Francisco. You can definitely find lower-priced properties in Paris and London than in SF. Because European public transport is so good, you can live 20 minutes from either of these cities and have a nice house for far less than you would in a close suburb in the Bay Area. But central Paris is also a bargain. Check out seloger.com to see nice flats you can get in Paris for $400-500k. Also, in those cities in particular the housing is expensive, but property taxes are very low (a few hundred dollars a year in France). Plus, you get “free” healthcare, university, daycare, pension, unemployment insurance etc. for the 25-35% tax that everyone pays. So you have far fewer expenses on top of your mortgage and can support paying a larger portion of your salary for housing. Here in the Bay Area, we have a big mortgage, as well as 35% fed-state taxes, huge property taxes, expensive healthcare premiums, 401k savings as our only retirement vehicle, and childcare costs. We couldn’t afford more mortgage with all those other expenses. Just a perspective from someone who lived in two European cities that may seem more expensive on paper.

      1. I definitely made less in France than the US – about 30% less – but I kept more of my income there and felt more ‘comfortable’. Here, the income and property taxes plus healthcare, 401k, college savings, childcare expenses are much higher than the 30% tax I paid in France. Of course, once you get a good job in Paris, you hang on for dear life, because it’s very hard to find a new job in France’s economy! In London, salaries feel comparable or just slightly less than the US and the labor market is very fluid – at least in my field of tech marketing. I know the property prices in Paris are a bargain compared to SF because we’re looking to buy there now, but I was surprised on recent trips to London and Sydney to see how cheap property seemed compared to SF. Looking at estate agent windows in London, there were some nice flats for about 750K pounds in Hampstead, N1, W11, and other nice areas. And in Sydney, $1M gets you something very nice. I guess SF makes everywhere feel cheap :-)

        1. Hmm, we must be looking at different places in London. I’m comparing like for like and Knightsbridge and Chelsea are way more expensive than Pac Heights and Presidio Heights. Talking $1.5M Knightsbridge studio that is 500 sqft!

          See: https://www.telegraph.co.uk/finance/property/house-prices/12098280/The-UKs-most-expensive-studio-flat-could-be-yours…-for-1.175m.html

          I stayed at La Reserve Hotel near the Champs, and prices were cheaper than in Chelsea, but still more than SF.

          With 30% higher incomes here, property should be 30% higher as well. Yet, SF like for like property is cheaper! Go figure and thank goodness for those of us who see the opportunity.

          See my hotel price: https://www.financialsamurai.com/guilt-free-travel-hacking-finally-living-it-up/

          1. Not sure SF is overall more expensive than London – they seem comparable – but it’s most definitely more expensive than Paris! The huge expenditures Americans put out each month for healthcare, college savings, private 401ks, childcare etc must impact US real estate prices. Europeans simply don’t have those expenses, so they have more to spend on housing each month. Anyway, I look at sites like SeLoger.com and Rightmove.co.uk that normal folks use to buy property. No one really lives in Knightsbridge or on the Champs; those tourist hoods mostly have empty flats owned by the world’s super rich. This house looks small but quite nice and is smack in the middle of Angel, one of the best areas of London: https://www.rightmove.co.uk/property-for-sale/property-42969165.html. Don’t get me wrong, London property is nuts and most of our friends have moved out to other UK cities, but it’s also a huge global city (at least for now, pre-Brexit). SF is far smaller and very isolated from the rest of the world. I like all three cities, but SF feels the least like a “city”.

          2. Hmm, that’s London’s most expensive flat and no one really lives in Knightsbridge. Ditto the Champs, it’s basically for tourists only. Most people use Rightmove.co.uk to find real estate in London. It’s fun to check out listings in the two neighborhoods I lived in Angel (N1) and W11 (Notting Hill), both very pricey hoods. I see now some lovely places in N1 for about 800K. Don’t get me wrong, London property is nuts, but it’s not as expensive as you make it out to be. Let’s see what Brexit does to London real estate; that’s not going to be pretty. I did make 30% less in France, but I kept 30% more of my paycheck not having to pay thousands a month for private healthcare, childcare, 401k, college savings, and property tax.

  33. Bora Ozguven

    It’s another great article Sam. I’d like to add one more thing to your article. Not only you get cheap housing compared to average income in most of the US cities, you also have a chance to live in a city with lots of amenties. What I mean is that even if you are living in an Upstate New York town with a population of 100,000 you can get to the bars, restaurants and other places which you cannot get to in a comparable city in other countries. You can order your food from 10 different ethnic restaurants ranging from Chinese to Italian. You can attend Yoga Clubs or go play golf. These are all luxuries only found in crowded, high COL cities if you don’t come from a first world country.

  34. If you go to Stanford or Berkley’s journalism school, you will notice a vast majority of upper middle class, women who want to use journalism as social justice warriors. All anybody has to do is go pay a visit to journalism schools and they will see this.

    They almost have this guilt inside them that because their parents paid for their school, and paid for their masters degrees, that they need to do some good in this world. Journalism gives them that voice.

  35. Buying raw land would be a more speculative investment vs a residence that could be rented out. However, if you feel property values are destined to rise significantly it could be a very lucrative investment. I wonder your thoughts on raw land or acreages vs single family residences as investments?

  36. Ironically, when one of my favorite NPR money shows veered into politics this past year they lost a longtime fan. Nah, class has nothing to do with media quality. All you need to understand about media today is contained in the hilarious movie Anchorman. The rise in citizen journalism via social media, ever-present cameras and blogs like yours is a valuable counter-development.

    The simple thing to remember with media is that most journalists are not experts in the subjects they report on. That’s normal, as is the variety of bias from publication to publication. You want a generalist, layman POV. The best thing you can do as an expert in finance is clearly demonstrate their faulty reasoning, which you are doing. BUT when you (perhaps subconsciously) parrot a minutes-old authoritarian argument about the Third Estate… that’s where I warn you to wake up!

    1. A+ Journalist

      It’s important to be aware of your biases as a woman who likely voted for Trump and an ex-media member as well. What is it that you do?

