Dr. 90210....homeowners always happier...and a realtor association withholding data??

One evening last week I was doing what most guys do real well...high speed channel surfing. I was flying though "those" channels that you usually don't watch too much in the first place...yeah, you know the channels I'm talking about...everybody has them. Anyway, I was flying through and I heard the word 'mortgage'. So, with my amazingly adept hand/eye, tv/remote coordination, I stopped on what happened to be the E! Tv channel. The show was Dr. 90210, and the topic wasn't boob jobs...but mortgage payments. I have seen bits and pieces of this show before, so I know basically what it is about...top plastic surgeons in Beverly Hills. Well, one of the surgeon's named Dr. Rey is going to be buying a new house and the payments are going to be pretty large. Since I missed most of the show at this point, I made a point on trying to catch a re-run so that I could get more details. I did find the re-run, and I caught it this weekend.

Before we look more into this situation, let me say I know nothing of this Doctor's finances, how much he makes or anything. I can only go by the information he and his wife personally said on camera. I know he makes a ton of money as a surgeon, and I'm sure he makes a decent amount from the show as well. Also, just because I talk about something here, doesn't mean they are an FB...I just find this story interesting. So let's take a look at what is going on...

It appears that Dr. Rey, his wife and 2 kids have found their 'dream home'...a $5 million dollar home. I assume this house is in Beverly Hills or surrounding area, as his office is in Beverly Hills. The show showed the wife going over the paperwork with her mother who is a top RE agent in Canada (if I remember correctly). She admittedly was nervous about moving, and getting their current house sold. They really need to sell their house quickly to avoid paying 2 mortgages at the same time. She says they are getting the bigger house so that her husband can have more space when he is relaxing and not working. She sign's the paperwork, and you see some boxes getting taped-up and ready for storage.

Next they cut to an interview with Dr. Rey. They haven't even bought the house yet, and he admits he is already thinking about the mortgage payment. He says: "let me put this in perspective for you, my monthly mortgage payment is more than I made in an entire year during my residency" (I think I got that quote right). They then show him in the house talking to his wife in the other room. "This means no more vacations, no more expensive suits and expensive shoes". "7 to 11 will be the norm, not the exception". He then says, I'm going to be working so much, I'm not going to get a chance to enjoy this house.

Let's look at this for a minute. Let's see how big this mortgage payment might be. I know you don't make much in residency, so my educated guess when he said this is that his mortgage payment is going to be about $30,000 a month. Let's see what we have here....

I'm going to assume (because I don't know) that they are going to sell their house, and put 1 million down on the 5 million dollar home. So with 20% down, they will have a mortgage of $4 million....again, I don't know how much they are putting down, but based on his comment that his monthly mortgage is more than he made in a year, I'm guessing they aren't putting 3-4 million down.

4,000,000 at 6.25% on a 30yr fixed makes the mortgage payment = $ 24,628,69
Let's not forget property taxes on a $5 million dollar home. I don't know about mello-roos or other special assessments, but in CA is it safe to assume a rate of 1.1% to 1.25%. When underwriting, we would use 1.25% as a safe bet. I'll use 1.2% since that makes it an even $5,000 a month for property taxes.

That puts us at $29,628.69 per month, and we haven't added in homeowner insurance yet. I tried to do a quick and dirty quote over at Allstate. With a 2 million replacement value, the annual premium would be almost $22,000 a year. For the sake of this post, we'll say the monthly payment is $1,371.31, which puts the annual premium at $16,455.72. I guess that sounds about right to insure a 5 million dollar home. That gives us an even $31,000 a month for the PITI payment (principal, interest, taxes insurance). Again, I'm guessing this number is pretty close to being correct based on his statement that his mortgage is more than he made in an entire year as a resident.

I know that top surgeons make a lot of money, but they also have a lot of expenses as well. LA county has 8.25% sales tax, 9.3% state income tax, and the usual federal taxes. The office is right by Wilshire and Santa Monica Blvd, so the office space can't be cheap either. Not to mention all of the expenses of doing business as a surgeon. I'm sure he can 'afford' this house, the question is just at what price? He even said "no more vacations" and long hours will be the norm, not the exception anymore. I can only imagine the amount of work that has to be done to keep making that payment month-in, month-out. It is hard for most doctors/surgeons to make any measurable amount of 'passive income'. They are paid extremely well for their skill and expertise...but when they go on vacation, they aren't making that big money. That isn't necessairly a problem, but it can be if you need to make 80-100k a month to afford your montly bills (before taxes).

I don't know what is going to happen, but you can find out Monday at 10pm on E!. At the end of the last show, they showed some scenes from the next show. I don't know if they will go through with the purchase of the other house or not. It will be interesting to see how it all pans out. I wish Dr. Rey and his family the best....I'm just glad I'm not on the hook for a 31k a month mortgage! Even if I was making the big money, I don't handle financial stress like that very well.

That brings me right into my next story. Apparently there was a nice article in the SF Gate that said that homeowners were physically and mentally happier than renters.

----"Even after controlling for such variables as level of income, education, race, etc., studies conclude that homeowners, as a group, are physically and mentally healthier.

They are happier and more satisfied with their lives. Their children receive more education and are less likely to get into trouble. Their daughters are less likely to become pregnant as teenagers. They vote more often and take a more active role in their community. They are more likely to recycle and less likely to get mugged."----

I don't doubt a lot of what they say, the problem is that you have to read down about half way to get to this gem: "Mathur is also quick to point out that it would be unwise to apply the results of the studies across the board to the Bay Area. Most of the studies were conducted in areas where an average home could be purchased for about $200,000."

Since you can't buy a home in California for 2.5 times that, and in San Francisco for 3-4 times that, doesn't that kind of discredit a lot of what the study says?!?!? I think lots of home owners are happy, especially the ones that bought in the 200k range, and others that have homes they can truly 'afford'. I also know that lots of home owners are worried about the large mortgage payments needed to 'afford' the current housing prices in California. I guess they were banking on people just reading the heading, and few paragrahs in before moving on. I don't think you should take a study done with 200k homes in other places, and try to relate that to the San Francisco housing market. In many cases, buying is better than renting...but in many areas of California, there is too big of a disconnect between income and housing prices.

***I just received an e-mail from a reader about this story from the Santa Barbara News-Press - Home Sales on a Slide Across the County. I guess the interesting thing here is this part of the article: Over the past several years, the News-Press has obtained sales and median price data for the South Coast from the Santa Barbara Association of Realtors. The group recently told the News-Press that it now refuses to make this data available to the newsroom. Other associations of Realtors across the county willingly continue to share sales and price information with the paper.

I'm not going to jump to conclusions here, I just want to get this info out. If they are in fact withholding the data, I think it is safe to say that it isn't because things are looking good for real estate!

I look forward to the comments on all of these topics!

SoCalMtgGuy