How many can afford a $500,000 condo?

condos

Not many anymore, now that the real estate bubble has burst. Housing Bubble Blog details the current wipe out in multiple areas of the country where once-pricey condos are selling at drastically reduced prices, or would be selling, except there aren’t any buyers.

Their point is, for the market to revive, prices will need to drop much further because in the current non-bubble world, $500,000 is an insane price to pay for a condo. Moreover, with rapid price appreciations now a thing of the past, most people simply can’t afford those prices.

Do the math. A $500,000 condo with 20% down means a 5.75% mortgage will cost $2300 a month. Add in another $700 a month for taxes, insurance, utilities, etc and that’s $3,000 a month. To be prudent, housing shouldn’t be more than 1/3 of your gross income, so that means you’d need to make $9,000 a month or $108,000 a year to buy what would probably be a smallish condo in areas like Miami, southern California, and Queens.

Yes, I admit to using formerly quaint notions in my calculations, like 20% down and no more than 1/3 of gross income for housing. Now that a Home Equity Line of Credit can no longer be used as an endless ATM, those notions may return – after prices drop down to levels the middle class can actually afford.