Why would a single person need to buy a 3 bedroom home (the median American home size)? A household with two $120k earners can very comfortably afford a $1 million home at current mortgage rates.
Mortgages are leverage, but unlike traditional financial leverage not subject to margin calls. Normally high leverage is risky in trading, because small perturbations in price can force liquidations.
However with a traditional mortgage, as long as you keep making payments you cannot be forced to sell. (In fact it's even better, you can always re-finance when rates improve, whereas the bank cannot raise rates on you when they worsen.) Therefore all you care about is the return to the asset over the long-run. And absent maybe a once-in-a-century depression, there's no way a single family home will decline in price over 20+ years.
Mortgages are not just leverage. They also lock in your cost of housing.
For example, people who rent in major cities have seen their rents increase by 30% or more over the past few years. Housing prices have also gone up by that much.
On the other hand, someone who bought a home a few years ago has not seen their monthly payment change -- and it will not change for 30 years if they got a fixed-rate mortgage! In the next few decades, their mortgage payment will be increasingly smaller in real terms due to inflation and will eventually be substantially lower than the rent for a similar home.
2 people earning $120k each have a monthly pre-tax income of $20k. They can easily afford a million-dollar home, and the property tax (~11-12k per year), in the San Francisco area. The problem is, a home that cost a million dollars 2 years ago now costs $1.3 million.
It still sounds insane to me, I've made an assumption anyone with a $1M home (or above) is either carrying much less via down payment or is in the $4-500k / yr range.
Most responses on an assumption that, inflation adjusted, housing prices only rise. For many areas this is not true, the bay might not be one of them, it is probably even more localized for the areas that are more protected from downturns.
From your example, a house would be around $5.5k/month before maintenance / capital costs on take home of ?12-14k?. Seems rough, especially if one of those salaries is lost or degrades.
It is all perspective though, we're used to lots of space and size. My normal is other people's insane.
I'm single and bought a $350k 3 bedroom when I was making around $130k. I bought the home because the city I lived in at the time (Austin) had banned townhouses/duplexes/etc so my only option was to rent in a midrise, rent a home, or buy. I wanted a townhouse downtown, not a SFH in the suburbs.
Unfortunately I sold said home at the beginning of 2019 and have watched it essentially double in value over the last two years.
1. A single person likes to have guests stay over and wants to offer them a room and also have a home office for working from home
2. There are no "starter" homes available in their area. This is what my spouse and I hit in Los Angeles. We tried a condo and ended up suing the person who sold it to us because it was so noisy as to be unlivable. (And it turns out most of the condos in the area are like that.) But there were no small homes available on the market to purchase. When one did show up, they were usually purchased immediately for cash for more than asking price, torn down, and a new home built lot-line to lot-line put in its place and sold for 3x the cost. Eventually, I got some bonuses that allowed us to purchase a larger home so we did that. Now we have a guest room and an office which has worked out great during the pandemic. I'm really glad we did it.
