The Cost Of A Home Vs The Price Of That Home

Dated: 11/07/2019

Views: 213

The 'affordability of money' -that is, the cost of borrowing money to purchase a home- remains at historic lows due to current interest rates that over this year have decreased again.

For further explanation of the incredible value that factor offers to a homebuyer, enjoy this post below from my REALTOR® friends, Ann Cummings and Jim Lee, in Portsmouth, New Hampshire (our area's home prices are considerably lower, but the principle is just as applicable to south Louisiana home purchases)  ...

Forget the Price of the Home. The Cost is What Matters.

Forget the Price of the Home. The Cost is What Matters. | Simplifying The Market

Home buying activity (demand) is up, and the number of available listings (supply) is down. When demand outpaces supply, prices appreciate. That’s why firms are beginning to increase their projections for home price appreciation going forward. As an example, CoreLogic increased their 12-month projection for home values from 4.5% to 5.6% over the last few months.

The reacceleration of home values will cause some to again voice concerns about affordability. Just last week, however, First American came out with a data analysis that explains how price is not the only market factor that impacts affordability. They studied prices, mortgage rates, and wages from January through August of this year. Here are their findings:

Home Prices

“In January 2019, a family with the median household income in the U.S. could afford to buy a $373,900 house. By August, that home had appreciated to $395,000, an increase of $21,100.”

Mortgage Interest Rates

“The 0.85 percentage point drop in mortgage rates from January 2019 through August 2019 increased affordability by 9.7%. That translates to a $40,200 improvement in house-buying power in just eight months.”

Wage Growth

“As rates have fallen in 2019, the economy has continued to perform well also, resulting in a tight labor market and wage growth. Wage growth pushes household incomes upward, which were 1.5% higher in August compared with January. The growth in household income increased consumer house-buying power by 1.5%, pushing house-buying power up an additional $5,600.”

When all three market factors are combined, purchasing power increased by $24,500, thus making home buying more affordable, not less affordable. Here is a table that simply shows the data:Forget the Price of the Home. The Cost is What Matters. | Simplifying The Market

Bottom Line

In the article, Mark Fleming, Chief Economist at First American, explained it best:

“Focusing on nominal house price changes alone as an indication of changing affordability, or even the relationship between nominal house price growth and income growth, overlooks what matters more to potential buyers – surging house-buying power driven by the dynamic duo of mortgage rates and income growth. And, we all know from experience, you buy what you can afford to pay per month.”

Latest Blog Posts

Recommended Mortgage Resources Lender List

Getting your financing secured early in the process of buying a new home or property is VERY significant, even essential! Doing so will tell you what amount you will be able to borrow and establish

Read More

The Sellers Agent In A New Construction Subdivision Is By Definition Limited In Serving Your Needs

He or she works for a particular builder and would be obligated, if not contracted, to show you only the houses that builder has available or could build for your needs if you have the luxury

Read More

Do Not Try To Outsmart The Market

I ran across an article this morning with sage advice for real estate sellers: "DON'T TRY TO OUTSMART THE MARKET!"It reminded me of what I explain to my property-selling clients. I don't set prices.

Read More