Headlines spotlight the fact that buying a home is less affordable today than it was at any other time in more than a decade. Those headlines are accurate.
Understandably, buying a home is more expensive now than 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) selling at 10-50% discounts. There were so many that this lowered the prices of non-distressed homes in the same neighborhoods. As a result, mortgage rates were kept low to help the economy.
Prices have since recovered. Mortgage rates have increased as the economy has gained strength. This has impacted housing affordability. However, it's necessary to give historical context to the subject of affordability.
Two weeks ago, CoreLogic reported on what they call the "typical mortgage payment". As they explain:
"One way to measure the impact of inflation, mortgage rates and home prices on affordability over time is to use what we call the 'typical mortgage payment.' It's a mortgage-rate-adjusted monthly payment based on each month's U.S. median home sale price. It is calculated using Freddie Mac's average rate on a 30-year fixed-rate mortgage with a 20 percent down payment...
The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for to get a mortgage to buy the median-priced U.S. home…
When adjusted for inflation, the typical mortgage payment puts homebuyers' current costs in the proper historical context."
Here is a graph showing the results of CoreLogic's research:
As the graph indicates, the most recent calculation remained 28% below the all-time peak of $1,275 in June 2006. That's because the average mortgage rate at that time was 6.68%. As seen in the graph, both today's typical payment and CoreLogic's projection for the end of the year are less than it was in January 2000.
Even though home prices are appreciating at a slower rate, home affordability will likely continue to slide. However, this does not mean that buying a house is an unattainable goal in most markets. It is still less expensive today than it was prior to the housing bubble and crash.
Home ownership is how most people gain wealth. Buy a first or second home and build your wealth. Some of the more popular locations we sell homes are in Point Pleasant, Brick, Toms River, Forked River, Beachwood, Berkeley Twp, Bayville, Waretown, Barnegat, Lacey Township, Manahawkin, Tuckerton, Little Egg Harbor and Long Beach Island, New Jersey.
Ocean County Real Estate Market Performance Update
The upward trend of unsold inventory appears is starting to level off while at the same time last year it was still trending upward. This years contract sales are ahead of last year and the trend line is level. Lower unsold inventory and non declining sales are is good news for home prices.
Near the conclusion of June there was a 6.3 month supply of homes to be sold. That is down from the January high of 8.6 months.
The indicators appear to show the state of the real estate market in Ocean County New Jersey is improving. This is of course good news also for home owners who recently purchased.
Keep in mind that the majority of American's gain wealth from home ownership.
I recently read a quote attributed to Donald Trump. He said "I'm pretty sure this is a great time to go out and buy a house. And if you do, in ten years you're going to look back and say, You know, I'm glad I listened to Donald Trump."
Sure prices could continue to drop. However interest rates may continue to rise. The result of dropping house values and rising interest rates is that a house could be worth less but cost more.
The monthly payment (Principal and Interest) on a loan of $225,000 with an interest rate of 4.7% is $1166.94. Should the interest rate climb a mere 3/4 of a point to 5.45% the monthly payment on that same $225,000 jumps to $1164.94. That is a $103.54 per month increase in the monthly payment. Don't pull out your calculator, the increase is just short of a 9% more per month.
If the maximum monthly mortgage payment a buyer qualifies for is $1164.00, and the mortgage rate increases from 4.7% to 5.45% they will now only qualify to borrow $206,000.
The point should be clear. Interest rates have a high impact on the cost of a home. With the above example, you would pay over $12,400 more over the course of ten years.
I am betting that home values will be far higher in ten years, so will interest rates.
Is now a great time to buy a home? Yes. To see all the homes for sale in two multiple listing services in Ocean and Monmouth Counties, visit www.riviierarealty.com.
Coldwell Banker Riviera Realty, Inc.