Purchasing a Home Is Still Within Reach

The importance of one’s house has been highlighted in recent months. As a result, some renters are deciding to buy their first home, while others are re-evaluating their present property and exploring a move to one that better suits their present lifestyle.

There are three key aspects that influence the affordability of a property for a buyer:

1. Mortgage Interest Rates
2. Payments on a Mortgage as a Percentage of Income
3. Home Prices

The Housing Affordability Index is created by the National Association of Realtors (NAR). It calculates a house affordability score by taking these three elements into account. The index, according to NAR, is as follows:

“…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.”

Their methodology is as follows:

“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 a 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.”

So, the higher the index, the more affordable it is to purchase a home. Here’s a graph of the index going back to 1990:

Today’s affordability is shown by the blue bar. Homes are now more cheap than they have been since the housing meltdown, when distressed properties (foreclosures and short sales) dominated the market. Those homes were offered at deep discounts that had not been witnessed in the housing market in nearly a century.

Why are houses so affordable nowadays?

Although there are three components that influence the total equation, historically low mortgage rates are the most important in today’s homebuying affordability. We can see that buying a home today is more affordable than it has been in the last eight years based on one major criterion.

If you’re thinking about buying your first house or upgrading to the one you’ve always wanted, you should know how affordability affects the overall cost of your property. With that in mind, buying today, while mortgage rates are still low, might save you a lot of money over the course of your loan.

Bottom Line

If you’re ready to buy, buying a home this summer might save you a lot of money in the long run, according to past affordability trends. Contact us to day to start your home buying journey!