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Why Are Homes Considered More Affordable Today When Prices Keep Going Up?

If you have been reading about the real estate market recently you can’t help but pick up on conflicting messages. “Wow homes are more affordable now than ever before!” mixed with … “Low inventory and bidding wars are driving home prices higher!” The two statements don’t seem to be compatible with each other.

So which is it? Is this just spin like the popular marketing line “The More You Shop the More You Save?”

The truth of these seemingly conflicting statements lies somewhere in between.

When most of us begin searching for a home, we naturally start by looking at the price. It’s important, however, to closely consider what else impacts the purchase. It’s not just the price of the house that matters, but the overall cost in the long run. Today, that’s largely impacted by low mortgage rates. Low rates are actually making homes more affordable now than at any time since 2016, and here’s why.

Today’s low interest rates are off-setting rising home prices because it’s less expensive to borrow money. In essence, purchasing a home while mortgage rates are this low may save you significantly over the life span of your home loan.

Taking a look at the graph below with data sourced from the National Association of Realtors (NAR), the higher the bars rise, the more affordable homes are. The orange bars represent the period of time when homes were most affordable, but that’s also reflective of when the housing bubble burst. At that time, distressed properties, like foreclosures and short sales, dominated the market. That’s a drastically different environment than what we have in the housing market now.

Click Image to Enlarge

The green bar represents today’s market. It shows that homes truly are more affordable than they have been in years, and much more so than they were in the normal market that led up to the housing crash. Low mortgage rates are a big differentiator driving this affordability.

What Are the Experts Saying About Affordability?

Experts agree that this unique moment in time is making homes incredibly affordable for buyers.

“Those shopping for a home can afford 10 percent more home than they could have one year ago while keeping their monthly payment unchanged. This translates into nearly $32,000 more buying power.

Mortgage News Daily

“Although housing prices have consistently moved higher, when the favorable mortgage rates are factored in, an overall home purchase was more affordable in 2020’s second quarter compared to one year ago.”

Lawrence Yun, Chief Economist, NAR

“No matter what you’re looking for, this is a great time to buy since the current low interest rates can stretch your spending power.

Bill Banfield, EVP of Capital Markets, Quicken Loans:

Homeowners are the clear winners. Low mortgage rates mean the cost of owning is at historically low levels and who gains all the benefits of strong house price appreciation? Homeowners.”


Bottom Line

When purchasing a home, it’s important to think about the overall cost, not just the price of the house. Homes on your wish list may be more affordable today than you think. Let’s connect to discuss how affordability plays a role in our local market, and your long-term homeownership goals.
Call Finding Homes for You today at: 636-532-4200

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