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| Wednesday, September 12, 2007 |
| Housing costs punish family budgets |
USAToday's article: Housing costs punish family budgets lays out some striking data. More homeowners (with mortgages) are spending 30% or more of their gross (that is before tax) income on housing - 37% are doing this according to the article! Sydney Lasry, a systems engineer, took a second job three years ago so he could afford to buy a $400,000 home in Severn, Md. His mortgage payment hasn't risen, but his property taxes have jumped by $1,000 since then, to $3,200 a year, and his home insurance has soared by $500, to $1,100.
Now, housing costs are devouring 70% of his gross income. And Lasry, 45, who's working as much overtime as he can, fears he won't be able to keep up. "People see me living in this nice house" but when Lasry eats out, "I eat at McDonald's," he says. Part of the problem, as I see it, is folks getting into too much house to begin with. Add to that the rising costs but stagnant incomes and it does not take a genius to see a problem emerging.
I worked multiple jobs to purchase my first home - but that was for down payment money, closing cost money, and renovation money - not to meet my monthly housing costs needs. If you can't swing the mortgage comfortably on your primary salary alone, then you can't afford the house. Moonlighting is a great option for a short time - say 6 - 18 months. If you can't meet your goal in that time period with moonlighting then it is time to either change your goal or work out a way to increase your primary jobs income to make the numbers work. |
| posted by Boston Gal @ 9:53 AM *
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| 9 Comments: |
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I am about to take a seasonal job to help with my house's down payment, but I know better than to find a house I'll need a second job to afford.
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probably before the property tax increase and the home insurance increase he was able to afford the mortgage payment. i'm not sure how you would be able to forecast a 3x increase in property taxes and a 2x increase in insurance.
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Interesting, that is not how I read the passage. I read that in three years his property tax increased by $1,000 for the year and insurance increased by $500 - so a total increase of $1,500 for the year - $125.00 more per month.
I can't see the $125.00 more per month jumping his payments to 70% of his gross income.
So I believe he was working the extra job already and now three years later is realizing that costs are going up and he can't get his income to match the rising expenses (taking a third job does not seem practical).
The extra $125.00 per month does stink, but if he had purchased the home and kept his housing costs to under 30% of his primary income three years ago this $125.00 increase should not have been such a big deal.
It sounded like he was already barely making it when these increases hit and probably he woke up to the realization that expenses will continue to rise...
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Just seems here like he overspent ridiculously on the house. A systems engineer should be making decent money and a $400,000 house in MD is not terribly expensive. A $1,500 increase in annual housing expenses shouldn't tip you over the edge. His monthly housing costs would have already had to be well over 60% of his income.
My gut feeling is that he refinanced to take a vacation and buy an expensive car or something.
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I am not sure why you couldnt forecast the increase in property taxes. Almost everywhere property taxes are a function of a home's value. Home value increases; property taxes increase.
From the anne arundel County site (where this guy's house is)
THE PROPERTY TAX BILL: ASSESSMENTS AND TAX RATES
ASSESSMENT X RATE = BILL
The amount of the tax bill is determined by two factors: (1) the assessment; (2) the property tax rate. Assessments are based on the fair market value of the property and are issued by the Department of Assessments and Taxation, an agency of State government. Property tax rates are set by each unit of government - the State, counties, and cities.
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Yes, he was in way over his head before the $125 monthly increase in taxes and insurance.
Time to sell, or get a housemate.
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70% of his GROSS income? Wow! So that's probably 85% of his NET. Geez! I bet he also drives a luxury SUV.
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Actually, I'm going to post about this soon. But I think Kim is right, he overbought what he could afford in the first place.
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He has no business owning a house if he can't afford a $125/month increase in expenditures. It was too tight before the tax and ins hike, and it's way too tight now.
Also, he should learn to cook at home. Last I checked, Mickey D's wasn't any cheaper than what I can make myself.
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I am about to take a seasonal job to help with my house's down payment, but I know better than to find a house I'll need a second job to afford.