Who is going to buy my house? And when?
As many of you may have heard, there seem to be problems in the residential housing market. Here in Suffolk County, New York (home of AHM) we are also experiencing problems. In spite of the hands off approach our government has taken to the mortgage industry, the lack of qualified buyers has become apparent. The generous efforts of the mortgage industry to qualify more and more thankless buyers have only been met with whining, complaining and now a lack of mortgage payments. Having done their best to help, many mortgage companies have just given up completely. Others, finally realizing you cannot be nice are stubbornly insisting on verified income to decide how much they will lend prospective home buyers. The unintended consequence of all this complaining is that now these whiners are turning to government for a helpful handout.
Our County Executive is trying to address this lack of affordable housing. Our State and Federal governments are also being called on to help. Many will tell them to stay out of it, as an unregulated market performs best. So is there really a problem?
For information I turned to www.mlsli.com where I collected income, housing, and mortgage data.
In Suffolk County the average price of a home is $456,419.00. The median household income (which includes mature homeowners like myself) here is $65,288.00. As it turns out, the website also has a mortgage calculator, with a “how much can I borrow” calculation.
So I asked myself how much house the average household can afford to buy.
I divided $65,288.00 by 12 months and got $5440.00 monthly income and plugged that number into the calculator. The calculator preselected a $300.00 car payment and a $100.00 student loan payment which I left in, and no other monthly payments such as credit cards, alimony or child support. I selected a 7% fixed interest rate, a 30 year term and said we have a 10% down payment. I used $6000.00 in annual taxes and a $500.00 insurance payment.
I found the optimistic amount this average household could pay for a home is $193,538.00 the pessimistic amount is $153,900. So let’s split the difference and say they can afford a $173,700.00 home.
I bet at this point, most of you have noticed that the average household (not individual) cannot afford the average house. You may be saying that housing prices could never drop that much. Maybe not, but for the next couple of (fifteen) years there are going to be some tough negotiations going on. But in the end unregulated markets will succeed in getting everyone into a home they can afford.
I have to make dinner now, we are having Purina.