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.“
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.
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 $70,000 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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I Love you site. I am a 29year Old lady from Kenya.
I am learning alot each day.
God Bless
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?
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
I have always wondered why Germany is so cheap housing wise. Cheaper than US even.
Its because Germany’s population is declining. As a result housing supply exceeds demand, therefore prices drop
“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?
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.
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.
Love NYC! Just kinda hard to truly save money there until you start making some big bucks.
So much to spend money on!
See: https://www.financialsamurai.com/how-do-people-to-live-a-comfortable-life-making-less-than-100000-in-expensive-cities-like-new-york/
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.
That’s the thing. LA is cheap compared to SF and NYC. And SF and NYC is cheap compared to Hong Kong, London, etc.
People are much more gainfully employed and making more money than 5 years ago too.
Example of SF comparisons: https://www.financialsamurai.com/the-cheapest-international-city-in-the-world-san-francisco/
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.
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!
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
“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.
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
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 :-).
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.
Cool. How does your income compare? And does the income have the same upside opportunity?
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 :-)
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/
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”.
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.
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.
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.
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?
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!
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?
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.
Not sure given last week I would agree with your point about the US having a “stable” government..
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.
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!
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
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.
“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.
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…
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.
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.
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 :)
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?
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.
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!
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
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!