There's a house on sale for $800,000. I got to thinking about whether the price was too high (the answer: not if the seller can find a buyer at that price. :-), a thought triggered by the note on zillow.com of the down payment and mortgage payment required.
Let me wing a few figures, based on the conventional wisdom back when I first bought a house (1976): a 20 percent down payment means a buyer needs $160,000 in cash. I guess that's probably not a problem, at least usually, because any buyer is going to be selling their current home. Although these days there's many fewer owners who have that much equity in their homes; many owners are under water.
The principal and interest with a 30-year mortgage is roughly $3,500, or $42,000 a year. Property taxes, at $12 per 1,000 assessed valuation, might be $9,000 or so. Add insurance of maybe a couple thousand, so you're talking PITI of around $53,000. Call it $50,000, because I like round figures, and figure what it's 30 percent of and you come out to about $170,000 a year.
Yes, when I bought my first house, the conventional wisdom was PITI shouldn't be more than 30 percent of gross income, at least that's what I remember. So, what's the bottom line?
Almost no federal employee could afford that $800,000 house within the constraints of 1976 wisdom. I don't know how many houses in the U.S. would go for more than $800,000, but lots. It's just another confirmation that high ranking federal employees are not overpaid, whatever may be true of lower ranking employees.
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