The media is reporting that there is an affordability crisis and discouraging potential home buyers. Unfortunately, this narrative is completely wrong, as homes are more actually affordable now than they have been in some time.
As we all know, home prices are appreciating. When buyers hear that prices are going up, it’s normal to think a home will cost more as the trend continues.
The way the housing market is positioned today, however, low mortgage rates are actually making homes more affordable, even as prices rise.
Understanding Home Affordability
Understanding how affordability works and the main market factors that impact it may help those who are ready to buy a home narrow down their optimal window of time to make a purchase.
There are three main factors that go into determining how affordable homes are for buyers:
- Mortgage Rates
- Mortgage Payments as a Percentage of Income
- Home Prices
The National Association of Realtors (NAR), produces a Housing Affordability Index, which takes these three factors into account and determines an overall affordability score for housing. According to NAR, the index:
“…measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.”
Why are homes so affordable today?
Although there are three factors that drive the overall equation, the one that’s playing the largest part in today’s home buying affordability is historically low mortgage rates. Based on this primary factor, we can see that it is more affordable to buy a home today than at any time in the last seven years.
If you’re considering purchasing your first home or moving up to the one you’ve always hoped for, it’s important to understand how affordability plays into the overall cost of your home.
With that in mind, buying while mortgage rates are as low as they are now may save you quite a bit of money over the life of your home loan.
If you’re thinking of making a move, now is a great time to take advantage of the affordability that comes with such low mortgage rates.
Whether you’re thinking of purchasing your first home or moving into a new one and securing a significantly lower mortgage rate than you may have on your current house, please do contact me so we can determine your next steps in the process.