More Buyers Think Homes Are Affordable Now
Homes have been expensive these past few months. Are things finally changing?
Mortgage rates have been at record lows since the summer, and that's inspired many prospective buyers to find properties to call their own. Many of those prospective homebuyers, however, hit a snag: inflated home prices.
For some, housing affordability has improved over the past year. In fact, 27% of buyers say they're able to afford 50% or more of the homes for sale in their markets. By contrast, a year ago, only 20% of buyers said the same.
Still, 72% of buyers say they can only afford a minority of homes in their local markets. And that means if you struggled to buy earlier this year, you may continue to have difficulty until housing inventory improves.
Can low mortgage rates offset higher home prices?
One reason more buyers perceive homes as more affordable today may simply be lower mortgage rates. But depending on your housing market and the extent to which home prices are inflated, a competitive mortgage rate may not cancel out higher prices.
Let's imagine the average starter home in your neighborhood lists for $320,000, whereas a year ago, it was $280,000. Let's also assume you can make a 20% down payment and qualify for a 30-year fixed mortgage at 2.9%, roughly the average rate as of this writing. That means you'll pay $1,066 a month for principal and interest on your mortgage. (If you want to see where we got this number, use this handy calculator.)
But let's run this scenario with a lower home price and a higher mortgage rate. If you buy the same home for $280,000, put down 20%, and get a 30-year mortgage at 3.6% -- closer to where rates were a year ago -- you'd have a monthly payment of $1,018 for principal and interest. That's almost $50 less per month.
Therefore, while mortgage rates may be low today, that doesn't necessarily make homes in your area more affordable than they were a year ago. Furthermore, if you don't qualify for the top rates, you'll miss out on a lot of the savings homebuyers are eager to benefit from. Just because the average mortgage rate is around 2.9% today doesn't mean you'll qualify for it. If your credit score isn't in the mid-700s or higher, expect to get stuck with a higher rate.
Should you buy a home or wait?
There's a good chance mortgage rates will stay low for quite some time, so if you're hoping to buy in the near term, it could pay to sit tight until 2021. There's a good chance housing inventory will open up by then, especially if things improve with regard to the coronavirus pandemic. And that way, you might get the best of both worlds -- a competitive mortgage rate plus a home at a less-inflated price.
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