Let us take a look at the housing market crash and how it relates to primary care. This house below is listed for $1,127,000. The amount owed is $1,317,000. It listed in January for $1,700,000. This is a 3B, 2B 2000 sf home in in west Pasadena, CA.
I wouldn't pay more than 150K for a house like that. It looks like a slum. Screw the weather. This housing market is doing exactly what it needs to. Bringing people back to reality.
By the way, what kind of person buys a 1.1 million dollar home? Even with 20% down (and how many people have $200,000 sitting around) a 30 year mortgage, without property taxes and insurance, at a paltry 6% would still set you back $5,600 a month. That's a 12 month payment of almost $67,000 without taxes and insurance. Tack on another $1,200 a month for taxes at 1.25% and your looking at a $7,800 a month mortgage payment, or about $80,000 a year. Add a couple grand for insurance and you're looking at a monthly mortgage payment of $8,000.
Let's assume that this person was spending 70% of their after tax take home pay on their mortgage, an astronomical amount. That leaves them with a take home paycheck of $11,500 or $3,500 to cover everything else. Let's say they have a family of four. That $3,500 a month in income would have to cover
- groceries
- school requirements
- clothing/shoes/
- household upkeep/ personal supplies
- utilities
- cell phones
- computers/gaming/Internet
- car payments
- car insurance
- gasoline
- car repairs
- health insurance/premiums/co pays and/deductibles
- life insurance
- disability insurance
- car insurance
- retirement contributions
- entertainment expenses
- vacations
Assuming that this is even possible, how much would a family have to make to take home $11,500 a month in cash? Between the 9% tax rate, and probably a 25% effective federal tax rate, and add on an effective FICA/Medicare tax rate of 4% and your looking at a monthly paycheck of $18,500, or a yearly salary of about $220,000.
In other words, in order to afford a 1.1 million dollar home in Pasadena, you would have to put down 20%, or $200K, spend 70% of your take home pay or $8,000 a month on your mortgage, survive on $3,500 a month to pay for all your fixed and variable needs, including retirement contributions, life insurance, disability insurance and health insurance.
And you would have to make more than the average primary care physician.
And that's why the housing market is crashing. It's not because homes in California are too expensive. It's because there aren't enough primary care physician to hold it up.
