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Monday, April 30, 2007

WashingtonPost real estate

It's rare I read the Washington Post, and say, "hey, those numbers are completely wrong." I did today, though. I was reading the Business section and saw an article by Elizabeth Razzi on "Teacher's Montgomery Trade-Off". It's trying to tackle an interesting social issue, whether teachers can afford to live in the community they teach in.
Our imaginary teachers make a joint income of $136,500. A member of the board of Greater Capital Area Realtors, Anita Centofanti, recomends a house for $530,000, with a 30k downpayment. This leaves them with a monthly housing payment of about $3,100, plus property taxes and insurance, probably putting them at $3,700.

I'm not sure about the after tax income on their salaries, but it looks like they're spending close to 50% of their after tax income on housing. Using the calculator at the Smart Money worksheet the max they could borrow at a 28% housing ratio is $404,000. The Post tends to run a variety of articles by Michelle Singletary on living within your means, so it's odd to see this sort of recommendation pop up

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2 Comments:

Anonymous mjb said...

I hope you actually pointed this out to someone at the Post.

10:13 PM  
Anonymous Anonymous said...

Josh, I hear what you are saying and actually, a lender I spoke with would have loaned them even MORE which seemed irresponsible to me. When I started in the business 15 years ago, the housing expense to gross income ratio of 28% was used. But it was also accompanied by a TOTAL debt ratio of 36%. Now, they use something more like a multi-dimensional matrix that factors in credit score, loan to value and total debt. This particular couple did not have that much additional debt. Their TOTAL debt to gross income ratio would be 35% with this deal and hence they would have fit into the old, conservative guidelines.
It's important to note also, that this was just one of many, many choices they had within Montgomery County that ranged from a sweet (albeit small) bungalow in Takoma Park to a single family home in upper Montgomery County. I just felt it was imporant to show that there are some lovely, modest communities right in the heart of our County seat. Also, it should be noted that the median home price is $400K. If my highschool mathematics serve me, this means that 50% of the homes that sold were at or below $400K. And right now, there is a lot of inventory. Hence, I feel that our work force is being done a diservice by being told that there is no affordable housing because it just isn't true!!!

Thanks for listening and thanks for taking the time to comment on the article. The flip side of what I just said is that many people are being shoehorned into homes before they are ready. The drive toward home ownership is palpable - especially in the low to moderate income bracket where they are vulnerable to predatory lending practices. I also serve on the Board of Directors of a non-profit organization - Housing & Community Initiatives. The charter of this 15-year-old organization is to provide first time homebuyer education and financial literacy glasses for this targeted population. Our participants get a certificate at the end of the 3-hour session which makes them eligible for special loan programs offered by the county and state as well as the MPDU program. Still, we are finding that in the presence of affordable housing and favorable loan terms, these folks just aren't ready due to lack of savings or bad credit. I wish everyone thought the way you do - fiscally responsible!
- Anita M Centofanti

8:21 PM  

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