So it’s a bit surprising that the most important housing statistic has gone largely unreported: homes have never been more affordable.
Affordability, measured by the median mortgage payment on the current medianpriced home ($182,400) as a percentage of the median household income ($64,400), is lower than it’s been in a generation. The chart below, which tracks housing affordability for the past 10 years, shows incredible improvements in affordability since the height of the real estate boom in 2006.
Buyers have the edge!
“Home buyers over the past year got a great deal, and buyers for the balance of this year have an edge over sellers. Affordability could reach a generational high in the second half of this year because of rock-bottom mortgage interest rates, helped partly by the Fed’s very accommodative monetary policy.”
-Lawrence Yun, Chief Economist The National Association of REALTORS®
Reason #2
The national average on a 30-year fixed-rate mortgage dropped to 4.36 percent in Aug 2010 – lower than it’s been in the past half century. Interest rates for the same time last year averaged 5.19 percent, representing a difference of $90 in the monthly payment on a $200,000 home with 10 percent down, as well as a savings of $32,460 over the life of the loan.
How low can they go?
Doug Duncan, Fannie Mae’s chief economist, notes that the current market is highly favorable for home buyers. “Interest rates are at historic lows. It’s hard to imagine rates going any lower than they are now. House prices have come down considerably, and if your credit is good, there’s lots of money available.”
Small rate increases spell surprising cost spikes!
Interest Ratee 4.36% 5.19% 6% 7% 8%
Monthly payment $897 $987 $1,080 $1,198 $1,321
and interest
Difference in monthly $90 $182 $300 $424
payments
Total interest paid $142,964 $175,424 $208,509 $251,116 $295,480
over the life of the loan
Interest saved over the life $32,460 $65,545 $108,152 $152,516
of the loan
Mark Fuller is a leading real estate professional specializing in Luxury Homes In Houston Texas.