April 26, 2008
Is the American Dream Still in Reach?
An AOL/Zogby survey released earlier this week shows that more than half of all Americans believe that homeownership is still attainable for most citizens, while nearly as many (43%) spend more than 30% of their income on housing. Furthermore, 30% of Americans work paycheck to paycheck to cover these costs. Interestingly, spending this much of your income on housing makes you “cost burdened,” according to HUD.
Families who pay more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care. An estimated 12 million renter and homeowner households now pay more then 50 percent of their annual incomes for housing, and a family with one full-time worker earning the minimum wage cannot afford the local fair-market rent for a two-bedroom apartment anywhere in the United States.
In reality, homeownership may be attainable for the majority, but the options may be very limited. According to the 2006 American Community Survey, the median household income in Washington was $52,583 per year. Using this income estimate and assuming a 20% down payment and interest rate of 5.875%, you would be able to purchase a $275,000 home and not be cost burdened. Specifically, you’d be able to purchase any one of the following “dream” homes:
A “sweat equity” 4 bedroom value in Seattle:
828 S. Donovan St., Seattle
4 br/2 ba, 2,460 sq.ft.
Price $255,900 ($104/sq.ft.)
MLS 28029387
A “Peek-a-boo” lake view in Seattle:
9624 56th Ave S.
3 br/1.75 ba, 1,340 sq.ft.
Price: $275,000 ($205/sq.ft.)
MLS 28028722
A 666 sq.ft. 1 room charmer in Bellevue:
281 112th Ave SE #4
1 br/1 ba, 666 sq.ft.
Price $259,000 ($389/sq.ft.)
MLS 28042269
An updated “room” in Kirkland:
211 Kirkland Ave #519
0 br/ 1 ba, 476 sq.ft.
Price $274,950 ($578/sq.ft.)
MLS 28025379
And even more, despite all the recent headlines about sinking home prices, nearly one third (31%) of Americans still feel their home is worth more than it was last year and more than half (56%) do not think it will be worth less in five years. I love this about America–despite the erratic financial markets, the skyrocketing gas prices, and yes, even rice shortages, there is always hope…one can always hope.
Gary said:
I’m 50 years old, I’ve not had a tremendous life, but I make just slightly more than the Washington median income, and believe me, that’s not a lot of money in the days of almost $4 a gallon gasoline and skyrocketing food prices.
The assumed 20% downpayment is a lottery ticket away for me, again, that ‘hope.’ I was out of work for over two years, my 401K and my savings gone just to support myself.
Realistically, how many people have $55,000 (at the median income level!!!) stashed away? Some may, and for them, that’s wonderful.
Let’s be a little more realistic. I live in Kitsap County. I am a Veteren. I have an ‘average’ credit score, mid 600’s. I basically still have no savings put away, living paycheck to paycheck. I am single, and I rent. I am looking to purchase a house. I can get a VA loan, no downpayment, and closing costs of about $9,000 for about $150,000! This will put me up near the ‘cost burdened’ limit after I figure in the mortgage payment, taxes, and condo fees. Yes, condo fees, you don’t actually think I can afford to buy a REAL house, do you?
I am budgeting about $1,300 a month for housing costs, not including utilities. I know to some of you that is laughable, you probably pay more in rent, but this is what I can afford on what I make and what I expect to make. This is the median income in the state of Washington. Try putting a cap of $200,000 on your Redfin search, and see what’s available. Try working over your financial calculators with 0, 5 and 10% down. See what *I* can afford, and what most people in Washington can afford.
Hope…yeah, as in, I hope I hit tonight’s Lotto jackpot, because that’s really the only way I’m going to get a house.
Gary
April 28, 2008 9:12 AM
Gary said:
Katrina,
I was thinking about this a little more, and your numbers are unrealistic. Consider the taxes, at 1%, and a PMI of .25%, which I don’t think you put into your accounting. However, they’ll be there in the monthly mortgage payment.
At 30%, which is AT the ‘cost burdened’ level set by the HUD, for a 30 year loan at the described 5.875%, your loan will be for about $188,000. With your 20%, your maximum house that you’re going to be able to afford is actually closer to $233,000!
None of the properties you listed will be ‘affordable’ to the median income level in Washington state.
Gary
April 28, 2008 11:55 AM
Katrina Munsell said:
Hi Gary, you’re right, taxes and PMI should be included in the housing expenditure calculation, though I prefer to consider my numbers as more “optimistic” as opposed to than “unrealistic.”
This absolutely makes the options even more limited, as you mention. Frightening, I think, and I was surprised to see that so many of those surveyed felt differently!
April 28, 2008 8:22 PM
Gary said:
Katrina,
The sad truth is, however that housing for median income wage earners is near to non-existant.
I’ll take ‘optimistic’ over ‘unrealistic’ any day of the week.
By the way, I should point out that I made an error, and if you have 20% down, you won’t have to pay PIM, but that’s really only about $50 a month. It doesn’t push the amount you can borrow up all that far.
G
April 29, 2008 6:59 AM