Today's Buyer Advantage: Housing Affordability
Buyers have an unprecedented opportunity with today’s real estate market. Although prospective buyers have likely heard that low interest rates and attractive home prices make it a great time to purchase a home, what they may not know is that the ability to afford a new home is within reach to more families than ever before.
The National Association of Realtors (NAR) recently reported that its Housing Affordability Index reached a record high of 206.1 in January. This is the highest level recorded since NAR began tracking the index in 1970. The index is calculated by tracking median home prices, median family income and mortgage rate averages.
To illustrate how this works, a Housing Affordability Index of 100 represents a median income-earning-family’s ability to exactly afford a median priced, existing single-family home. With the index at 200, this means a family earning the same median family income has 200 percent or roughly double the income necessary to qualify for an 80% conventional loan. The index also factors in a 20% down payment and the required 25% of gross income devoted to the mortgage principle and interest payments. This means that houses are more affordable now than at any point since 1970.
Today, the buyer’s advantage is the ability to purchase and afford more home for their money. The combination of low interest rates and attractive home prices are the two greatest influencers creating this highly favorable real estate market.
With rates remaining at historic lows for the past few years, relatively speaking in the 4% range, homebuyers are able to borrow money on more affordable terms than virtually any other time in the past 42 years. At the same time, home prices appear to be stabilizing in our local market.
Although these favorable conditions exist today, buyers who have the ability and desire to purchase should have a sense of urgency in taking advantage of this opportunity. As economic indicators and market conditions improve, the likelihood of rates increasing and home inventories declining will sway the market making housing affordability less auspicious for the buyer.
Coming Soon: The Truth about Jumbo Loans