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Trulia Defends Affordability Claims

Posted by Scott Van Voorhis May 30, 2014 07:19 AM

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Yes, you read that right. A Boston-area buyer pulling down the median paycheck - $67,540 - can afford to spend up to $332,000 on a home, Trulia insists.

The online real estate site offered up this estimate in a recently released middle class housing report.

But local homeowners and renters slammed Trulia's numbers on the comment board of this blog, arguing that its figures made no sense in the real world of living paycheck to paycheck.

"Those Trulia figures are nuts. You CANNOT reasonably afford to buy a house which is 5x your annual income," wrote nolongerthirty.

I asked Trulia's media team and chief economist Jed Kolko for a response and in turn received this detailed missive from spokeswoman Korina Buhler.

Here's Korina:

According to Jed, affordability is based on whether the total monthly payment - mortgage, insurance, and property taxes - is less than 31% of the metro area's median household income. The total monthly payment includes the mortgage payment assuming a 4.4% 30-year fixed rate mortgage (3.6% for the 2013 comparison) with 20% down, property taxes for that metro, and insurance. We chose 31% of income as the affordability cutoff to be consistent with government guidelines for affordability; both the Federal Housing Administration and the Home Affordable Modification Program use 31% of pre-tax income going toward monthly housing payments for assessing whether a home is within reach for a borrower.

Going through the example for the Boston metro:

The monthly mortgage payment for an 80% loan on a $332,000 home (that's a $265,600 loan), with a 30-year fixed rate loan of 4.4%, would be $1330 per month, or $15,960 per year. We estimate property taxes and insurance ? based on metro-level property tax averages and a national estimate for insurance ? to be roughly $5,000 annually for a $332,000 home. The total annual cost of mortgage payments, property taxes, and insurance would be $20,940 for this home - which is 31% of the median household income of $67,540.

OK, let's get real here. While the numbers line up in theory, trying to swing the mortgage on a $332,000 home while making $67,000 a year still sounds like quite a stretch for most buyers out there.

First, as Trulia notes, the affordability of that $332,000 house is based on Joe median buyer having managed to save up a 20 percent down payment.

That amounts to $66,000 - a whole year's pay. Unless Joe or Suzie median plan on mooching off their parents for a decade, or living at a campground, it's going to be nearly impossible to save up that kind of cash.

Second, better forget about having kids - day care costs will run you several hundred to a couple thousand dollars a month, depending on how many little ones you have. No, not everyone has cheap grandparent labor to rely on.

And better not have any college loans!

If you are single or a couple with no kids - and somehow managed to land the rental deal of the century in one of the country's most expensive apartment markets that allows you to stash away large amounts of cash - then maybe that $332,000 home is affordable on the median income.

But really, who is Trulia - or for that matter the feds who set the affordability standards - really kidding here?

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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