Here’s what you need to know about affordability and the market.
If you’ve been paying attention to the market, you know things have become pretty crazy recently. Things are starting to shift, so today I want to discuss recent changes in affordability and what they mean for you.
First, what’s happening with affordability? If you check out the graph at 0:30 in the video, you’ll see average affordability over the last 50 years calculated as a percentage of income. Historically, a home costs the average person 20.3% of their income. Now, it only costs them 16%.
This is partially because of our historically low interest rates; however, they’re increasing rapidly recently. Does this mean affordability is decreasing? Not necessarily. Incomes are rising across the country, and our rates make high prices affordable. If you’re budgeting to purchase a home, I recommend staying below the 20.3% ceiling so that you have a little cushion when you head to the market.
"Homes are historically affordable right now."
Next, let’s take a look at inflation. If you check out the video at 1:50, you’ll see a chart that shows how prices have increased since 1989. This chart shows a lot of things, but importantly, it shows how home prices and mortgages have changed. As you can see, home prices have increased quite a bit, but monthly payments are much lower than they used to be. This means overall affordability is better than it was in the 1980s.
I know interest rates are rising, but I wouldn’t worry just yet. Rates are still great from a historical perspective, and it’s very unlikely that they’ll get as high as they were in the 1970s and 1980s.
If you have questions about today’s topic or anything else, please call or email me. I am always willing to help!