  37. ciaran murphy

    Hello,
    I’m Irish and own property in Portland Oregon. Also lived in Asia. I firmly believe that the reason is that so much more of your life is paid for in the rest of the world. Schooling, healthcare, even pensions to some degree. Here we have much more to plan and finance as compared to the high housing cost countries. When all else is covered….housing becomes the main gate to entry.

  38. Not sure given last week I would agree with your point about the US having a “stable” government..

    1. Bryan, we won’t have long to wait my friend. There is a Tsunami of very nice 2500-4000 sq ft home about to hit the market as baby boomers all try to sell their homes at once as they 1. move closer into town and hospitals 2. Then move into assisted living 50k a year and finally into nursing homes 100k a year. theyll be needing a TON of money and fast. and lets not forget that generation was 2.5 times the size of any before or after it, and theyll be trying to sell those 500k homes to a generation that can’t even afford to pay for their student loans! its going to be one h of a crash. And it will be in the nicest home out there.

  39. To clarify, as a Bay Area property owner and real estate investor, I don’t disagree with your thesis about the (overstated) expense of housing one bit, and I’ve agreed in the past with your counterintuitive stance that Bay Area housing is actually a great deal when you factor in what an amazing place we live in. Plus, I figure the high cost of everything here, from a gallon of milk to health care, helps keep our population density down. But to frame your point with an introductory attack on media that sounds like Bannon whispered it to you just disappoints. Stay woke!

    1. Who is Bannon? What can you tell me about this Bannon? I’m focused on real estate, not politics.

      What are your thoughts as to why the media doesn’t realize that $100,000 is actually are really solid income where one can afford a nice home in most of the 4,000 cities in America with over 10,000 people?

      I’m focused on journalists and organizations who are clearly biased, and aren’t doing their job in just properly reporting the news and putting things in perspective. I’m proud of most journalist who seek to report the news in a just manner. I’m annoyed at biased media who conveniently ignore facts, such as INCOME and JOB GROWTH as a reason for a fundamental rise in prices.

      As a former member of the media, there most be a reason why you moved on. What were these reasons? And do you believe only upper middle class to wealthy people enter the media these days given it’s being hollowed out?

      Thx

    2. ex Journalist

      It’s true though about the biased media. They all come from upper-middle class backgrounds with tremendous bias after Fox News started going the superstar route instead of the usual reporting the news.

      Nobody from a poor family studies journalism. The pay is horrible and the jobs are going away.

  40. “What makes New Zealand property 2X more expensive than United States property? The obvious answers are the country’s natural beauty, Lord Of The Rings, more fluffy sheep than fluffy people, incredible rugby, foreign buyers, a stock exchange with a total market capitalization of roughly $100 billion (1/6th the size of Apple), and the 69th largest economy in the world by GDP.

    Wait a minute. Why does the 69th largest economy in the world have the most unaffordable real estate in the world? This makes no sense unless there’s a tremendous amount of policy mismanagement in the form of building restrictions, loose foreign investment regulations, and corrupt government officials who love receiving money under the table.

    I’m not saying that all this shady stuff is happening in New Zealand. I’m saying that something artificial is happening to cause such a pricing disconnect. Why else is there traffic around a toll road?

    The World Bank ranks New Zealand #1 for ease of doing business, #1 for starting a business, and #1 for dealing with construction permits, and #1 for registering property.

    Also, organizations that rank countries by corruption place New Zealand towards the top for lack of corruption, ahead of the US.

    There’s little reason to expect significant correlation between economic size of a country and its housing prices. More likely factors would probably be a) how desirable the location is, b) population density, c) how wealthy the location is per capita, etc.

    The US has the advantage of a lot of land per capita, except for in major highly desirable cities. This would help keep prices low in most places.

    “When prices are out of whack, a tremendous amount of social inequality occurs. When there’s enough social inequality, a revolution isn’t far behind (see Brexit, Trump, etc).”

    New Zealand currently has less income inequality than the US, as measured by the CIA World Factbook. Actually all of those countries on the first chart that have higher real estate prices than the US have lower income inequality than the US.
    https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html

    (Hong Kong, however, has even higher income inequality than the US.)

    I’m not sure how you’re defining social inequality there. It must be different than income or wealth inequality.

  41. Very interesting. So this means it’s still good to invest in US real estate. My US REIT funds have been doing much better than the international REIT.
    Personally, I think real estate in the US is cheap because we have a lot of land and not too many people. Some of the countries you listed are much more crowded than the US. It’s easy to just look at your local market and complain, though…

  42. You and your commenters are just rearranging deck chairs on the Titanic. As a longtime reader, I’d expect more from you. And as a former member of the media, I agree that many reporters are lazy and go for the easy story (the easy story often gets the most clicks, too). Any financial wiz ought to take political unrest seriously. Why not study the effects of unrest and authoritarianism on fat wallets? Go deep. Look at lives lost, environmental impact, profiteering, weapons sales, innovation loss, etc.

    1. I agree that the world is coming to an end. This is why I’ve got a new post coming regarding what to do in case of World War III! Stay tuned. We must stick together.

  43. First off, Sam I’ve been reading your blog since 2011 and have read all of your posts (even the stuff which doesn’t apply to me) – love the energy and motivation you induce in your readers. Being a New Zealander your words “Why does the 69th largest economy in the world have the most unaffordable real estate in the world? This makes no sense unless there’s a tremendous amount of policy mismanagement in the form of building restrictions, loose foreign investment regulations, and corrupt government officials who love receiving money under the table.” are apt.

    Housing and lack of affordability have been on the political and social agenda for quite a number of years, and many of the problems being faced here are indeed a combined result of poor policy (land and building restrictions, tax policies – a lot of too little too late) and very loose regulation of foreign investors – spot on in these two pick-ups.

    Still, being a proud kiwi I just want to quietly point out that New Zealand was voted first (equal with Denmark) as the least corrupt country (out of 176) according to Transparency International’s 2016 Corruption Perceptions Index. As always, love the articles :)

    1. Awesome that a real Kiwi has provided some perspective! Thanks so much, and thanks for reading since 2011. That’s impressive since there’s been like 900 posts since then.

      I just don’t understand why politicians don’t do more to support more building and introduce more foreign buying restrictions if the middle class local is getting priced out. Shouldn’t it be local citizens first?

