The Boston Globe has an editorial in the Sunday paper today about the cost of buying a home, and how it’s expensive.  At least, expensive, in their opinion.  They use data presented by the Center for Housing Policy, a Washington DC think-tank.

However, as is often the case with those with an agenda, they are selective in the data they use, in order to make their point.  And, their point is, people can’t afford to buy a home.

If you do an in-depth analysis of the data, however, you’ll find great big holes in their argument.

Experts recommend that your housing expense be less than 30% of your gross income.  If a nurse working in downtown Boston makes the median annual income of $61,000 and the median cost of a home in Boston is $335,000, the Globe says, it follows that a nurse cannot afford to buy a home. 

Maybe a single person making $61,000 couldn’t afford a two-bedroom home in Back Bay, but is it possible that a single person making $61,000 could find a one-bedroom condo to live in, somewhere else, within their price range?  They don’t say.  They use gross generalities to make their point.

There are more holes in their argument. 

Everyone always talks about how the cost of housing shouldn’t be more than 30% of your income.  Good enough.  But you should analyze your actual (real) cost of housing.

Here’s an example: If you buy a $335,000 home, and put down 10%, or $33,500, you’d be getting a $300,000 mortgage (I’m rounding).

Your $300,000 mortgage would run you about $1,800 at today’s fixed-rate 30-year jumbo mortgage loan rate of 6%.  Add to that your property tax ($300 per month) and your condo fee (if you’re buying a condo) of $200 (should be less) and you’re at $2,300.  However, you need to reduce your annual housing cost by the very generous tax deduction for interest paid on your mortgage (you’d pay about $17,880 in interest, in the first year), which could be about $4,800, or $400 per month.  You also get a resident exemption on your Boston property taxes, of about $1,200 each year, or $100 per month.  Therefore, your monthly housing cost is back to about $1,800. 

That’s 36% of your monthly income.  Not 30%, of course, but not too bad.

Now, of course, that’s a single person making the median income, buying a median priced home, not a single person buying a median priced one-bedroom condo in an outer-neighborhood of Boston (JP, Roslindale, West Roxbury, Dorchester, Roxbury, South Boston, Allston, or Brighton), which might be considerably less.

Another hole is, it’s one thing to say home prices have risen by 20% from 2003 to 2005, while incomes have stagnated, but you also need to include in your comparison the interest rates during that time period.

For example: Today’s $336,000 home would have cost $280,000 in 2003 (if you use their 20% increase figure).

Using bankrate.com’s historical rate chart, I see that the average national rate of a 30-year fixed mortgage loan was 6% in 2003 (I used the jumbo rate in my earlier example, because I forgot you don’t need a jumbo rate).  The chart says the average national rate of a 30-year fixed mortgage loan now is 5.4%.

Suppose that, three years ago, a nurse was making $55,000.  The nurse would need to spend $280,000 to buy the median-priced home.  This means, with 10% down, his/her loan payment would be $1,510 per month.  Today, based on a 3% salary increase for each of the past three years, the same nurse would be making $59,500, and would need to spend $335,000 to buy the median-priced home.  This means, with 10% down, his/her loan payment would be $1,693 per month. 

The nurse would be paying $183 per month more in mortgage loan payments in order to purchase the same home, three years later.

However, the nurse is grossing $375 more, per month.

Therefore, today, the nurse is spending LESS per month on housing, than three years ago - $192 less, per month.

In my opinion, anyone of any means can afford to buy a place to live, somewhere in the City.

Boston Globe Editorial

Got money? That’s the increasingly pressing question facing Americans who want to buy homes. Median housing prices have risen 20 percent nationally from 2003 to 2005, but salaries are lagging, according to research from the Center for Housing Policy, a nonprofit organization in Washington.

The center puts human faces on the problem by comparing earnings in 63 occupations with median housing costs in 183 metropolitan areas. A website creates graphs that show who can afford what, assuming people spend 30 percent of their income on housing.

For example, the median income of registered nurses living in Boston is just over $61,000. But to afford a house in Boston, where the median price is $335,000, a nurse would have to earn $112,581.

One solution is to add another income by getting married — to someone earning about $52,000. But based on median salaries, this could mean refusing to wed a number of workers, including police officers, accountants, carpenters, electricians, and plumbers.

Complete editorial: The housing struggle