"Affordable" Housing?

There is a common adage that the cost for a mortgage plus utilities should only be 30% of a person’s income to be considered "affordable" or prudent.

In 2007, the median annual household income rose 1.3% to $50,233.00 according to the Census Bureau.

This is a pre-tax figure, so let’s ignore sales tax, property tax, breathing tax, and just subtract a conservative 25% for income tax and we get $37,675. Divide this by 12 months and we get ~$3,140.

The median sales price for a home in the U.S. in August 2008 was $203,100.

So…the adage is that the cost for a mortgage plus utilities should only be 30% of a person’s income…hmmm…let’s see:

Mortgage only: current rate for 30 year fixed rate at 6.20% on $180,000 (20% down) = $1,102 per month.

30% of $3,140 median monthly income is $942. Ooops! Let’s see, $1,102 - $942 = $160 short every month, and we haven’t included utilities. I don’t know about other people, but I’m doing well if I can keep utilities (gas, electricity, water, sewage, garbage, recycling fees, etc., etc.) below $200 a month.

That means that for the median household trying to live in the median home they come up $360 short a month; and we haven’t even mentioned healthcare premium and co-pay costs.

Is it really a mystery why normal people are defaulting on their mortgages and/or racking up credit card debt?

Sure, there are some people using their home and equity as an ATM. However, for the median household the median home is NOT affordable. Income has to go up, prices need to come down, or both.

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/25/BUQG134D3K.DTL&type=realestate