      Same thing is happening in Sydney. Prices are out of control!

      What are some of the big bucks industries/companies that are paying such high wages to afford your property prices?

      1. As in many (most) democracies, NZ politicians have to get voted back into government every 3/4 years. Kiwis (just like Aussies, and Poms I guess) have had a long and historic love affair with owning their own home and “1/4 acre section”. This mentality and the fact a high proportion of baby boomers and (to a more limited extent) Gen X’ers managed to achieve this (i.e. a significant majority of registered, and actually active, voters), led to a catch-22 for those politicians who perhaps would have liked to enact changes to control, or at least shape, the housing cost/affordability space but feared the wrath of the voter displeasure (all of the house “value” gains makes those Boomers and Gen X’ers feel rich so why would they want the increases to stop from a purely primitive, ego-centric, stand point?).

        Having said that, over the last 3-4 years a number of incrementally more controlling measures have been put in place by the Reserve Bank of NZ (RBNZ) in an attempt to both significantly cool the runaway housing market and control (if not restrict) foreign residential property buyers. The most recent change (requiring a 40% deposit on all residential investment property purchases) which came into force on 1 Oct 2016 seems to be showing signs slowing down, and in some cases reversing, property prices (and transaction numbers) throughout NZ – most significantly in Auckland where prices have been completely out of order since at least 2011/12 IMHO. It will be interesting to watch over the next 6-12 months to see whether there will be a soft or hard landing (I’m thinking perhaps a Vancouver-style scenario if we aren’t careful).

        I fit smack bang into the Gen X/Y crossover point so I find it easy to understand the arguments from a number of camps. I personally started buying property at the start of 2007 and owned 6 investment properties by the start of 2013, and think I have managed to do quite well by the sheer luck of timing (I’m honest enough to say there was no great skill involved, other than controlling how much debt I was willing to carry at various points in my life – and that wasn’t really skill, more an aversion to paying so much interest to the bank!). I haven’t bought a residential property since 2013 (and am extremely unlikely to do so in the next 5 years) because I know what I paid back then was a fair and reasonable price and just do not think paying an extra 66-100% in a couple of years for essentially the same asset is logical or rational. I did take advantage of the increase in values last year when I sold my least profitable property for more than double what I originally paid and now have the luxury of significantly reducing my debt or perhaps moving into commercial property. But I completely sympathise with my younger peers who are saving as hard as they can to try and make it into the home ownership arena.

  44. Financial Slacker

    Great article, Sam.

    I think far too many people living in the US don’t stop and think about how good they really have it. Compared to many parts of the world, income levels are high, the cost of living is pretty reasonable, and there are many opportunities if you’re willing to put in the effort.

    That said, I’ve haven’t been there in a while, but we’re making a trip out to San Francisco. It is amazing how much more expensive it is to stay in the city as compared to many other parts of the country.

    Kudos to you who make it work!

  45. Compared to other developed countries property taxes in the USA are relatively high, and school quality is generally lower (or at least variable). If you live in a good school district in a fantastic city your property is not that cheap – a house in a world city like SF in a good school district with prop 13 in play probably looks a little closer to some of these rest of world comps

  46. Good stuff, as usual Sam. Especially enjoyed the comments section on this post.

    I’m in a top 10 city (Seattle), have a family of 6, and a single income – and I feel like we’re thriving.

    Maybe it’s because I’ve lived outside of America for a few years (London) and have a different perspective. Or maybe it’s because we bust our tails every day, aren’t frivolous with our money, and invest what we can? Who knows? But I’m going to pull on this string you’ve pointed out and see if investing in middle American real estate makes sense for us.

    Thanks!

  47. Very interesting statistics, Sam. I always knew HK and London were really expensive, but NZ sure is a big surprise. I suspect they may have a lot of Chinese buyers!

    Even in the US, I find housing price discrepancies to be very interesting. I was in Dallas not too long ago and it’s amazing to think how much more affordable housing is there than say NYC.

  48. Gentleman of Leisure

    Hi Sam, I totally agree, we’ve got it great here in the US. I live in Lancaster, PA which has a population of over 500,000. Our newspaper constantly harps on the lack of affordable housing and yet I’ve managed to buy 5 rental properties for between $40,000 and $55,000 each. The mortgage on the properties including taxes and insurance comes to around $500 per month. Now these aren’t trophy properties, but they are solid working class homes in safe neighborhoods, where I would have no problem living and raising my own family if need be. I think many complain about the affordability of housing b/c they live paycheck to paycheck regardless of their income and can’t gather enough cash for down payment. All the while I feel incredibly lucky to live in an area with decent salaries and a low cost of living.

  49. Danielle@wenthere8this.com

    Great read. I completely agree. I lived in Dallas for a number of years, and my parents still live there. On a $100K salary, you can certainly afford to buy a nice home in the city. The median home price is less than $300K (running about $186/sqft.). And Dallas is a big city. The article in the Wire is way off. I’m not very familiar with all US housing markets, but I know if you are making $100K, you can afford housing in most, if not all, parts of middle America.

    Americans tend to believe anything they read, and so many don’t look past the headlines.

  50. Great post Sam. My thoughts about why people believe these arguments is that it’s a lot easier to believe that the system is rigged than it is to accept that you’re doing something wrong. One of the hardest things for most adults today is to accept their long term mistakes and live up poor lifestyle choices. We live in a weird place today, where the tools to improve almost every aspect of our lives (health, wealth, knowledge, etc.) are accessible to so many, but accessed by so few.

  51. Hi Sam – I think this is similar to out of whack healthcare costs unique to the USA. USA housing feels cheap because I believe we have more out of pocket costs compared to the rest of the developed world. Our income taxes are not quite as high but we get far less for our money (healthcare, college tuition, etc). This means more of our disposable income is less available for real estate. …and don’t even get me started on property taxes… your example of a $240k house would yield about 8000 yearly property tax in New Jersey not the 2400 you suggest.
    I remember visiting Orlando FL around 2005. I think the British pound was about 2:1. Every vacation home in the development I was staying in seemed to be owned by English or German folks.

