Housing affordability is all over the news, with many headlines reporting that buying a house today is less affordable than it’s been at any other point in over a decade. These reports are accurate.
It makes sense that buying a home costs more now, coming on the heels of one of the biggest housing market crashes in our country’s history. In the past 10 years, distressed properties that include short sales and foreclosures flooded the housing market with price cuts ranging from 10 to 50 percent. This influx of discounted properties also lowered the prices of non-distressed homes in surrounding neighborhoods. Mortgage rates remained low during this time to help stimulate the economy.
Today’s typical mortgage payment costs 28% less
Housing prices have recovered. The economy has also gotten stronger, and so, mortgage rates have increased. This has an impact on housing and mortgage affordability, but it’s still important to keep it in historical context.
In early 2019, CoreLogic issued a report on the “typical mortgage payment,” saying:
“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’s an overview of national homebuyers’ typical monthly mortgage payment adjusted for inflation over the last two decades, according to CoreLogic’s research:
- January 2000: $1,100 per month
- June 2006, during the housing boom: $1,275 per month
- February 2012, during the housing crash: $550 per month
- Late 2018: $918 per month
- Projected for late 2019: $963 per month
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The most recent numbers show a 28-percent decrease from the all-time high of $1,275 for a typical mortgage payment in June 2006. At that time, mortgage rates were 6.68 percent. Today’s rates are several points lower, making today’s typical payment and the projected mortgage payment for the end of this year noticeably less than what homeowners were paying in January 2000.
Buy now, build equity & bankroll for later
While home price appreciation has slowed some, housing affordability is expected to decline. But this doesn’t mean that homeownership is out of reach. It’s still cheaper to buy right now in most markets than it was before the housing bubble and crash. In fact, buying a home now is a smart move if you want to lock in a lower monthly payment and build your equity as housing prices increase. Take a few minutes and find out how much you can afford to buy.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.