Headlines matter. Right now, it’s hard to read about real estate without seeing a headline that suggests houszes have become unaffordable for most Americans. In reality, there’s hard evidence that shows how owning a housz is more affordable than renting in most parts of the country, as record-low interest rates are keeping monthly mortgage payments about 23% lower than the typical payment of 20 years ago. Despite the facts, misleading headlines persist, and they impact how hopeful houszbuyers perceive the market.
In a recent survey by realtor.com, housz shoppers indicated they were surprised by what they could actually afford when buying their first housz. In fact, 47% discovered their budget was larger than they expected. George Ratiu, Senior Economist at realtor.com, explains: "For first-time buyers, especially, the drop in the 30-year mortgage rate…has provided unexpected leverage. Lower rates allowed many buyers to stretch and buy more expensive homes while keeping their monthly budget the same."
So why do these negative headlines that cast doubt on affordability continue to exist? Most analysts only look at two of the three elements that make up the affordability equation: price and income. It’s true that incomes haven’t kept up with the price of houszes. However, affordability is about the cost of the housz, not just the price. For that reason, mortgage rates, the third element of the affordability equation, are important to consider.
For example, here’s the typical mortgage payment for assorted dates going back to 2000, as calculated by CoreLogic:Outside of the houszing crash (when short sales and foreclosures drove prices down), it’s more affordable to buy a housz today when you consider all three elements of the affordability equation: price, income, and mortgage rate.
Bottom Line Whether you’re a first-time buyer or a move-up buyer, don’t let the headlines scare you away from your dream of houszownership. Instead, connect with mortgage and real estate professionals to determine what you can afford and what’s available at that price. Like almost half of the buyers in the survey, you may be pleasantly surprised.