  52. I totally agree with you Sam. Especially in relation you the cheapness of the US heartland. Just to add some personal experience:
    Our 3 bedroom,1 bathroom townhouse located half hour commuting from Amsterdam worth over USD 400k. A friend of mine bought an apartment in Amsterdam for nearly double (size is nearly half). For that amount you can only buy a small studio in Hong Kong.
    In the centre of Paris the apartments are really unaffordable. In London (Chelsea, Knightsbridge) you can find rental ads of rooms in the size of a closet for the price of an apartment.
    East Europe is still behind but it’s mainly due to the purchase power of the people. It’s getting more expensive year by year though.
    So a 240k median price is quite cheap, especially if you consider the US purchase power…

  53. Gold Medal Finance

    I recently looked into property prices in the US and couldn’t believe how cheap they were! Considering the country is one of the most desirable to live in you can buy a huge property in a nice area for the price of a regular property in many countries.

    I think one of the reasons for this is how large your properties generally tend to be – a 2,500sq ft house doesn’t seem to be particularly large by US standards but would be considered huge in the U.K. for example.

    Perhaps prices would align more if you compared averaged sized houses in each country, so a 1,500sq ft house in the U.K. Compared to a 2,500 in the US.

  54. I remember my first trip to Melbourne. You have a country as large and stable as ours, but not necessarily a super power. I’m thinking it’s relatively cheap to live there given the space. Then I saw a real estate book. Your right comparatively even San Francisco is a good deal. Still I wonder if your a few decades too early in your move mid. There are not a lot of jobs in those areas. While the remote teleworker idea is expanding I question if it’s enough to keep a place in the middle of nowhere afloat if the local industry goes belly up in the next recession. I think as telework grows growth is inevitable, but I wonder if your too soon.

    1. I was wondering this as well. It’s great to get in early and get the value when it rises, but if you’re too early, the opportunity cost can be a financial drag on your long term goals.

  55. Hey Sam! I see that only accredited investors can invest with realtyshares. I own two businesses and so depending on the value multiplier i put on my companies 3x , 5x , 10x would determine whether or not I make the cut of having a high enough net worth. What are your thoughts with this?

    1. Hi Josh,

      That’s the beauty of running a business. You can value it at whatever you want. Who’s to determine it’s worth but you? There is no wall that allows you to not be able to explore by asking you to send proof of net worth etc. Be free and enjoy!

      Sam

  56. Millionaire By Forty

    Love the analysis here. As a Houston resident, I was blown away by the cheap housing here. Now I understand why! Definitely will have to write a blog post about it in the future. I will make sure to thank you :)

  57. Sam,

    The average price of a home in US cities like Boston, NY, Seattle and others isn’t $250k it’s at least three times that. The down payment would be 250k for a nice home. We pay around 38% tax (you’re probably or will pay much more if the proposed tax brackets are in place) in CA. Is there a different way to pay for the down payment than saving after tax income as the months go by? Let’s say that someone saves 2k of their after tax income each month for 5 years. You would save 120k which isn’t really going to cut it for that down payment unless you’re buying a mobile home. Also it would be the majority of your savings. Let’s say that you didn’t want to have 100% of your net worth tied into your home and let’s say that a down payment of 200k is required and you only want 50% of your net worth to be in real estate since company equity rises faster than real estate. To raise 400k you would need to save for 8 or so years to cover closing costs, inspections and the down payment. Hopefully before then you’re hotels for cats startup grows “exponentially” and you sell off your unicorn for the big bucks.

    1. I commented before reading the entire post. I think that you’re prediction about middle America will come true. I’m all about investing in Souh Carolina, Virginia, etc… In SC you can buy an extort square mile of property for. Million or so bucks. Image what you could do with that property. Absolute and total freedom is definitely not overrated. Prices are cheap in rural areas because it’s boring to live there and there are no jobs. There’s no public transportation so you need to drive evrrywhere. I guess you could always talk to your goats but that may get old after a while. The most expensive places to live like New York, SF, LA and Seattle have had lots of foreign investment over the ears which has inflated the home prices. The reasons why (and perhaps you have more insight into this) home prices are higher in Japan is because is so much domestic demand with high population desity. They’re high in SF because foreign investors are parking their money here due to the economic slowdown in China. I mH be wrong but I feel when the market in other countries becomes bullish, that will affect prices here because people will pull their money out. Vancouver btw has even more foreign investment and the medians are much higher. What are you thoughts on foreign investment and how do you think this will change in the future?

      1. Vancouver is OUT OF CONTROL. They don’t have nearly the number of companies and large income earning opportunities as SF, yet their median real estate prices are 20% higher than SF!

        The reason? I venture to guess corruption. Why the heck would the Canadian government allow foreigners to buy up all the property, and look a blind eye at all the shenanigans that takes place (how do you buy a $2M property when you can only take out $50,000 a year from China?)? This causes local unrest. The reason has to be under the table money.

        Although you may think SF is expensive, I can assure you, based on the income we make, we are relatively cheap. Long gone are the days of a single income earning person buying the expensive SF home. It’s couples + Bank of mom and dad and foreign hot money competition.

        Related:

        How To Profit From The Wealthy Mainland Chinese

        San Francisco: Cheapest International City In The World

        1. You have a point about the ocean view properties being so cheap here. Yes Vancouver is totally it of control. I’m not totally sure what you mean by China’s 50k a year. Businesses in China had a huge boom that ended and I postulate that money from the boom is flooding into the US. Yes, it’s totally unfair that people from other countries are buying up all of the property in Vancouver. Even if I had the money, I wouldn’t invest in Vancouver. The market is totally artificial. I suspect that it’s easier to immigrate to Canada (I’ve had friends who could get a work Visa coming from India going into Canada but they couldn’t get an America Visa for years). I still think its a way for people to get citizenship with foreign investment or something. The Yuan is a volatile currently (due to China’s manipulation practices) so they may be trying to diversify their currency holdings as well.

          Addressing the single income comments, I’m fighting for more women in the workforce so they can help me pay my mortgage. ;) I’m half kidding. I would personally like to not take the risk of one of us losing our job and not have he ability to service the debt. You had a good plan buying when you were younger. I wish I got out here earlier, I feel like I’m late to the party.

