There comes a time in everyone's life to upgrade and buy a single family home. The health crisis doesn't change this in today's market. Despite COVID-19 families are outgrowing their homes, some are moving for job positions, and others need to upgrade because they are expecting an addition to the family. Understanding how home affordability works is key.
The 3 main factors that determine how affordable a home is to buyers are:
- Mortgage rates
- Mortgage payments as a percentage of income
- Home prices
The National Association of Realtors release a Housing Affordability Index which takes these 3 factors into account to determine how affordable homes are.
According to NAR, the 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 price and income data.”
Their methodology states:
“To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.”
The higher the index, the more affordable it is to purchase a home.
This graph showing the Housing Affordability Index from 1990:
The green bar to the right shows today's housing affordability. Homes are currently more affordable than they have ever been except during the housing crash. During the housing crash short sales and foreclosures flooded the market so obviously it is a given that homes were affordable during that time. Those homes were sold with large discounts which is not a norm for the housing market.
Why are homes so affordable today?
The number one reason is the low mortgage interest rates. It is more affordable to buy a home today than any time during the last 7 years.
If you are considering to expand and purchase your first home, it is important to understand how housing affordability plays a role in the overall cost of your home. Buying with such low rates will save you a ton of money over the course of the loan.
Don't miss out on the incredible opportunity to be a homeowner. Call Mortgage Broker Iliana Tegov with Voget Financial Services at 954-614-9000 and get pre-approved for a mortgage. Then call South Florida's Real Estate Experts on the Galt Mile in Fort Lauderdale - Prestige Waterfront Realty at 954-830-7000.
Let us help make your homeownership dreams a reality!