Dispelling the Myth About Home Affordability

Dated: 10/11/2018

Views: 5

We have all seen the headlines that report that buying a home is less affordable today than it was at any other time in the last ten years, and those headlines are accurate. But, have you ever wondered why the headlines don’t say the last 25 years, the last 20 years, or even the last 11 years?

The reason is that homes were less affordable 25, 20, or even 11 years ago than they are today.

Obviously, buying a home is more expensive now than during the ten years immediately following one of the worst housing crashes in American history.

Over the past decade, the market was flooded with distressed properties (foreclosures and short sales) that were selling at 10-50% discounts. There were so many distressed properties that the prices of non-distressed properties in the same neighborhoods were lowered and mortgage rates were kept low to help the economy.

Low Prices + Low Mortgage Rates = High Affordability

Prices have since recovered and mortgage rates have increased as the economy has gained strength. This has and will continue to impact housing affordability moving forward.

However, let’s give affordability some historical context. The National Association of Realtors (NAR) issues their Affordability Index each month. According to NAR:

“The Monthly Housing Affordability 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 monthly price and income data.”

NAR’s current index stands at 138.8. The index had been higher each of the last ten years, peaking at 197 in 2012 (the higher the index the more affordable houses are).

But, the average index between 1990 and 2007 was just 123 and there were no years with an index above 133. That means that homes are more affordable today than at any time during the eighteen years between 1990 and 2007.

Bottom Line

With home prices continuing to appreciate and mortgage rates increasing, home affordability will likely continue to slide. However, this does not mean that buying a house is not an attainable goal in most markets as it is less expensive today than during the eighteen-year stretch immediately preceding the housing bubble and crash.

Latest Blog Posts

LET ME KNOW WHAT YOU NEED. HAGAME SABER QUE DESEA Y NECESITA

In bygone years, Las Vegas was mostly about the gambling. Not  Now!YA HACE MUCHOS AÑOS QUE  TODO EN LAS VEGAS ERA ACERCA DE LAS APUESTAS. NO AHORA!EL EQUIPO DE LOS RAIDERS TENDRA SU

Read More

AN AGENT YOU CAN TRUST

My website provides you a wealth of information and services to assist in all your real estate needs; please visit me and take a look. Send me a message, follow me on twitter or Facebook. IM HERE TO

Read More

Kitchen Remodel? View this first...

For the third time this week, you’ve found yourself cursing the unusability of your kitchen. The drawers come out in all the wrong directions, the cabinets are so shallow that you can barely

Read More

YOUR LOAN, YOUR OFFER. SU PRESTAMO, SU OFERTA

DEAR CLIENT:My recommended lenders can help you get pre-approved for a loan. They have great products and their service is exceptional, they can help if you only have ITIN number, low income, not

Read More