  58. A thought – While I make enough to afford a nice townhouse in the Washington DC area (expensive market), I’ve noticed that many of my friends who live in rural America live in homes much larger, and frankly much nicer (newer, posher) than mine, even though they make significantly less money. In general there are great homes out there all across the country. In fact, this article is getting me thinking about another real estate rental property….

  59. Interesting investment thesis, and given the expectation of a strengthening USD it would give foreign investors exposure to currency as well. I have been thinking much more locally as opposed to this more macro focus. At this given point there is a large premium being paid for property closer to downtowns and job heavy areas given no one likes the time and frustration of commuting. But with the advent of driverless cars this spread should collapse with an increase in efficiency and drop in commuting times and frustrations. I’ve been considering selling my close to downtown house with houses around here ~$350 a sq foot while houses with a 30 min commute more like ~125 a square foot. Do you have any thoughts on the effects of technology (AMZN/drones, GOOGL/AAPL/cares) on the real estate market?

    1. Indeed. Any foreigner who bought US property over the past 8 years has made principal appreciation PLUS currency appreciation. Folks need to understand that the currency play is huge, in the form of buying REAL US ASSETS.

      Regarding your questions, I don’t know where you live, so can’t make an informed opinion. All I know is that I’m NEVER going to sell my property so long as it costs a ridiculous 5% to sell.

  60. Sam,

    I’m a big fan of your analyses in general, and appreciate the reference points to data because every thesis needs a foundation of support. However, this is the first article that I feel you have missed the mark.

    I get your point about the Wired article, but obviously this guy was talking about major US cities. And then you point out how far $100k goes given the average home price of $240k, a totally unfair comparison. According to US Wage Statistics – https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2015 61% of American wage workers make less than $40k a year, 61%! More important, only 8% of Americans make over $100k a year. Comparing median house prices to something only 8% of Americans are able to earn doesn’t make sense. I’m curious to know how many $100k a year jobs exist where homes are actually $240k, my guess is not very many.

    To touch on the political climates and how they relate would take far too long. But telling people how cheap their homes are compared to the rest of the world doesn’t do anyone a good service. Low incomes are a symptom of rules and regulations set up in this country, just as high property prices are a symptom of systematic designs in others. Telling people to research how expensive life is in certain parts of the world won’t help them put food on the table, gas in their car, clothes on their children or pay off debt any quicker. Why don’t you just tell the 61% of Americans how “good” they have it.

    I do want to end by saying how much I appreciate your work, this is my favorite blog to follow. And I love that you focus on “above average Americans” and how they find success in their own unique way. This piece just felt more like an attack on the “average American” for their inability to get ahead when their are numerous factors working against the bottom 90% of income earners in this country.

    1. Howdy Ryan,

      What are you thoughts as to why the Wired Magazine writer didn’t include the word “major” US cities and used $100,000 to apply to all cities in his article and statement?

      I agree with you that using $100,000 in the Wired Magazine’s article and in his tweet is ridiculous given the median household income is ~$56,000 and ~$40,000 for individuals. Totally out of touch with reality.

      The key is to NOT ignore the majority, but to embrace the majority. If the mass media, mostly based in Blue states could have embraced the majority, there would be status quo and gridlock in the government today.

      Luckily, I’m not running for office. All I like to do is observe, analyze, and take action to build my wealth. I refuse to be the guy 10 years from now saying, “Shoulda, coulda, woulda.” NEVER fail due to lack of effort or lack of knowledge.

      Fight on.

      Sam

  61. Ten Bucks a Week

    I got out of America for at least this year and it is good to compare to Europe. The prices here in Lisbon are lower but the incomes are significantly so as well. If I go back to the US I’ll carefully consider where I’m going to end up because no one is forcing me to choose SF or NYC, so I can do a good comparison.

  62. Ken Masters

    My take on this is that Chinese (and other BRICs+Arabs) are the driving forces behind increases in cosmopolitan global cities. They do not trust their governments or governments and banks in general, so to them saving in bricks in a stable jurisdiction is their way of saving money overseas.
    The best way to evidence this is to look at the chart and look at the height of where Hong Kong prices are plotted- way up. Of course, they is a very limited offer of space yet, Chinese are open to go and pour investment and reside in Hong Kong, while they could have it more difficult in Canada, UK or USA.

  63. One of the problems is that the mean US income is less than the median US income, which indicates that there is a “fat left tail” of lower-income workers. The mean home price is $240,000 and the mean US income is about $38,000 so the ratio of average home price to average income is closer to 6.3. Still crazy low compared to other parts of the world! Having to pay more than 19x your annual salary for property is out of reach for the majority of people.

    I’d be interested to see what the median U.S. home sale price is, that will show if the average is being skewed up or down by a fat distribution tail.

    I think the real problem is that the US has hundreds of millions of consumers who buy things they cannot afford. The debt that the average American owes stops them from saving for a down payment on a house. Even if they could afford the $1,000 a month PITI payment, they probably won’t ever save $40,000 or $50,000 cash for this purpose.

    Credit Suisse recently published their research about the average and median “wealth per adult,” and the median US wealth is about $49,000 per person. This indicates that fewer than 50% of Americans can afford the down payment on the mean US house. We’re lucky that our real estate is still relatively cheap compared to abroad, otherwise even fewer people could afford their own houses.

  64. Go Finance Yourself!

    I think US prices are overall very cheap because of the large amount of livable land mass we have. Like in NYC, LA and San Fransisco, space (or at least livable space) is at a premium in many of the foreign countries shown as more expensive in your graph. At least compared to the US.

    The Wired magazine writer needs to step outside his bubble. There are plenty of good cities in the midwest as well as each coast that are very affordable. We live in the KC metro area. Bought our first starter home for $165k. As many of my friends have started having kids, they’ve moved a little further from the city center where 3000-4000 square foot homes can be had for $250,000 – 300,000.

  65. The reason why most Americans don’t realize how good they’ve got it, is because most Americans don’t own passport. Roughly 64% of Americans do not own passports, and I’m sure the percentage is similar to the number of Americans who don’t speak another language fluently.

    We become soft in America. We expect everybody to bow to us. Is there any reason why people hate us? Just look at our obesity levels, or education attainment levels etc.

    We lost the hungry fire that made our country great in the past. It is to be expected that we turn into Europe.

