In my previous posting, I noted that the new Loan Program the Village Board is considering, would encourage the transition of duplexes to become single family homes.
In this posting, I will attempt to illustrate the housing availability and affordability factors in Shorewood - and the differences in affordability between duplexes, single family homes, and the impact on renters.
In doing research on the current housing that is listed for sale in Shorewood on the MLS (of which I am a member), I found the following.
There are currently 28 single family homes for sale in Shorewood. The least expensive is $219,000 and the highest is $1,495,000. The median price is right at $400,000.
There are currently 11 duplexes for sale in Shorewood. The least expensive is $280,000 and the highest is $675,000. The median price is $319,000.
Of course, an integral factor in Shorewood housing is the cost of rents, so I researched Craigslist for 2 and 3 bedroom duplexes (not apartments) advertised for rent over the last month.
There were 15 advertised, almost all in the $900 range ($950 is about average).
Now what do all these numbers mean for someone who would like to live in Shorewood - what is our "affordability factor" ?
Affordability as quantified in a percentage of income is debated constantly, and varies somewhat depending upon the type of housing, the income strata of the household, and whether it is being used for subsidized housing programs, or loan qualifying by banks, etc.
A good benchmark for our purpose here would be to use the FHA Income to Debt Income Ratio of 29% (round to 30) --- this means that a household with a monthly income of $4000 should be spending no more than $1200 on housing costs ( combined principle, interest, taxes, insurance or rent) but not including utilities.
For duplex renters we can calculate how much income a household would need, based upon the average monthly rental cost of $950.
By using the inverse of 30% of the Debt Income Ratio (divide 950 by .30) , a household would need an income of $3200 per month to affordably rent a duplex in Shorewood. That is a yearly income of $38,400.
For someone who wants to buy in Shorewood, we have to determine how much their payment would be per month working backwards on the cost of the house (just as we worked backwards from the rental cost above).
To simplify our model, I will assume in all buyer scenarios, that the buyers have a down payment of 20% (gift from parents ?) and that their interest rate will be a fixed rate of 6.5% on their mortgage note, amortized over 30 years.
Our Median Priced Single Family Home noted above, at $400,000 would then have a mortgage of $320,000.
The mortgage payment would be $2023 per month, the taxes on the existing Shorewood house at that price are $679 per month, we'll ballpark $50 per month for insurance, so their total monthly housing cost for ratio purposes would be $2752.00.
Using the inverse of 30% again, this household would need a monthly income of $9175 --- or a yearly income of $110,000.
But let's say that our folks who want to live in Shorewood, and want to buy a place, don't have that kind of income for a single family house. Here is how they would do with a duplex:
Median Priced Duplex noted above is $319,000.
Assuming again there is a 20% downpayment, the mortgage note would be for $255,200 and the mortgage payment would be $1613 per month. The taxes on the existing Shorewood duplex at that price are $560 per month, using $75 per month for insurance, their total monthly housing cost for ratio purposes would be $2248.
Using the same inverse of 30% as we did above for our buyer of the single family house, the duplex buyer would need an income of $7495 --- or a yearly income of about $90,000.
But there is a big difference - because this is a duplex, the buyer benefits from the rental income on the unit they do not live in.
Using our $950 per month number, that is an extra $11,400 in income, bringing their qualifying ratio number down to the $79,000 range.
Buying a duplex instead of a single family house --- makes Shorewood affordable for a household making $31,000 less than our single family buyers !
In my next posting --- I will illustrate the different demographics involved, based upon household income --- and how that affects who can afford to live in Shorewood.
(note that in the above examples I rounded numbers to make working with them easier, and simplified some of the actual workings of mortgages and buying, and did not include expenses as maintenance, upkeep, depreciation etc.)
