For some reason, Southern California has some of the most over priced homes on the market. I don’t know if it’s the temperate weather that makes home builders think people will pay top dollar for cookie-cutter homes, or LA’s obsession with living the illusion. And for some reason unbeknown to me, people are still paying for these ridiculously priced homes. For instance, take a new development that is being built in Ventura County, not far from Los Angeles county. These new homes are currently selling for $626,000! (Some of them are listed for $686,000 up to $725,000). The homes appear humongous from the exterior street view. However, there is a bit of a charade going on, for once you are inside, the home is still large, but only about 1/3 of the size you thought it was. How does this happen? Well, the builders are really building triplex town homes, in addition to stand alone homes.
What’s equally distressing is that the town homes are butted up against each other. So new home buyers aren’t paying for the land so much as they are paying for the structure, and only 1/3 of the structure to be exact. I tried doing some research on the exact size of the lot, but given that this is such a new development, many online websites aren’t stating the lot size. The homes, on the other hand, range in size from 1,800 sq. ft. to 3,100 sq. ft. This new community has also walled itself off and in turn reduced the once gorgeous view of the valley below. So for over $600k, the price doesn’t include a view.
I guess what I am most flabbergasted by is the fact that there are people who can afford to purchase these homes even in our down turned economy. I did a breakdown of the costs associated with these homes, minus any HOA of homeowners association fees, which I’m sure exist. Here is what it would cost to purchase one of these homes:
- Cost of home: $626,000 (The most recent one sold in the community)
- 20% down payment: $125,200 (Whoa! I guess there are a few people out there with mega-savings accounts!)
- Mortgage: $500,800
- Monthly mortgage payment on a 5.7% APR 30-year loan: $2,875 (This isn’t too bad.)
- Annual Property tax (1.5% of the cost of the home): $9,390 (An additional $782 a month if added to the mortgage payments.)
I didn’t factor in homeowners insurance or HOA, which I’m guessing would add a few hundred dollars more a month. The total monthly payment, with everything included, would be somewhere in the ballpark of high $3,000 – $4,000 a month. The biggest kicker is that 20% down. I’m assuming that if one were to put only 10% down, they wouldn’t be able to qualify for the lowest APR and they would have to also include in private mortgage insurance or take on a second loan. The monthly payments would be even more.
Based on Michael Bluejay’s “How Much Home Can You Afford” calculator, you would have to be making $13,000 a month to comfortably afford a $626,000 home. This calculator also confirmed my predictions on what the monthly cost would be, it calculated $3,940 a month. Obviously, there are people who do make this annual salary of $156,000 a year. I guess I shouldn’t be that astonished by this. Heck, I choose to live in the second most expensive city in the nation.
Correction: The triplex town homes are selling in the low $400k’s, but the houses in the same community are selling for $626,000 to low $700,000’s.
3 Comments
$156,000 salary could be met by a couple making $90K and $66K, so I think it’s feasible. Would you want a good portion of your paycheck going toward a mortgage/taxes? I wouldn’t. The example you give is WITH 20% down, which most people don’t do, either.
@Rainy-Day Saver – It’s scary to think that people may still be stretching their budgets to pay for such expensive housing!
@George@MoneyLounge.net – I know, it’s hard to believe builders continue to build such large homes. It seems to be in contradiction of our current economy and environmental knowledge that smaller homes are usually more energy efficient!