    You can be certain the people arguing against your thesis have not seen the world.

  66. Sam ~

    I think one of the big things that leads to the difference in the price ratio’s is population to livable land. Places like Hong Kong, Japan, China, etc. Don’t have a lot of options for space. So it comes down to scarcity and need.

    The use in population vs Land size has the 3rd most land in the world. This is only behind Russia and Canada without the amount of snow :)

    Probably a better comparison then strait Land/Pop is Arable land/Pop and even there US is still in the top 20.

    Overall agree with your points, just some reasons that I think drive some of that differential.

    ~T~

    1. True, but there is plenty of land to build around Paris, Mumbai, Rio, Oslo, Vancouver, and these cities are much more expensive to buy on an income adjusted basis than any city in the US.

      HK, Singapore, Monaco are understandable. Not sure about the others.

  67. Erik @ The Mastermind Within

    It’s interesting how many foreign investors are looking to buy properties in the US. Since I live in the Midwest and also invest in real estate, I wonder if there will be more foreign investors looking to come in and buy up a bunch of real estate at even cheaper prices when compared to the coastal regions.

    I want to purchase another property this year, but want to do it responsibly.

    Do you think the new foreign investment tax laws in Vancouver could force people into the US?

  68. LivingReturns

    “Have you ever believed in something so hard, only to later realize it wasn’t? Have you ever been so adamant in your belief that you disregarded reality?” Yes, yes I have. :-) In fact, realizing that long ago is a major inspiration for much of how I now think about life.

    As for international real estate vs. U.S., overall I agree it’s relatively cheap, but man, so many variables…gets me thinking about relative incomes, location, demographics and govt policies. For instance, i havent yet done the 50 finger movements to compare prices in intl. cities with similar average incomes, but gut check (and traveling) indicates U.S. is cheaper.

    My wife’s fam is from the north of Japan – the equivalent-ish of American heartland (wow, that is a strange statement :-)). Property there is definitely more expensive than rural America, but due to ageing populations and young people going to big cities, Japanese govt is talking about relocating people in smaller rural towns to larger towns/cities on major transportation routes to optimize govt spending on infrastructure, health care etc…that will tank values in rural areas and increase it near hubs. We’re looking at property near one of the hubs in the NE. near mom.

    And back home…the two properties we bought in 2013 in Seattle have increased 55% in value, but are still cheaper than housing in Tokyo suburbs…havent looked yet at comparison in other major Japanese cities smaller than Tokyo, but am now curious. Regardless, U.S. real estate will continue to be a major part of our portfolio …we’ll continue to buy dips and/or invest in increasing cash flow at current properties.
    -Bryan

    1. Here, let me save you some 50 finger movements: https://www.scmp.com/property/article/1905261/hong-kong-most-expensive-housing-market-world-sixth-year-row-survey

      The average priced flat in HK is 19X the median gross annual income in HK. 19X! That’s up from 17X in 2014.

      The median household income in the US is ~$52,000. The average property price is ~$240,000. Hence, our ratio is closer to 4.6X vs. 19X in HK. Further, our living quarters are much, much larger on average.

      I do wonder whether perception of how good we have it in America if more Americans would simply travel the world and speak more languages.

      1. LivingReturns

        Holy Bovine! 19X average gross income for a HK flat is nuts. Oh, and thanks for saving me finger work – after my initial comment this morning, I walked the wife & 3 dogs 5 miles, did 50 pullups, ate lunch and went to 3 open houses. :-) If you haven’t already seen this Economist intl interactive housing graph, you’ll love it – when you click HK, the whole graph has to adjust scale for HK’s meteoric cost increase: https://www.economist.com/blogs/dailychart/2011/11/global-house-prices . Graph used 2000 prices as baseline.

        Here in “Silicon Seattle,” the median house price is about $650k and median household income increased to $80k by end of 2015, so house is about 8X median income.

        2 of the open houses we went to in our neighborhood were for new $1.5M – $1.6M homes between 3k-3.6k sq ft w/ territorial views and lots under 4k sq ft. The agents (and builder @ the $1.6M home) assured me prices would continue to rise – of course, they always say that. When they found out we owned older houses nearby, they wanted to strike a deal or two.

        Even if there is another market crash, Seattle is buffered due to high tech salaries & diverse industry (MSFT, Google, Amazon, Starbucks, T-Mobile, Expedia to name a few of the big ones) and a lot of those techies have also watched their stock options shoot up in the last few years, so there is a lot of pent up cash to chase limited single family home inventory. I know you’ve been watching the same trends in SFO for years. Seattle has been changing zoning to promote increased density, but that only makes single family homes a rarer commodity, esp considering SEA has water on 3 sides of the northern neighborhoods.

        I’ll have to check out heartland housing – perhaps via real estate crowdfunding.

        – Bryan

        1. Now that is a great resource by The Economist! Thanks for that. I’ve included one of the charts in this post to highlight another source showing how dirt cheap USA is.

          Seattle is just going to go through what SFO went through. There’s no need to overanalyze. Focus on trends folks! So much easier, and tends to be highly profitable over the long run.

          The foreigners are coming in droves. They will penetrate our country like WD40 on a rusty hinge and infiltrate our way of life. I suggest folks build their empire before they come.

          1. LivingReturns

            Ha! Nice. WD40. Agreed. The British are coming! wait…no, that was round 1. Hey, the Russians are coming! No, it’s Mexicans! The Japanese are buying everything and taking pictures of it all! Hey, where’d all they all the Chinese people come from? Oh, sorry, you’re Syrian you say…? Whatever – welcome! : -)

            I think we’re on the cusp if major change in multiple ways. I’m watching developments in artificial intelligence and related automation in additon to immigration and outsourcing. The most common job in the U.S. is still truck driver….

  69. Matt Algieri

    You’re killing me! I’m reading this post between watching sets four and five of the Australian Open, and I read that Federer won! Damn the internet! Still live your blog, though.

    1. Damn, sorry Matt! HATE THAT! I stayed up from 12:30am – 4am, passed out, and watched the final set on DVR at 7am PST. I figured, 11am PST today would have been more than enough time!

