How To Get A Better Perspective On Affordability

Dated: 02/12/2019

Views: 82

How To Get A Better Perspective On Affordability

How to Get a Better Perspective on Affordability


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:

How to Get a Better Perspective on Affordability | Keeping Current Matters

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.

Bottom Line

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.


Original post by Keeping Current Matters. 

Blog author image

Mary Phillips

I was born and raised in Missouri. Raised 4 wonderful children along with about 50 other kids in the show me state. My passion has always been to serve others and have fun doing it. Which is why....

Latest Blog Posts

Are You Killing Your Curb Appeal

1. Overgrown LawnGoing ‘au naturel’ may be in vogue this season when it comes to grooming your brows, but not when it comes to your lawn maintenance. When a prospective homebuyer is pulling up

Read More

Aug 12 2019 64017 1

Beautiful beaches attract lots of people every year, especially during the summer. Some of us love the view of the ocean, the breeze, sunny weather and fun with friends.  If you are

Read More

Rent Vs Own

Rent Vs. Own [INFOGRAPHIC] 2.1KSHARES 1.9K 82 36 115 Some Highlights: Owning your own home vs. renting may lead to some great options, such as locking in your monthly

Read More

How To Increase Your Equity Over The Next 5 Years

How To Increase Your Equity Over The Next 5 Years 3.5KSHARES 3.2K 79 51 158 Many of the questions currently surrounding the real estate industry focus on home prices and

Read More