Sub $400s in 4S? I doubt it, but I think $600-$700s are a real possibility, and I would be willing to pay that. If I can get a loan.
Let’s work this out. First of all, you’re going to have a hard time getting a non-conforming loan from here on out. That sets a maximum loan amount of $417K. Let’s say your dream 4S ranch house costs $600K. That means you’ll need to pony up $183K for a down payment. Okay, let’s run some numbers:
Interest rate 7.5% (they are going up and loans are becoming harder to get now)
30 year fixed
Payment (Principal/Interest): 2915.72/mo
Property Taxes @ 1.25%: 625mo
Insurance: 200/mo
Opportunity cost of $183K down payment in a 5% CD: 762/mo
Approx tax benefit of deducting interest: 750/mo
The opportunity cost of giving up your down payment basically cancels out any tax benefit, leaving you to spend $3740/mo for your $600K home.
Now ask yourself a few questions:
1) How many people have a $183K down payment?
2) Of those, how many will be willing to give up their guaranteed safe 5% return to invest in a home?
3) How many families can afford to spend almost $3800/mo for their housing? This of course doesn’t factor in maintenance.
Of course if you don’t have a $183K down payment, you *might* still be able to get an 80/10/10 where you’d only have to cough up ~91K but then you’d be paying principal and interest on that second which would increase the monthly nut even more…
I’m guessing that you’re a physician from your handle, so you’re probably going to be allright no matter what you do. But I wouldn’t be so quick to discount the possibility of homes returning to the $400K range in 4S ranch…