      At either rate, I changed the wording to 18-time grand slam winner Roger Federer, to make it more opaque.

  70. It’s fascinating to see how much property prices vary around the world. I had no idea that New Zealand real estate prices were that high. Wow!

    What I have seen is so much interest in San Francisco real estate from foreigners. I’ve been to open houses where there literally are vans full of buyers visiting from China specifically to look at houses. It can really create quite a mad house when they arrive on scene.

    There definitely are investment opportunities in real estate away from the coastal cities that are much more affordable.

  71. Just paid $1m for a modest 1800sqft home in a nice suburb 20 miles west of Manhattan. We love our neighborhood and our town and are able to afford our payment but it certainly stings knowing we’d have double the house at half the cost in many other cities (Charlotte, Atlanta, Denver, Raleigh, Dallas, etc….). Even going another ten miles west to a less desirable suburb would have gotten us 25% more house for the budget.

    No doubt someone in London has a similar feeling towards NYC when a studio costs $1m there but only $400-500k here.

    That said I’ve owned properties in NYC and made a nice profit on them. If/when we sell our home in New Jersey no doubt we will also get a nice return. But is someone buying an average $240k home in Louisville or Kansas City really expected this to be an investment?

    1. I’m building a brand new ~3500 sq ft home 6 mi outside of CLT for less than 400k with upgraded everything and a 3 car garage. Commute to Uptown CLT would be ~40-50 min and to South Charlotte (ballantyne area) is ~15-20 minutes. And that’s after several years in a row of 6+% increases in prices down here.

      Homes in the rest of the south in smaller cities below 400k ppl haven’t gone up much but the rent yield is much, much higher than in cities like NYC and SF. If prices ever start going up like in cities like Raleigh, ATL, and Charlotte, you could easily make money hand over fist in the heartland with Real Estate. Given what Trump *appears* to be trying to do, that’s not that far fetched over the next 4, 8 years.

  72. Sam,

    The Wired article says folks making $100K can’t afford houses in American CITIES. You then quote the average house in America, which presumably is mostly not in cities. Kind of a straw man example to launch into an otherwise well-written article.

    1. There are ~20,000 cities in America and ~35,000 towns and cities in America.

      Are you saying that most Americans do not live in one of the 35,000 towns and cities in America? If so, where do you think they live? Even if there were only 4,000 cities with residents of more than 10,000 people, the 10 most expensive cities on the coasts and major metro areas divided by 4,000 = 0.25%.

      Let’s say there are only 100 cities in America. 10 / 100 = 10%. If you’re only going to speak to less than 10% of the cities, you’re not doing your job as a journalist when it comes to real estate.

      1. ConsiderRegionality

        Adding on an extra comment to this –

        Comparing all of USA to small (relatively) regions such as New Zealand or Hong Kong is misleading. It definitely makes your “long the heartland” argument well contextualized, but it would be more appropriate to make comparisons to USA on a state level, or better yet by a residential market level like San Francisco or Los Angeles. When you do that, you would probably find that these markets are similarly priced or perhaps more unaffordable. Can you add that level of analysis?

  73. Financial Coaching - Brad

    Interesting post. I had no idea how “cheap” US real estate was compared to other developed countries. Maybe I should stop complaining about how expensive houses are in my area. :)

  74. NameNotImportant

    I’m certainly not disputing the fact that you’ve done your research and US property is cheap, but you can’t draw that conclusion by looking at the OECD chart you provided, unless you know the starting home price in 2002Q1 for each country. It’d be prudent to strengthen your leading argument another way. It was hard to continue reading when the first piece of evidence was presented in a flawed manner.

    All that chart is showing is that home prices since 2002 have grown a lot faster in New Zealand (and other countries) than in the United States. It’s not saying home prices in New Zealand are over 2x the price of US homes, although that fact may also be true. To take it to the extreme, if homes were sold for $1 in New Zealand in 2002Q1, it doesn’t mean that homes sold in 2016Q1 for $2.50 are 2.5x more expensive than homes sold in the US.

    1. No problem. The chart is just one datapoint from the OECD. Just look at the median or average price per square foot of real estate in New Zealand compared to the US. Keep on researching other OECD countries on the list if you’ve never been.

      Here are a couple examples from New Zealand.

      Aukland, NZ

      Price to Income Ratio: 9.86
      Mortgage as Percentage of Income: 76.64%

      Wellington, NZ

      Price to Income Ratio: 5.60
      Mortgage as Percentage of Income: 43.48%

      Do you mind sharing your background? Please also discuss whether you’ve actually done research on international property prices. This helps provide readers some perspective as to where you are coming from in not believing. Thanks.

      1. NameNotImportant

        Hi, Sam,

        Perhaps my language was a bit too brash. I never said I didn’t believe you. As a matter of fact, I agreed you’ve done your research and your conclusions were correct. My point, which still stands, is the OECD chart you embedded in the article doesn’t support the argument you’re presenting. There are dozens of better charts you could have embedded to bolster your argument.

        “If you don’t believe how cheap US property prices are, have a look at this chart by the OECD.”

        I did what you said. I looked at the chart and what I’m telling you is the chart doesn’t show me, you or anyone how cheap US property prices are. It shows price growth since 2002. The reader has to make assumptions on the 2002 home prices in order to draw any conclusion about current price rankings. I’m not commenting to have an argument with a successful individual who owns a very successful financial blog – that doesn’t provide value to anyone. I’m simply suggesting you use a different chart because the one presented doesn’t paint the picture the article is trying to paint. You don’t have to defend your point, and I don’t have to state my qualifications. We agree with the overall the conclusions, so there’s nothing to defend.

        1. You give me too much credit. Fair enough. Let’s ignore the OECD chart. I included another chart by a demographics company and the South China Morning Post towards the 2nd half.

          It does help when readers can share their background so that I can understand where they are coming from. I ALWAYS use reader feedback to try and make the articles better. So in so far as you can provide other thoughts on why US property is so much cheap in comparison to the rest of the world, I’d appreciate your input.

    2. OECD Partner

      FYI, the OECD is a very reputable resource. The chart does show that the US relative to the other OECD countries is much cheaper. All you’ve got to do is actually spend some time looking at NZ home price listings and compare.

