Saturday, December 8, 2007

Can we afford this Boca Raton home?

Hare some basic numbers that defog the mirror a bit on what is happening in the South Florida real estate market these days. You can do with them what you will, but if you don't educate yourself I'll try and do it for you.

Oh--and to answer that inevitable question of 'is now the right time to buy?' that I get so often in my business....the answer to your question is "I don't know". Anyone that answers otherwise is predicting the future and I am not in that business. If you are a family of three expanding to a family of four and you must get out of that 850 square foot condo and into something slightly larger to accommodate the new arrival, and you have come to me with a request to find you something bigger since you can't stand your current living situation, your time to buy is now. If you are an investor who wants to purchase a property with the idea of flipping it within a year for profit and you have little to no idea what you are really doing, your time is not now. It's also not tomorrow, nor is it 10 years from now. Your time to buy is never. Take your business elsewhere. There is certain to be someone in my line of work to help you in your search; I won't be one of them.



Here we go:



Median household income in Palm Beach County (per the 2000 Census, adjusted for inflation):

$55,140.

Median price of a single family home in Palm Beach county:

$372,200.

Price-to-Income Ratio for Palm Beach County:

6.75:1.

Healthy PI Ratio according to Goldman Sachs (article here):

2.7:1.



Okay, equipped with this data we can calculate what the average household income needs to be in order to afford this home in this county. We have to make some simple adjustments with respect to monthly debt, and I will illustrate this below. Using Bankrate's 'How much house can I afford' calculator, this is what we come up with for a single family home located in Boca Raton using a conventional 80/20, 30 year fixed loan:

Home price: $371,000

Down payment: $74,440

Financing: $297,760

Interest rate: 5.3%

Taxes/Year: $7000

Homeowners Insurance/Year: $3000

Monthly HOA dues: $150

Monthly mortgage payment: $1650

Required household income in order to qualify for this loan: $87,600.

Caveats to these numbers....You can qualify for this loan if you or your household earns $87,600 and you have ZERO DEBT. That's right, no car payment, no car insurance payment, no alimony out or in, no investments, no student loans, and no credit card debt. You must also have excellent credit. Sound like you? Probably not. Add on all of your debts and the household income number goes up up up. And we wonder why the housing market has begun a crash of epic proportions. You can 't lie on your loan application anymore and prices are still way out of whack with respect to basic fundamentals.

Until prices come back to realistic levels, we can expect the South Florida market to decline. The government bailout will NOT help most people, and inventory will SOAR in 2008. You can quote me on that.




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1 comment:

RIAZ UDDIN said...

Are You Want to Buy Boca Raton Homes? Congratulations! You have decided to purchase a home, or are thinking about buying one.