Here's a secret I discovered during countless hours of analyzing facts and figures about the housing market: There's a good chance we'll never again see homes as affordable as they are right now.
According to the National Association of Realtor's housing affordability index, which tracks the ability of a typical American family to purchase a median-priced home, houses are 37% more affordable today than they've been over an average of the past 33 years.
Why houses are so affordable right now
There are two reasons for this. The first is that mortgage rates are still remarkably low. Currently, the average rate on a 30-year fixed-rate mortgage is only 4.12%. This is less than half the long-run average of 8.52% dating back to 1971.
The second reason is that nationwide home prices are still 17% below their 2006 peak. To be fair, there are certain cities where prices have already surpassed their former highs. In Denver, for instance, they're up nearly 10% since 2006. But this is an exception, as home values remain depressed in the vast majority of other major American cities.
What's important to appreciate now, however, is that these conditions won't persist much longer. As I write, the Federal Reserve is in the process of reducing its support for the economy. And one of the biggest consequences of its doing so will be higher mortgage rates.
See that sharp uptick in the middle of last year? That was in response to the mere hint that the Fed would begin tapering its third round of quantitative easing, which is the process it used to spur the economy by reducing mortgage rates and thereby increasing demand for housing.
Equally important is the fact that home prices are also on the rise. Over the past year, they're up by 8.9%. Over the past two years, they're up by 19.7%. Over the past three years, they're up by 23%. And there's little evidence that this trend is coming to an end anytime soon.
Put this all together, in turn, and it should be obvious why now is such an opportunistic time to buy a house. Of course, if you want to wait, that's up to you. But doing so could very well be a source of regret later on down the road.
