Home ownership doesn’t add up for many who work in South Florida. To afford the average house, priced at $280,000 to $311,000, one needs to earn double the local income.
The average annual gross salary for South Floridians is $46,000 to $52,000, if you believe chamber of commerce and government data. Using that data, we will assume $4,000 net monthly income, since tax rates vary per family. Expenses will be rounded and computed using 4 ½ weeks per month. If the average $300,000 Florida house were purchased, with taxes and insurance, the monthly payment would be $2,340.
The affordable house for those bringing home $4,000 net monthly is $100,000. Estimated monthly principal and interest, and taxes and insurance for a 30-year, 6.5 percent, fixed-rate mortgage would be $935.
The sample budget included in this column has omitted much. It allows for no household cleaning supplies, tires, oil changes and auto maintenance, health care such as glasses or medical tests, sports equipment purchases, college savings, student loan repayments, an emergency (traffic ticket), or big event (wedding or concert tickets). The sample budget also assumes health care coverage and low debt. Missing, too, are childcare costs, daycare and school fees, child support payments, and alimony. The vacation allowance is only $480.
What is absent from the budget demonstrates the precarious position of an over-mortgaged homeowner. A job loss, divorce, illness, or family catastrophe starts the downward spiral that inflicts more misery. Missed mortgage payments incur hefty fees and penalties.
High mortgages penalize in other ways, too. Remodeling, maintenance, and furnishings must be foregone or delayed. For many, the way to home ownership is paved with years of renting and living frugally, saving every dollar for a down payment.
Without two incomes, home ownership is almost impossible. And with monthly rents above $900 in most of South Florida, renting is a struggle for students and low-income residents.
Once, a house was deemed within range if it cost three times the gross annual income. Then the multiplier became five times the income. Today, formulae are useless. Real estate experts rate South Florida as among the worst in the U.S. for housing affordability. Worse, with the 2008 credit crunch requiring better credit and higher down payments, many will not qualify to buy any house.
The good news? Speculators and the over-extended might begin selling properties at attractive prices. Auctions are weekly South Florida events in first quarter 2008, with no sign of fading.
Today, banks and sellers will be forced to confront an issue long avoided: Whether the buyer can truly afford to buy.
J.R. Rosskamp is an investor, entrepreneur, and managing director of Veritas Partners, Inc., a business consulting firm. She can be reached at email@example.com.