Affordable Housing Initiatives in South Florida: Part 2 - Precontruction

By
Real Estate Agent with THE PODGURSKY GROUP @ Re/Max Direct

AFFORDABLE HOUSING?? - Section 2: Preconstruction

Part 1 is here.

So in November, an acquaintance of mine left me a voicemail that she had a "Hot Hot Hot" lead for me...her sister.  I was flattered and called her back.  She said she was in the middle of meetings so she'd be brief.  There was a new community about to be announced in Boynton Beach, Florida that was affordable housing.  It was going to start in the low $300's... I let out a little chuckle when she said that number.  Her sister was going to get in line for reservations and she wanted me to get the mortgage.  She told me she'd call me back later when she was free.

So...I did some digging into the facts of this new community to see how I could help.  The rumor that I was told was that GL Homes had seen sagging sales in Canyon - their mega-community/small township in West Boynton Beach.  It is a huge undertaking that will definitely alter the demographics of West Boynton.  The problem is that the houses started in the high $400Ks without any upgrades or lot premiums.  Most of the houses price $500K+.  So GL found a parcel nearby and made some deal to move a school and build a park so they could have this space for a lower cost community.... And Greystone was born!

Greystone was to be part of the affordable housing answer in Boynton Beach.  It was also likely to satisfy the affordable housing quotas that GL may not meet in Canyon!  Nevertheless, I wanted to get to the nitty gritty and how I could help this family get into its dreamhome.

Here's what I found:

  • Presales were going to happen one weekend in December and people were already clammering to stand in line.
  • The first deliveries of homes was scheduled for Q1, 2008.  Since they've only graded the land so far, I believe fully that this is builder time and not actual time so Q2 if we're lucky.
  • These were all owner occupied homes - no investors - to protect the homeowners
  • Reservation fees were $3,000 non-refundable
  • 10% Deposits were required once a model was selected
  • Then, 10days later lots would be released 10% of the lot premium would be due at that time
  • A meeting with the design group would then require 10% down on all upgrades.  Minimum upgrades expected to range $50-60K on the smallest model
  • Smallest Model was 1500sf, 3/2/2, ranch - $330K

It all sounds normal, right?  All 500 homesites sold out in 5hours and the news reported that GL made $5B - that's a B as in Billion  - for the builder.

So... then I did the math.

  • Reservation fee                          $3,000
  • 10% down on small model          $33,000
  • 10% on lot premium                    $0             for arguments we'll say no upgrade here
  • 10% of minimal upgrades            $5,000
  • For a Grand Total of                    $41,000 due within 30 days

Still sounds normal? Ok... let's break this down

These were billed as AFFORDABLE HOMES.  Advertised as suitable for some MODERATE INCOME TRACT buyers in Palm Beach County.  The qualification for Moderate Income Tract for a two income family in Palm Beach County has a ceiling... a CEILING... of $96,000 per year!  Divided by the deposit is 41.8% of the annual income of this family is spent on the deposit. 

That $96,000 is GROSS income... not Net, not Adjusted Gross... GROSS Income.  So at $96,000, that person is in the 25% tax bracket and owes around $7,000 in income tax given just the standard married filing jointly deduction and one child.  This nets the income down to $89,000 but raises that percentage to 46% of the annual adjusted income!

Then, if you look at the annual average savings of a US family of 2% - let's ramp that up to 5% for argument's sake - and we're only seeing roughly $4500 socked away of the take home pay!  So the deposit is 11 years of savings!!

Then, if somehow the family has the cash to put another 10% down at closing, the loan amount would be $304,000.  The interest only payment at 6.25%  is $1583 per month.  Add $435 per month for taxes.  Another $225 per month in insurance.  Another $100 per month homeowners association.  Total PITI (Principal Interest Taxes and Insurance) payment is $2,343.   It all looks good with a 29% front end ratio... which is a little high but probably doable if you went stated income and used only the back end.   But then that leaves only $1,657 per month for all the rest of the obligations before you reach a 50% back end ratio!! 

How is that going to work for most people?  Think about it... no savings = running up credit card debt!... no savings = no PITI reserves... no savings = no asset requirements... none of this = no loan

So the builder came out last month and said that they fully expect 20% of the contracts to just be cancelled.  Now what would give them that idea??

I don't fault the builder... don't get me wrong.  Canyon is beautiful and so are the rest of their communities.  But what kind of answer is this to the problem of affordable housing? Why were people so elated at this "affordable" community??

