There’s a lot wrong with the top story in today’s Globe.

Even with the downturn in the real estate market, houses in the Boston area will continue to be unaffordable for many working families and first-time homebuyers, according to a new report from Harvard University’s Joint Center for Housing Studies.

Well, that’s a fact, right? I don’t think anyone would expect otherwise, right?

Here’s how bad things are (according to the Globe):

The median price of a single-family home in Greater Boston has dropped 3 percent in the current slowdown, to $402,200 in 2006. At that price, a house costs 5.4 times the median household income of $74,773 for the region. The standard for affordability is 3 to 3 1/2 times median household income, according to the Harvard center.

Of course, things aren’t that dire, to the average person. First the “average” price of a home includes many newly-constructed homes, which skew the sales prices, upward.

I am not saying I disagree with the bottom line, the main point of the story – housing is expensive.

I am saying that the story is using the wrong data to support its argument.

First, it’s foolish to use the “standard of affordability” that a home should cost 3 – 3 1/2 times gross household income.

The accurate and appropriate “standard of affordability” is that your annual loan payment should be less than 28% of your gross income and that total household expenses (including property taxes and condo fees, if applicable) be less than 36% of your gross income.

This is because banks use this (generally) as a guide for how much they’re willing to lend you.

With interest rates at 6.25% for a fixed-rate mortgage loan, it’s a much better way to figure out how much home you can afford to buy.

Of course, in some parts of the country, you can buy a really big house for a lot less than 36% of your income!

But, of course, in some parts of the country, you would make a lot less money than you do in Boston (I’m pretty sure they don’t pay $10 per hour to Dunkin’ Donuts help in Alabama).

So, of course the reporter of the Globe story then goes out to find a couple who fit the profile of the buyer she is talking about.

And, she doesn’t find one.

Even buyers with six-figure incomes have trouble finding housing in the soft market. Acia Adams-Heath and Raymond Heath together earn $110,000 a year but have not been able to identify an appropriate three-bedroom home in Dorchester to purchase so that they and their two children can be near their extended family.

They saved $3,000 for a down payment and calculate they can afford no more than $250,000. In that price range, the houses they have seen either were in terrible condition, with mildew for example, or were unsuitable. One had a third bedroom in the basement where there was also a wet bar– “not really conducive” to raising a teenager, she said.

“Maybe if I keep searching. My dream house hasn’t come on the market,” she said.

Okay, I think we should all agree on this one – This couple shouldn’t buy a home.

They have saved $3,000 for a down payment? That’s 1.2% of the purchase price!

It’s those kinds of loans that got us into this mess.

The reporter says that these buyers can’t find a home that is affordable to them.

First, if you follow the rule the reporter sets (and you shouldn’t), then the couple could afford to buy a home up to $330,000, or $80,000 more than they are willing to spend.

Which is important. Although this couple may not be willing to spend up to 3-times their gross income, the problem is, OTHER people are willing to spend 3-times their gross income. Because of supply and demand, it means that the home they want is more expensive.

That might not have made much sense, but I tried.

So, the example couple in the story don’t even fit the “standard of affordability” profile.

Worse, they don’t fit MY “standard of affordability” – they aren’t willing to pay 36% of their gross income toward their mortgage loan payments.

Based on their annual income of $110,000, their monthly gross is $9,166. A bank would let them borrow up to the point where their mortgage loan (and tax payment) was up to $3,300 a month.

If rates currently are around 6.25%, then a couple making $110,000 could borrow up to around $420,000 (zero down, 6.25% fixed-rate, $3,600 annual property tax bill).

I can’t say it enough. I’m not suggesting that someone SHOULD borrow this much, but, in this world, many people are willing to do so (or feel they must) – and if you are fighting against them for good properties, but not willing to pay, you’ll lose out.

Which is what happens.

What’s the solution?

[A] disparate collection of real estate agents, homebuilders, housing activists, and public officials [are expected] to propose legislation later this year that would either require or encourage municipalities to promote construction of “starter homes,” which are in short supply in Boston’s suburbs. The houses would be modest , on lots of 1,700 square feet or less, priced so families earning between about $80,000 and $130,000 could afford them, he said.

NO!!!!

Offering (actually, requiring) the construction of starter homes to people with limited incomes makes no sense. Um, new construction is expensive?!?!?!

The perfect starter home is a three-bedroom, one-bathroom one built on a quarter-acre lot in 1960.

Home costs stay beyond reach of many – By Kimberly Blanton, The Boston Globe

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Updated:  1st Q 2018

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