How Much Home Can I Afford?
Spurred by a bit of debate in the post prior to this one, I've been playing with our Foolish home ownership calculators, using median, DC-area numbers, in an attempt to show just how out-of-whack home prices still are in this area, and why you need to believe in Fairy Tales to think they won't continue to tank.
Median Income: $63,000. Median Home Price: $400,000.
Use the Fool's "What Home Can I Afford?" Calculator.
Assuming a household is willing to pay 25% of income for housing (before maintenance and/or condo fees)
Result: By making a down payment of $15,000 and paying $1,325 per month, you will be able to afford a home that costs $171,289.
Hmmm. That's 43% of the median home price around here.
Assuming a household is willing to pay a full 50% of monthly income for housing (before maintenance and/or condo fees)
Result: By making a down payment of $15,000 and paying $2,625 per month, you will be able to afford a home that costs $330,739.
Hmmm. That's only 83% of the median home price. Better up my offer! Sure, that'd be more than half the monthly take-home, but after all, owning a house at any price is the American Dream! The TV and Radio and Newspaper (none of whom have anything to gain by playing carnival barker for the real estate industry, of course -- cough... advertising... cough) keeps saying so!
Or wait. Maybe I should just rent? Maybe that median price will eventually fall to match what people can afford with customary, non-toxic, mortgage loans?
Or perhaps our Foolish home calculators aren't yet calibrated to the "this time it's different" world of contemporary real estate beliefs?