If you're wondering whether this summer is a smart time to buy a home, then let me cut to the chase. Thanks to still-historically low mortgage rates, housing may never again be as affordable as it is right now.
At present, the interest rate on a 30-year fixed rate mortgage is 4.19%. That's the cheapest they've been all year, and they even recently dipped below half the long-run average of 8.52%.
A historic opportunity for homebuyers
Just to be clear, mortgage rates like this are not only extremely low; they're also phenomenally rare.
While interest rates in general have been on a gradual descent since the late 1970s and early 1980s, during which the Federal Reserve was combating double-digit inflation, it's only been over the past three years that we've seen rates as low as today.
Go back two years, in fact, and they were even cheaper, bottoming out below 3.4% in November 2011. But the fact that they've since climbed shouldn't dissuade you from making the plunge into homeownership this summer.
I say this for two reasons.
First, while making predictions is certainly a fool's errand, it nevertheless seems unlikely that mortgage rates will repeat their 2011 and 2012 performances anytime soon.
At the time, the Fed was cycling through successive rounds of quantitative easing, the purpose of which was to lower mortgage rates. However, the Fed has since reversed course and is slowly backing away from this policy.
Thus, unless the central bank decides to reverse course yet again -- which seems doubtful given a series of cautiously optimistic pronouncements by members of its monetary policy board -- the likelihood that rates will drop to the same extent on their own accord is low if not nonexistent.
Housing is still extremely affordable
The second reason, in turn, is that housing is still considerably more affordable than it's been on a historical basis.
The best estimate of this is the National Association of Realtors' housing affordability index, which "measures the degree to which a typical family can afford the monthly mortgage payments on a typical home."
Right now, the index is at 170.3. This means that a typical family has 170.3% of the income necessary to qualify for a conventional loan on a median-priced single-family home.
The point here is that now is the time to buy.
Yes, home prices have soared since bottoming out three years ago. And yes, mortgage rates have ratcheted higher over the past 24 months.
But that doesn't change the fact that the latter, at least by historical standards, are still ridiculously cheap.
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