Checking Out Homebuying Affordability in Today’s Market
There are so many factors they need to be taken into consideration When trying to determine the best time to buy a home. One of the things we can do to help us determine the answer is understand how affordability works as well as the primary factors that can impact it. With this understanding we can gain insight into optimum time to make the investment.
There are three main factors that go into determining how affordable homes are for buyers:
- Mortgage Rates
- Mortgage Payments as a Percentage of Income
- Home Prices
The National Association of Realtors (NAR), produces a Housing Affordability Index, which takes these three factors into account and determines an overall affordability score for housing. 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.”
Their methodology states:
“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.”
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:
The green bar represents today’s affordability. We can see that homes are more affordable now than they have been at any point since the housing crash when distressed properties (foreclosures and short sales) dominated the market. Those properties were sold at large discounts not seen before in the housing market.
Why are homes so affordable today?
Although there are three factors that drive the overall equation, the one that’s playing the largest part in today’s homebuying affordability is historically low mortgage rates. Based on this primary factor, we can see that it is more affordable to buy a home today than at any time in the last seven years.
If you’re considering purchasing your first home or moving up to the one you’ve always hoped for, it’s important to understand how affordability plays into the overall cost of your home. With that in mind, buying while mortgage rates are as low as they are now may save you quite a bit of money over the life of your home loan. Learn more about taking advantage of the market rates now here.
If you feel ready to buy, purchasing a home this season may save you significantly over time based on historic affordability trends. Let’s connect today to determine if now is the right time for you to make your move.
Oly Pen Real Estate has a team of trusted real estate professionals to help you navigate changes in our industry. We have a watchful eye on Grays Harbor market so give your Oly Pen Real Estate Team a call today at 360.249.8187 or stop by our office 141 S. Main Street in friendly Montesano, WA and discuss your expectations today!