How to afford a $400k house? Are most people in these "house-poor" or stuck with ARM about to increase?

I don't mean to sound like a wide-eyed country bumpkin or anything, but I was recently walking around the NW side of Chicago (near where the brown line terminates) and it seems like every new house (mostly teardown-and-rebuild jobs) is going for $400k-500k. And I realize homes in CA are often double that. I... show more I don't mean to sound like a wide-eyed country bumpkin or anything, but I was recently walking around the NW side of Chicago (near where the brown line terminates) and it seems like every new house (mostly teardown-and-rebuild jobs) is going for $400k-500k. And I realize homes in CA are often double that.

I make about double the average salary for my town (won't say where, but in the midwest US, population about 100,000 people), and my house cost well under $200k, and I'm certainly not left with tons of money left over at the end of every month.

So...do the people in these houses all earn over $250,000? Or do they all pay 80% of their net income towards the mortgage and eat peanut butter sandwiches? Or are they all pinned under some sketchy mortgage and about to lose the property?

Obviously I know that this question can't be answered for "all" people in homes that cost that much. I'm just looking for a couple of realistic examples of how people can afford such a property.
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