Is It Still Affordable to Buy A House Right Now?

Is It Still Affordable To Buy A House Right Now?

With the housing inventory being at an all-time low. Causing home values to rise,. Is it still affordable to buy a house right now?

There are 32.7% fewer house for sale today in Connecticut than there were last year. And if you live in my town Southbury, CT is down 53%. But at the same time though, buyer demand remains strong.

Since there is a low inventory of houses for sale. You have to remember whenever there’s a shortage in the supply of an item that’s in high demand, the price of that item increases. That’s what’s happening in the real estate market right now. As a result, home values are rising.

This is great news if you’re planning to sell your house. But on the other hand, as either a first-time or repeat buyer, this may instead seem like a reason to be concern. But homebuyers, however, should realize that the price of a house is not as important as the monthly cost. Here’s how it breaks down.

There are certain factors that influence the cost of a house. Two of the major ones are:

  1. The price of the house
  2. The mortgage rate at which a buyer can borrow the funds necessary to purchase the house

How Do These Factors Impact Affordability?

The National Association of Realtors (NAR) produces a Housing Affordability Index which takes these factors into account and determines an overall affordability score for housing.

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.”

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

Is it Still Affordable to Buy Right Now?

The blue bar represents today’s affordability which is at 160 right now.

Just remember during the housing crash from 2009 to 2015, distressed properties which were foreclosures and short sales dominated the market. Those properties were sold at large discounts not seen before in the housing market.

If you take out the years when distressed properties dominated the market labeled in orange. You can see that houses are more affordable now than they were from:

  • 1990 to 2008
  • 2017 to 2018

Buying a house today is just a little less affordable than it was last year, but still very affordable compared to historical housing market trends.

Why Are Houses Still Affordable Today?

The number one factor impacting today’s homebuying affordability is record-low mortgage rates. Even though home prices are on the rise. Mortgage rates have fallen dramatically.

Just last week, Freddie Mac announced that the average interest rate for a 30-year fixed-rate mortgage reached another record at 2.71%. Last year at this time, the average rate was 3.68%.

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.

Bottom Line

At this point, home purchase affordability is still in a historically good place. However, we need to watch price increases going forward because fast appreciation can erode, or even eliminate, the boost in affordability from lower mortgage rates.

If you are planning to buy a house since mortgage rates are at historic lows now is a great time to do so.

If you are planning to buy a house since mortgage rates are at historic lows now is a great time to do so. And if you are planning to sell your house now is a great time to do so as well Since inventory is low and buyer demand is high you can get the most value from your house and beat the competition with other sellers that are planning to sell next year. Let’s talk today to create a plan to accomplish your real estate goals.

I am committed to the real estate market to make sure you have all the information you need to make your next move. Review all the information I have put together for you here on my website. If you would like more information on any issues of concern as well please contact me. I look forward to hearing from you. Have a great day.  

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