Dismissing Home Affordability Myths

October 11, 2018

 

We have all come across articles and headlines reporting that buying a home is less affordable today than in the past, and those claims are accurate. Why do the headlines only refer to the last 10 years? Why don't the headlines talk about the last 25, 20, or even the last 11 years?

 

Homes were less affordable 11- 25 years ago

 

It is clear that buying a home is more expensive now than the 10 years following one of the worst housing crashes in American history. The market was saturated with distressed properties, including foreclosures and short sales, that were sold with 10-50 % discounts. With the huge inventory of distressed properties, the homes in the same neighborhood were unable to compete and were sold at lower prices and lower mortgage rates.  

 

Low prices and low mortgage rates result in high affordability

 

Prices and mortgage rates have increased as the economy has gained its strength back. This trend will continue to impact housing affordability moving forward with time. 

 

Let's give affordability some historical context. The National Association of Realtors states that the current index stands at 138.8. The 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. The index was higher in the last 10 years, reaching 197. The average index between 1990 and 2007 was 123, and no years with an index above 133. These indexes show that homes are more affordable today than at anytime between those years. 

 

With home prices appreciating and mortgage rates increasing, home affordability will continue to decrease. This should not discourage you from buying a home. Buying a home is an attainable goal in most markets, and it is less expensive today than during the eighteen-year stretch immediately following the housing bubble and crash. 

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