Better Perspective on Affordability

Dated: 02/11/2019

Views: 139

Headlines spotlight the fact that buying a home is less affordable today than it was at any other time in more than a decade. Those headlines are accurate.

Understandably, buying a home is more expensive now than immediately following one of the worst housing crashes in American history. Over the past decade, the market was flooded with distressed properties (foreclosures and short sales) selling at 10-50% discounts. There were so many that this lowered the prices of non-distressed homes in the same neighborhoods. As a result, mortgage rates were kept low to help the economy.

Prices have since recovered. Mortgage rates have increased as the economy has gained strength. This has impacted housing affordability. However, it’s necessary to give historical context to the subject of affordability.

Two weeks ago, CoreLogic reported on what they call the “typical mortgage payment”. As they explain:

“One way to measure the impact of inflation, mortgage rates and home prices on affordability over time is to use what we call the ‘typical mortgage payment.’ It’s a mortgage-rate-adjusted monthly payment based on each month’s U.S. median home sale price. It is calculated using Freddie Mac’s average rate on a 30-year fixed-rate mortgage with a 20 percent down payment…

The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for to get a mortgage to buy the median-priced U.S. home…

When adjusted for inflation, the typical mortgage payment puts homebuyers’ current costs in the proper historical context.”

Here is a graph showing the results of CoreLogic’s research:

As the graph indicates, the most recent calculation remained 28% below the all-time peak of $1,275 in June 2006. That’s because the average mortgage rate at that time was 6.68%. As seen in the graph, both today’s typical payment and CoreLogic’s projection for the end of the year are less than it was in January 2000.

Bottom Line

Even though home prices are appreciating at a slower rate, home affordability will likely continue to slide. However, this does not mean that buying a house is an unattainable goal in most markets. It is still less expensive today than it was prior to the housing bubble and crash.

Source: https://www.keepingcurrentmatters.com/2019/02/07/how-to-get-a-better-perspective-on-affordability/

Latest Blog Posts

Housing Markets Are Usually Not Hurt During a Recession

Excluding the Great Recession, a study of 1,039 state-level recessions since 1997 found that home values appreciated at the same rate they did in other times.NEW YORK – Other than the housing

Read More

Yield curve inversion fears are overblown

Yield curves predicting recessions did so historically and will again at the end of Fed overshoots. The Fed has done no such thing this time.by Lou Barnes August 19, 2019The current situation is

Read More

The Top Delays on the Road to the Closing Table

August 7, 2019Overall, the majority of contracts continue to be settled on time. Seventy-six percent of contracts made it to closing as scheduled from April to June, according to the REALTORS®

Read More

Appreciation Is Strong; It Might Be Time to Sell

There’s no doubt that today’s housing market is changing, and everything we see right now indicates it is time to sell. Here’s a look at why selling now is likely to drive the

Read More