I created a Portland based example to see how the assumptions for home price and wage increases would play out IF:
- 2017 starting price at median PDX home price of $350,000.
- Down payment of 20%.
- Interest rate of 4.25% (remains constant).
- Tax and insurance rate of 1.25%.
- 30% of income for PITI.
- Qualifying income is $69,681.
- Assumed family income is just enough to qualify at $70,000.
- Home Price increases by 34% as does down payment.
- Down payment jumps to $93,690
- Wages increase by 22%.
- Family starts out with just enough to qualify but at end of period their $85,744 inflated income is 8% ($7,519) below the $93,262 required to qualify.
Note: IF interest rate increased to 5% in last year, qualifying income would jump to nearly $100k ($99,990) and gap between qualifying income and family income would grow to 14%/$14,246.
Biggest take away for me is that both income AND down payments will grow as obstacles to increasing home ownership.
My editorial observation is that policies like limiting the state MID for higher income families can help focus redirect more financial support at the entry level and can be part of a broader effort to both increase home ownership and help lower income renters.
Originally created and posted on the Oregon Housing Blog.