An agent who represents a Sacramento home buyer for one of my short sales called last week to say his buyer is facing a 5% pay cut and may no longer be able to afford the home he wants to buy. The agent wanted to give me advance notice so I could put a different buyer into back-up position on that home, which I truly appreciated. Many of my short sale listings have 5 to 20 offers each.
But it made me wonder about Sacramento state workers and whether some might be stretching themselves a bit too thin to get into a home. My heart goes out to the state workers in Sacramento and throughout California at this difficult time. We are facing more than a $24 billion budget deficit in California. State workers, it seems, are getting hit especially hard with layoffs and pay cuts. It must be awful to show up at work not knowing if you can depend on being employed next month.
However, those Sacramento state workers who are planning to buy a home can find themselves in the same situation as the buyer for the short sale if they're not careful with their budgets. Personally, I feel that if you can't afford a 20% pay decrease and still afford to own your home, maybe you shouldn't put yourself in that position in the first place, if you can help it. Nobody needs that kind of stress.
What are your thoughts about home affordability for Sacramento state workers? What kind of advice would you give?
Photo: Elizabeth Weintraub
Elizabeth Weintraub is an author, columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you.
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Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
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Elizabeth, Asking yourself if you can still afford your mortgage payment after a 20% decrease in salary is a great question. We are hearing from so many of our friends that companies are implementing a 10% or 20% pay cut (favorable to cutting jobs) for a 3 month or 6 month period, that it just makes sense. Or if two in the household are working perhaps the home should be purchased using only on person's salary. That's how it was in the old days I think.
This is just another sign of these tough times. Even well-employed folks are having trouble getting qualified for loans. Some even have to do short sales. Ugh!
Elizabeth: Must be a turbulent time for Sacramento, and California as a whole. You give some great advice here that buyers in any field would be smart to read.
Hi Elizabeth, I agree with you, it is terrible to go to work, not knowing if your job will really be there next month. I think this has resulted in a lot of buyer hesitancy. If possible, I like the idea of one spouse/partner qualifying for the loan -- then it is not so stressful if one would temporarily be unemployed or suffer a pay cut.
Elizabeth, I agree with you regarding affordability. It is stressful enough these days worrying about job loss and the further decline of the economy. To worry whether home buyers will be or are able to afford the mortgage on a newly purchased home is definitely counter-productive!
Difficult decision. We got into this mess with people buying at the upper limit of the affordability maybe we all might think of buying a bit less home so fluctuations in income would not cause us to lose our home.
So sad to be cutting it that close. And too, so very sad that the state is cutting salary for employees. I know it's better than cutting empoyees. But the 20% rule is good. You never know what can happen.
I think it's dangerous for a couple to stretch themselves to the max, relying on 2 incomes at present salaries to afford a home. But that's just my personal opinion. My husband and I bought our home with the understanding that one of us could afford the payments if the other became unemployed. And that happened. My husband lost his job last Thanksgiving. He's been a newspaper journalist for more than 25 years. He may never work in print journalism again, given the state of that industry. Fortunately, he's married to a busy real estate agent. :)
I think you're (as usual) right on the money. Using every spare nickel to get into a house is a recipe for disaster. Utilities, repairs and improvements all take capital... not to mention I don't know anyone that wants to be married to their house. Better to scale back the house than spend sleepless nights wondering if you can afford the payments.
Elizabeth
Sad when some state workers feel the brunt of economic uncertainty; it sure has hit here in Wisconsin.