 


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Tags:
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Ambassador
3,212,698
Jeff Dowler
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

David - a well done post. And yet another example of so many of these "affordable" housing opportunities that are not quite what they are touted as being. We see them here, too. Affordable? I think not. While one must applaud the intentions, the efforts so often fall short of what is really needed. We have issues where many folks can't even afford to rent in the areas where they are working.

Jeff

Feb 14, 2007 01:58 AM #1
Rainmaker
1,108,361
Jeff Turner
RealSatisfied - Santa Clarita, CA
David, thanks for the detail on this. I've featured it over on RainForChange. We need more people like you helping to redefine the meaning of "affordable."
Feb 14, 2007 04:59 AM #2
Rainer
62,469
Nick M.
Certified Residential Appraiser- West Palm Beach Real Estate - West Palm Beach, FL
Realtor-Appraiser in West Palm-South Florida Real Estate Appraiser

Great post David.. congrats on the feature, its well deserved. between calls and typing I had to leave a little comment. You would make any appraiser proud and quite possibly put them to shame at the same time. Great analysis!! IMHO that area which you speak of is the area that held its value the most in 2006. Not to say they didn't see a dip, but its a strong market and lots of expensive homes. Even the 55+ prices are out of control. I noticed a parcel has been cleared 1-1.5 miles north of Lyons and Boynton Beach, east side of Lyons, just south of Verona Lakes. I heard a rumor it may be for condos and the lot looks small. Prices are outrageous around here, the affordability factor is critical. Glad I got my place in 2003. I don't how the market is supposed to move forward, and your analysis spells out why.

Did you know about the Development off Belvedere, just East of Jog. Sign announced starting at 400K in 2005. Then it dropped to 300K.. now it says starting i n the low 200's. What are they doing, applying for a zoning change and building more smaller models? I fail to understand how they can project the initial figures and still move forward with that price decrease. makes me wonder....

Feb 14, 2007 05:39 AM #3
Rainer
130,559
David A. Podgursky PA
THE PODGURSKY GROUP @ Re/Max Direct - Boynton Beach, FL
THE PODGURSKY GROUP - Make the Right Move!

Nick - thanks again!  there was a community on Haverhill and Hypoluxo announced - Vista Lago startign in the high 600s.  No sign, no trailer, nothing anymore.  It is where that guy blew himself and his RV up while trying to build fireworks with a couple hundred M80s and shook all of the communities around here.

So many developers cancelling and refunding deposits.  The big builders are still on track though....

Jeff D  - Thanks!

Jeff T - wow... I'm flattered.  now I wonder if I can get paid for these articles :)

Feb 14, 2007 08:19 AM #4
Rainer
62,469
Nick M.
Certified Residential Appraiser- West Palm Beach Real Estate - West Palm Beach, FL
Realtor-Appraiser in West Palm-South Florida Real Estate Appraiser
David.. I just found this article on affordable housing issues in Palm Beach.. in case you write #3  ;)
Feb 14, 2007 11:34 PM #5
Rainer
168,035
Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL
David, Great blog.   Now you know why we are so high on foreclosures.  To many brokers would have know problem placing them in that loan... going stated/stated.. or worse maybe in a neg am product and told the client don't worry just pay the 1%..
Feb 16, 2007 03:19 AM #6
Rainer
130,559
David A. Podgursky PA
THE PODGURSKY GROUP @ Re/Max Direct - Boynton Beach, FL
THE PODGURSKY GROUP - Make the Right Move!

The NegAm products weren't bad and aren't bad with proper leverage controls....

it is just that there were so many unsophisticated borrowers getting lured by the unethical mortgage brokers that they fell prey to that thinking.  Now they're not only upside down but still getting worse every day!

Feb 16, 2007 06:40 AM #7
Rainer
168,035
Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL

I agree David Neg Am products are not bad.  But when you have bad loan officers/brokers and uneducated buyerss... makes a very bad mix.

 

Feb 17, 2007 12:04 AM #8
Anonymous
jose tenorio
excellent article,how can i know if my property that i bought in greystone (GL) IS CANCELLED?.I will appreciate your answer.thanyou.
Oct 22, 2007 09:58 AM #9
Rainer
130,559
David A. Podgursky PA
THE PODGURSKY GROUP @ Re/Max Direct - Boynton Beach, FL
THE PODGURSKY GROUP - Make the Right Move!
Greystone is not a cancelled development... there will be people who cancel their own contracts but I have seen that Greystone is in the process of development
Oct 23, 2007 06:02 AM #10
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Rainer
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David A. Podgursky PA

THE PODGURSKY GROUP - Make the Right Move!
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