You may be wondering if it’s still affordable to buy when home prices have been on the rise. Read on to find out!
Housing inventory is currently historically low. Realtor.com just reported that there are 39% fewer homes for sale today than there were in 2019. Although inventory is low, buyer interest is high. Research analyst Ivy Zelman explained:
“Although the headwind of severe supply constraints in most markets has contributed to slight moderation in seasonally-adjusted and year-over-year new pending contract growth for two consecutive months (albeit still growing strongly), the underlying strength of buyer demand, particularly for this time of year, remains apparent.”
What we are seeing in the housing market is classic supply and demand. When there is a low supply of something but a high demand for that item, the price goes up. That’s exactly what’s happening in real estate right now. As a result of this situation, home prices are being driven up.
This is music to your ears if you’re planning to sell your house. On the flip side, as either a first-time or repeat buyer, this could seem like bad news to you. Buyers should keep in mind that the price of a home is not as vital as the monthly cost of the home.
There are several things that make up the cost of a home. Here are two big ones:
- Home price
- The mortgage rate obtained by the buyer
Is it still affordable to buy a home?
The National Association of Realtors (NAR) comes out with a Housing Affordability Index which studies these factors and comes up with an overall affordability score for purchasing a home. 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.”
They state:
“To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.”
Purchasing a home today is slightly more expensive than last year, but when you compare this year to years past, buying a home is still very affordable.
Why is it still affordable to buy?
The number one thing making homes still affordable to buy is record-low mortgage rates. There’s no denying that home prices are increasing. On the other hand, mortgage rates have fallen drastically. Last week, Freddie Mac stated that the average interest rate for a 30-year fixed-rate mortgage was 2.72%. Last year at this time, the average rate was 3.68%.
If your’re thinking about buying your first home or moving to your dream home, it’s imperative to know how affordability affects the overall cost of your home. Please know that buying a home during this time of historically low interest rates will save you a considerable amount of money over the life of your home loan.
Did you recently purchase a new home? Here’s some quick information about what to do when you first move in.