If I Were to Buy a House Today…
I just ran some numbers. If I sold my condo and cleared a bit of cash, say $15K, even with my salary, I’d hardly be able to upgrade to a full one-bedroom in a nicer part of town. I worked up some numbers with the Kiplinger’s Real Estate calculators. I used the one to find out how much can I borrow and one to find out how much can I spend on housing.
The reasonable figure I came up with was buy a place for $279k, and put 5% down. With taxes, PMI and home insurance, that’s about $2030 a month for the mortgage payment. Factor in monthly maintenance cost/HOA fee, utilities, I’d barely be able to cover the cost of a home like this.
The reason is that with a full complement of saving in my 401k plan (capped at a theoretical $16k for 2009), plus some money in the company ESPP, an HSA (capped at $2400), and a little for a Roth 401k, there would be very little left for a mortgage payment. I am not sure I’d want to pay more than 50% of my take home pay on a mortgage. That seems like excessive saving, doesn’t it? But when you’re in your 30’s and undersaved for retirement like I am, I think supercharging my saving is a good idea.
I just don’t understand the DC housing market. How can people live here, save and have kids all at the same time? Unless you really are a K Street lobbyist raking in the dough, it’s nigh impossible to live here and raise children all at the same time. (But is my dream of San Francisco any better? Hardly.)
My other strategy is to stay put and ride things out, even though there are things going afoot at my condo that displease me and could end up being worse if I wait. (Action is sometimes better than inaction.) I could easily see thing going to hell in a handbasket and getting a special one-time assessment of $2-4k next year for major property repairs.
I could rent my apartment out and find an alternative place to live, but the rent I could collect is less than what I’d have to pay so it’s a negative cash flow situation.
The last strategy is to sell and move to an apartment with a roommate. However, with the way my mortgages and HOA fee work out, I’d be hard pressed to find a great living situation for rent and utilities for less than what I pay now. And great would have to mean a not crappy neighborhood where I wouldn’t have to struggle to park my car. Now that’s a joke in busy Arlington.
One of my girlfriends lives in a one-bedroom with all utilities for $950/mo, but she has no elevator, a walk up 2 flights of stairs after a 20′ flight of stairs just to reach her building from the parking lot, a crowded parking lot and crappy neighbors. Should I go in the opposite direction, I’d be paying the same amount as my current housing cost for one-bedroom rent with utilities included, and extra for limited parking. But the building would have package service and a bigger laundry facility with nicer views. And likely the rent would actually be about $200 more than my current housing cost since it’s not rent controlled and could easily balloon after 12 months.
So really I should shut up and put up with the mess that is my condo, keep my head down, pay off the credit cards and keep my savings plan intact.
Every once in a while, it’s nice to get a cold hard reality check, run the numbers, and say to yourself, “Well this glass is certainly half-fulll, but really, at least it’s not half-full of poison.”
Sarah wrote:
It’s a frustrating but not impossible situation. At least the big assessment you are looking at is not that bad in the grand scheme of things (relative to your income, savings, debt, etc) — I have friends who just had to cough up a $40,000 assessment on a condo they just purchased last year. (Another HCOL area, not unlike DC, but not a $500k mega-condo, either.) They purchased the condo with the knowledge that a large assessment had already been paid by the previous owner (~$15k?), so they thought they were safe on assessments for a while. It turned out that the first project revealed a more expensive problem that also needed to be fixed.
To me, involvement in the HOA sounds like a big pain in the rear, but it seems like it would be worth of it.
Posted on 14-Aug-08 at 12:19 pm | Permalink
J. Lasser wrote:
Not to be even more of a downer, but I’m told that it’s extremely difficult to get loans for any condo these days, as banks are terrified that virtually all condos will soon be worth less than what they are now, enough so that people will simply walk away. (Many condo projects in Seattle are becoming apartment projects because of this and other related issues.)
Further, it’s my impression that loans with less than 20% down just aren’t being made right now.
Posted on 14-Aug-08 at 12:25 pm | Permalink
mapgirl wrote:
J. Lasser - Oh I’m aware that I can’t get a loan now with less than 20% down. I’m also aware that that I haven’t received a credit card offer in the mail in 2 years. I got just two and I wonder how the heck that happened.
Many condo projects in DC area are converting to apartments as well. Some commercial construction has flat out stopped in DC and there are low occupancy rates for some buildings that were just finished. “They” aren’t coming.
I’m still unclear on being underwater on my condo as many units on the market aren’t selling. Therefore, the market isn’t being dragged down until a sale gets recorded someplace and everything recalculates. (Arlington looks at all units sold in the previous year to do their annual assessments for taxes. If nothing sells with the new lower market price, then the assessment doesn’t get dragged down.)
Strangely in the high rent neighborhood, condo units are still going for $600K, but I don’t think anyone is buying luxury units these days. So the buildings are half empty. Makes me laugh, and yet makes me cry.
Posted on 14-Aug-08 at 12:48 pm | Permalink
Twiggers wrote:
It sounds like financially you’re probably better to ride out the downturn in the housing market….keep your head down and sock away money into savings! My area has been relatively unaffected by the housing downturn (3 houses in my subdivision just sold in less than 6 weeks on the market), but it is going to get tougher to find buyers with the 20% down thing!
Posted on 14-Aug-08 at 3:58 pm | Permalink
Dean J wrote:
White-collar workers in Washington, DC don’t have kids. It’s one of the things that indicates a sustainable lifestyle, and that’s not DC, IMO.
Posted on 14-Aug-08 at 9:58 pm | Permalink
Beachgirl wrote:
You’ve been nominated for an award here:
http://beachgirlsbudgetblog.blogspot.com/2008/08/blog-award.html
Posted on 15-Aug-08 at 6:36 am | Permalink
Mikka wrote:
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Posted on 19-Aug-08 at 9:33 am | Permalink
Escape Brooklyn wrote:
I wonder the same thing about people (with and without kids) buying insanely expensive apartments in Brooklyn. Many of my neighbors don’t seem to work and take frequent fancy vacations, so my only guess is that they have serious family money.
Feeling stuck in my apartment is the main reason I’m cashing out and moving out of the NYC area altogether. Even though my apartment value has increased nicely, it’s still not enough to upgrade to anything better! So frustrating. I feel your pain.
Posted on 19-Aug-08 at 9:34 am | Permalink
Nancy wrote:
It’s funny that I should come across this entry today, as I just looked at two properties that are “accessible” for my budget: $269,900 and $296,000. What killed me was that in both cases, the new owner would be better off demolishing the existing house and starting all over again with new construction.
I live in a small mountain resort town where the housing crunch obviously hasn’t hit as hard as some other places. People still believe that they can ask ANYTHING and someone will buy. And unfortunately, I think they’re right.
Both of the houses are in “good” locations: one close to the downtown area so it’s considered a “walkable” place, and the other is a good solid neighborhood. The one close to downtown was 917 sf, with a questionable roof, electric, and SMELLY! The second had HUGE cracks in the walls, with one crack that ran the length of the house, like it was going to break in two.
I’ve decided that if these are the properties that I can afford, I can’t afford a house. I’ll stay put in my condo for a while more, hoping that I can eventually own four walls.
Posted on 19-Aug-08 at 5:01 pm | Permalink