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. Once COVID is under control, 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.
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.
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.
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.
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.
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 $810,000 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
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.“
“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.
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.
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.
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 very well and with low volatility since the company began in 2012.
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 $810,000 in real estate crowdfunding to ride the wave and earn income 100% passively.
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.
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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.
Gentleman of Leisure says
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.
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.
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.
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.
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…
Gold Medal Finance says
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.
Full Time Finance says
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.
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.
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?
Financial Samurai says
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!
Millionaire By Forty says
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 :)
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.
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?
Financial Samurai says
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.
How To Profit From The Wealthy Mainland Chinese
San Francisco: Cheapest International City In The World
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.
Financial Samurai says
You can only take out $50,000 a year from the control per Chinese capital controls.
Thanks for the “How To Profit From The Wealthy Mainland Chinese” post. It really answered many of my questions.
Freedom 40 Plan says
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….
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?
Financial Samurai says
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.
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.
Financial Samurai says
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.
Ten Bucks a Week says
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.
Ken Masters says
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.
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.
Go Finance Yourself! says
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.
Financial Samurai says
The thing is, San Francisco is so cheap compared to places like Hong Kong, London, Paris, etc. It’s a screaming deal out here based on the jobs and incomes we earn.
We have 24-26 year olds with $250,000 per year total compensation packages due to Google, FB, Apple, Uber, Airbnb, etc. If s/he gets hitched, that’s a $500,000 comp package.
Lazy Jake says
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.
Financial Samurai says
That is very true. Why get off the couch when we can just CONSUME like crazy from the comfort of our own home? Let me go do some push-ups now.
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.
Financial Samurai says
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.
Erik @ The Mastermind Within says
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?
“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.
Financial Samurai says
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.
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.
Financial Samurai says
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.
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….
Matt Algieri says
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.
That match was amazing!
Financial Samurai says
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.
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.
Financial Samurai says
I’ve seen the vans full of foreign buyers (mostly from China) as well in Honolulu! Stay away before I can buy my dream home!! :)
I just don’t understand how they are able to buy $1M+ properties when they can only bring out $50,000 a YEAR per person. Come on now. Something illicit is going on.
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?
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.
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.
Financial Samurai says
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.
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?
Financial Samurai says
Sure, although I’d argue that Canada, France, the United Kingdom, etc are pretty large land masses as well.
Check out my post on San Francisco versus other cities in the world: https://www.financialsamurai.com/the-cheapest-international-city-in-the-world-san-francisco/
Financial Coaching - Brad says
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. :)
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.
Financial Samurai says
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.
Price to Income Ratio: 9.86
Mortgage as Percentage of Income: 76.64%
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.
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.
Financial Samurai says
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.
OECD Partner says
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?
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.
Jack Catchem says
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.
Financial Samurai says
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?
For The Greater Good says
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.
I feel your pain.
Mustard Seed Money says
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.
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.
Jack Catchem says
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.)
Hilary Colls says
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.
Financial Samurai says
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!
Smart Provisions says
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”.
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.