How to Know if You Can Afford to Buy a Home

Dated: November 11 2019

Views: 1022

How to Know If You Can Afford to Buy a Home

How to Determine If You Can Afford to Buy a Home | MyKCM

The gap between the increase in personal income and residential real estate prices has been used to defend the concept that we are experiencing an affordability crisis in housing today.

It is true that home prices and wages are two key elements in any affordability equation. There is, however, an extremely important third component to that equation: mortgage interest rates.

Mortgage interest rates have fallen by more than a full percentage point from this time last year. Today’s rate is 3.75%; it was 4.86% at this time last year. This has dramatically increased a purchaser’s ability to afford a home.

Here are three reports validating that purchasing a home is in fact more affordable today than it was a year ago:

CoreLogic’s Typical Mortgage Payment

“Falling mortgage rates and slower home-price growth mean that many buyers this year are committing to lower mortgage payments than they would have faced for the same home last year. After rising at a double-digit annual pace in 2018, the principal-and-interest payment on the nation’s median-priced home – what we call the “typical mortgage payment”– fell year-over-year again.”  

The National Association of Realtors’ Affordability Index

“At the national level, housing affordability is up from last month and up from a year ago…All four regions saw an increase in affordability from a year ago…Payment as a percentage of income was down from a year ago.”

First American’s Real House Price Index (RHPI)

“In 2019, the dynamic duo of lower mortgage rates and rising incomes overcame the negative impact of rising house price appreciation on affordability. Indeed, affordability reached its highest point since January 2018. 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.”

Bottom Line

Though the price of homes may still be rising, the cost of purchasing a home is actually falling. If you’re thinking of buying your first home or moving up to your dream home, let’s connect so you can better understand the difference between the two.

Blog author image

Corey Blade

Corey is an experienced real estate broker who has extensive experience working with buyers, sellers, and investors. With exceptional follow up, listening, and negotiation skills, Corey holds himself ....

Latest Blog Posts

How to Make the Dream of Homeownership a Reality This Year

How to Make the Dream of Homeownership a Reality This Year Monday January 18th, 2021  Down Payments, First Time Home Buyers, For Buyers, Move-Up Buyers, Rent vs.

Read More

Why Right Now May Be the Time to Sell Your House

Why Right Now May Be the Time to Sell Your House Thursday January 14th, 2021  For Buyers, For Sellers, Housing Market Updates, Interest RatesThe housing market made an

Read More

4 Reasons People Are Buying Homes in 2021

4 Reasons People Are Buying Homes in 2021 Tuesday January 12th, 2021  First Time Home Buyers, For Buyers, Interest Rates, Move-Up BuyersAccording to many experts,

Read More

Is This the Year to Sell My House?

Is This the Year to Sell My House? Thursday January 7th, 2021  For Sellers, Housing Market Updates, Move-Up Buyers, Selling MythsIf one of the questions you’re

Read More