Titles matter. Right now, it’s hard to read about real estate without seeing a title that suggests homes have become priceless for most Americans. In fact there is hard evidence that shows how owning a home is more affordable than rented in most parts of the country, as record-low interest rates hold monthly mortgage payments around 23% lower than the typical payment of 20 years ago. Despite the facts, deceptive headlines continue, and they affect how hopeful homebuyers perceive the market.
In recent survey of realtor.com, Home buyers have indicated that they are surprised by what they can actually afford by buying their first home. In fact 47% found that their budget is larger than they expected. George Ratiu, Supreme Economist at realtor.com, explains:
“For first-time buyers, in particular, the fall in the 30-year mortgage rate … has given unexpected leverage. Lower rates have allowed many buyers to tighten and buy more expensive homes while maintaining their monthly budget.”
So why do these negative headlines that cast doubt on affordability still exist?
Most analysts only look at two of the three elements that make up the affordable equation: price and income. It is true that revenues did not keep pace with the price of houses. However, affordability it’s about the cost of the home, not just the price. Therefore, mortgage rates, the third element of the payable equation, is important to consider.
For example, here’s the typical mortgage payment for various dates of 2000, according to calculation of CoreLogic:Outside of the house crash (when short sales and foreclosures have lowered prices), it’s more affordable to buy a home today when you consider all three elements of the affordable equation: price, income, and mortgage rate.
Whether you’re a first-time buyer or a buyer, don’t let the titles scare you away from your dream of home ownership. Instead, connect with mortgage and real estate professionals to determine what you can afford and what is available at that price. Like nearly half of the buyers in the survey, you might be pleasantly surprised.
Content previously posted in Keep Current Things