      It’s pretty amazing to witness denial. I had a friend who still lives in London telling me London prices were way too expensive in 2001. He ignored the rise of Russia and Middle Eastern money buying up the city. Now prices are 3X what he could have bought them for.

      What is causing you to deny the OECD data?

      1. NameNotImportant

        Oy Vey… Again, I’m not denying the OECD data. I fully believe the OECD data and the conclusions of this article, as I’ve said twice (now three times). I’m saying the OECD chart presented at the top doesn’t show what you think it’s showing. It’s not a chart comparing relative home prices of the countries shown. It’s a chart comparing relative home price growth since 2002 for the countries shown.

        There is no denial. There is no disputing. Please read my 2 earlier comments; I’m running out of breath.

        Good grief. This is what I get for opening my mouth instead of sticking to my normal introverted ways.

        1. Jack Catchem

          Nonsense! This is what gets good conversation!

          My favorite metric was “average square footage per person.” Taking that search international made me feel much better about my “small” California home. It’s good to be aware of the bigger picture.

        2. Don’t worry about it. Discourse is fun! You’ve help me make this post better by adding a couple more charts and refining the definition of “city,” which some say is a population of over 10,000.

          Check out the chart by The Economist (and click through to the interactive chart). Very fascinating.

          I was thinking of simplifying the article and doing one of those, “This is what you can get for $500,000 and $1,000,000 around the country,” but I was hoping these charts and my experience would simply be accepted.

          Would it help to highlight the picture of the $1.5M, 500 sqft studio in Knightsbridge, London you think?

        3. For The Greater Good

          Thank you for clarifying what the first chart was depicting. I was having a difficult time understanding some of the conclusions being drawn as I was reading because of exactly what you stated in your initial comment. The additional information that was added to the post and these comments brought it together for me.

          I think both the growth rates and absolute costs are interesting, and may be caused by different things. In particular, I’m curious to know why some countries such as Hong Kong, New Zealand, and Sweden are having such explosive growth in real estate costs, especially compared to others like the US and Germany, and look forward to researching that further.

  75. I never thought about the US having cheap prices compared to the rest of the world but you are absolutely right. I don’t know if it’s because of stricter housing policies in the rest of the world or if it’s because the supply in less in other parts of the world. But you are right that there are definitely a ton of affordable houses throughout the US. With the continued presence of teleworking I have a feeling the US population will continue to push out. With entertainment option expanding and seemingly good restaurants popping up all over the place. It only makes sense that traditional cities will have some competition.

    1. I agree with telecommuting the need to live close to the city shrinks and the ability to afford more house increases.

      But we’re also seeing the trend of those in their 20s and 30s shunning the big suburban house in favor of smaller living spaces in more interesting areas.

      I can see this pushing up prices in the cities and close suburbs and not doing as much for the distant suburbs.

      1. Jack Catchem

        Having policed a “more interesting area” during an era of gentrification, it was hilarious to watch hipsters interact with gangsters as their new neighbor.

        The guy with neck and face gang tats yelling at skinny jeans and a beard:

        “I’ll kill you, fool!”

        “You can’t kill me, it’s against the LAW!”

        Ah, I would be crying in the cop car after mediating these disputes. (And having a serious talk with both parties about respect.)

    2. Hilary Colls

      In New Zealand our prices are incredible expensive. 6+ times the average income with interest rates of about 3.7% to 4.3%. We are a very small country and do not have the availability of land to build. Our new government has stopped foreign buyers who do not have residency so that helps. Our adverage wage is high than USA as we discourage toursits tipping. Employers have to pay a minimum wage which at present is $16.50. You do not pay taxes on top of an advertised price. Everything has to be inclusive but it is still very hard. Count yourselves lucky and stop trying to live like the top 1% and you’ll do fine and at least reach the end of your morgage.

      1. Hmm, at 6x, I guess that’s much cheaper than San Francisco, where the median income is around $85,000, but the median home price is about $1.5 million. So we’re talking 18X. Here!

        I did finally decide to reduce exposure in 2017 by selling my San Francisco rental property. It was too difficult to manage, and someone paid me 30 times annual gross rent for it or $2.74M, so I figured SOLD to him!

        See: https://www.financialsamurai.com/why-i-sold-my-rental-home/

  76. Smart Provisions

    Great article, Sam!

    I live in the LA area myself and have been considering purchasing a single family home for my parents. The only problem is that Single Family Homes in LA are starting at $600,000 and with the same amount, I could move to another city and purchase the same or even bigger home at half the cost, which I have been seriously considering!

    I think the reason why Americans don’t realize how good we have it is because we’re all usually too busy “keeping up with the Joneses”.

    1. I’ve noticed that too, they’re too busy keeping up with the Cardashians, getting drunk, playing with their pets pepper and spice, pushing their personal opinions on social media daily.

      The fake news wired article is likely a millennial’s personal opinion and personal experience published as fact. The population for the most part is connected to reality. Millennials are not connected to the reality of their environment until it hits them in their face, somehow taking up to a decade for them to accept reality over their positive dream fantasies they’ve been told repeatedly or created in their own heads.

      I don’t know the greater details of it but here’s what I can observe from merely walking down the neighborhood streets. There probably is a some gov’t policy that designates a lot of ‘greenland’ that cannot be used for any construction for many decades. Builders somehow have incentive to stop making single, duo family small houses with green backyards instead opting to make cheap material 500 sq feet condos reaching 60 floors sky high without space for a kid or a pet. I guess partly because of more profits. Perhaps there are other reasons too? idk. Tiny living space thats 10:1 to 20:1 annual pretax salary. You can get a very big, very nice house in the distant suburb at those ratios but you’ll need to drive 45 minutes to work.

      This is analogous to earning the top 5% salary bracket in the country. Problems is all tv, movies, media outlets are shot primarily in these locations. ‘Stars’ and big companies can afford these locations. Their $50,000 yearly employees can’t but think they deserve it. They think they deserve to be a lawyer and doctor too no doubt without putting in 4-8 years of real work. The other 95% of the country has lotta land available and doesn’t resemble all the nicely doctored tv show series you watch daily. Real affordable in many parts of the country actually minus the real overpopulated coastal regions.

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