Key Takeaways:
- The headlines about declining housing affordability are correct—but they’re not taking into account inflation rates.
- Buying a home is actually more affordable today compared to almost every year in the last five decades, which means you can afford homeownership.
- Here at Linda Craft & Team, we want all our clients to take advantage of homeownership—contact our team to learn how you can buy a home within your budget today!
Here’s What You Need to Know About Housing Affordability
As you’re reading through today’s real estate news, you may see some headlines about how housing affordability is decreasing. While these headlines are true in that it’s less affordable to buy a home today than it was at certain points in the past, it’s important to look past these headlines.
Of course, home prices have appreciated over the last 45 years—and so have the prices of just about every other consumable item. Prices naturally increase over time, which we refer to as inflation. When we think about housing affordability, we have to consider all that makes up the monthly cost of a home, not just the price.
Let’s compare home costs from the last five decades
The value of a dollar from decades ago does not hold the same value as a dollar today. With this sentiment in mind, we can take home costs from the last five decades and adapt them for inflation to then determine how much they would yield in 2021 dollars. Here’s what each data point implies in the above table:
- Mortgage Amount: Take the average sales price at the end of the second quarter of each year as determined by the Fed and assume that the buyer made a 10% down payment
- Mortgage Rate: Reference Freddie Mac and look at the monthly 30-year fixed rate for June of that year
- P&I: Use our mortgage calculator to determine the monthly principal and interest on the loan
- In 2021 Dollars: These payments were adjusted for inflation using an inflation calculator. Green means the properties were less expensive than today, whereas red means they were more expensive.
There has rarely been a more affordable time to own a home than right now
As the chart shows in green, when adjusted for inflation, there have only been two times in the last 45 years that it was less expensive to own a home than it is today—and last year was one of them. In the midst of the pandemic in 2020, mortgage amounts were unusually low, which is partially why we saw strong home price appreciation over the last year.
In 2010, home values collapsed after the housing crash 15 years ago. One-third of all home sales were distressed properties that were sold at incredible discounts. These major discounts negatively affected the value of surrounding homes, causing the market to spiral—so of course homes were more affordable that year.
Ready to Take Advantage of Today’s Housing Market?
Don’t let the headlines about housing affordability deter you if you want to buy a home in the Triangle area. You’ll be getting a better deal than almost all homeowners from the past five decades—and perhaps we’ll even score you a better deal than last year! Give our team a call today and we can discuss your financing options, plus we’ll provide you with any home-buying advice you need!