Oct 11 2018 5018 1

Dated: 10/11/2018

Views: 37

Dispelling the Myth About Home Affordability

Dispelling the Myth About Home Affordability | MyKCM

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.

Blog author image

Jeri Patrick

In today’s complex and difficult real estate market you need a professionals who will do whatever it takes to market and sell your home. Jeri Patrick has a team with an established history of succes....

Want to Advertise on this Site?

Latest Blog Posts

Dec 7 2018 5018 1

The Tale of Two Markets [INFOGRAPHIC]Some Highlights: An emerging trend for some time now has been the difference between available inventory and demand in the premium and luxury markets and that

Read More

Dec 6 2018 5018 1

2008 vs. Now: Are Owners Using Their Homes as ATMs Again?Over the last six years, we have experienced strong price appreciation which has increased home equity levels dramatically. As the number

Read More

Dec 5 2018 5018 1

Where Are Interest Rates Headed in 2019?The interest rate you pay on your home mortgage has a direct impact on your monthly payment. The higher the rate, the greater the payment will be. That is why

Read More

Dec 4 2018 5018 1

Homeowners Aged 65+ Have 48x More Net Worth Than RentersEvery three years, the Federal Reserve conducts their Survey of Consumer Finances in which they collect data across all

Read More