How Many Buyers Are There in the $1.2-$1.7 Million Range?

Someone recently asked me this question, and I realized that I had no idea. So I asked my good friend John Yannetti from Charter One. Here’s what he had to say:

Hi Lou,

Thanks for your question.

So, the qualification of a client is actually pretty straightforward. It’s mainly about debt ratio.

The industry standard today mostly follows Quality Mortgage (QM) levels of debt ratio which is 43%. So, all debt including PITI of a projected home compared to a borrowers income would need to be at 43%.

So, in your example = $1,200,000 x 80% = $960,000 loan amount. $960,000 @ 4% PI = $4,583.18. T&I approx $1,290 for a PITI of $5,873.18. Assuming no other debt, $5,873.18/.43 = $13,658.55 in income, per month to qualify at a 43% debt ratio. So, if someone made $163,902 per year, had no other debt, qualified at a 4% 30 yr fixed, they could buy a $1.2mil home and stay within the QM formula.

BUT

Charter One Portfolio products will allow up to a 45% back (debt) ratio AND with exception, we will go to 50%.

(If you don’t know John, he is a great resource for home buyers. Click here to get in touch with him.)

If you look at the income distribution for Arlington and Fairfax Counties, you can get a general idea of how many households in this area would qualify for a loan in this price range. You have to assume that most people have some debt to contend with, so if I set the baseline at $200,000 per year in household income, this is what I get:

For Arlington County, there are 20,561 households that earn over $200,000 a year. In Fairfax County, there are 89,354 households that earn over $200,000.

In both counties, 2% of the total inventory of homes sell each year. So in Fairfax County, about 1,700 qualified buyers sell their home each year. In Arlington County, about 400 qualified buyers sell their home each year. These numbers should strongly correlate to the number of qualified buyers that are looking to buy a new home each year.

Obviously these are round numbers, but it’s the most accurate indicator I could find. Agree? Disagree? Let me know what you think: lsagatov@kw.com or 571-305-2405.

Cheers,

– Lou