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It’s Not Just About the Price of the Home

September 1, 2020 By Tami Savage

It’s Not Just About the Price of the Home

When most of us begin searching for a home, we naturally start by looking at the price. It’s important, however, to closely consider what else impacts the purchase. It’s not just the price of the house that matters, but the overall cost in the long run. Today, that’s largely impacted by low mortgage rates. Low rates are actually making homes more affordable now than at any time since 2016, and here’s why.

Today’s low rates are off-setting rising home prices because it’s less expensive to borrow money. In essence, purchasing a home while mortgage rates are this low may save you significantly over the life of your home loan.

Taking a look at the graph below with data sourced from the National Association of Realtors (NAR), the higher the bars rise, the more affordable homes are. The orange bars represent the period of time when homes were most affordable, but that’s also reflective of when the housing bubble burst. At that time, distressed properties, like foreclosures and short sales, dominated the market. That’s a drastically different environment than what we have in the housing market now.

The green bar represents today’s market. It shows that homes truly are more affordable than they have been in years, and much more so than they were in the normal market that led up to the housing crash. Low mortgage rates are a big differentiator driving this affordability.

Housing Affordability Index 1990 to Today shows Years start with 1990 at 108 with an incline to 131 in 1993 then numbers bouncing between 122 to 133 between 1992 and 2004, with a decline in 2005, 2006 down to 108, 2007 at 115, major jump in 2008 to 138, another major jump in 2009 to 169 inclining to the peak in 2012 to 197, drop to 176, then stabalized in the 160s for a few years till 2017 down to 158, down a bit more in 2018 to 148, in 2019 up to 162, and today we're at 164.  Also a note the years between 2009 and 2015 when the numbers were super high between 164 and 197 were when distressed properties dominated the market.

What are the experts saying about affordability?

Experts agree that this unique moment in time is making homes incredibly affordable for buyers.

Lawrence Yun, Chief Economist, NAR:

“Although housing prices have consistently moved higher, when the favorable mortgage rates are factored in, an overall home purchase was more affordable in 2020’s second quarter compared to one year ago.”

Bill Banfield, EVP of Capital Markets, Quicken Loans:

“No matter what you’re looking for, this is a great time to buy since the current low interest rates can stretch your spending power.”

Mortgage News Daily:

“Those shopping for a home can afford 10 percent more home than they could have one year ago while keeping their monthly payment unchanged. This translates into nearly $32,000 more buying power.”

Forbes:

“Homeowners are the clear winners. Low mortgage rates mean the cost of owning is at historically low levels and who gains all the benefits of strong house price appreciation? Homeowners.”

Bottom Line

When purchasing a home, it’s important to think about the overall cost, not just the price of the house. Homes on your wish list may be more affordable today than you think. Let’s connect to discuss how affordability plays a role in our local market, and your long-term homeownership goals.

Tagged With: First Time Home Buyers, For Buyers, Interest Rates, Move-Up Buyers, Pricing

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