#1 Thing that makes Housing unaffordable in So Cal

True or False?

-high property prices

-low earnings

-small down payment

-consumer debt

Ding.Ding. All answers are true but the focus today is on Consumer Debt.

Assume buyer earns $5000/m and has $2200/month to spend after taxes and savings:

               -with $0 consumer debt they can afford a $300k condominium (5% down)

               -with $300/m consumer debt they can afford a $250k condominium (5% dn)

               -with $600/m consumer debt they can afford a $200k condominium (5% dn)

That $600/m consumer debt (car payment) just cost $100k in buying power.

Would-be homebuyers have greater buying power when they have little or no debt.

Would-be homebuyers with expensive car payments may consider trading in for a less expensive car.

General rule of thumb is that total monthly expenses (proposed house: mortgage payment, property taxes, home insurance, condominium dues –PLUS- consumer debt: car loan, credit card, student loans) cannot exceed 45%. $2300/m total expense divided by $5000/m gross income = 44%