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Is Housing Affordability Just About the Money?

Key Takeaways:

  • Today’s house price appreciation is making homes more expensive, yet they are still more affordable when you consider equity gains. 
  • When you buy a Triangle area home, you benefit from equity build-up—this means that you’re actually making money even as you pay your mortgage. 
  • Want to learn more about the equity increase in our local market? Contact Linda Craft & Team at 919-235-0007 to discuss how you can increase your net worth today

How Much Should You Spend on a Mortgage Payment?

If you’ve read into today’s real estate news recently, then you’ve most likely seen a headline about housing affordability. Many articles circulating around the real estate industry right now are claiming that it’s not affordable to buy a home in today’s market—but that’s just not the whole story.   

Today’s homebuyers are spending about 20% of their income on their monthly mortgage payments, which is well below the amount that most lenders suggest you should spend. In fact, many lenders have agreed that it’s acceptable to spend up to 28% of your gross monthly income on a mortgage payment, which also accounts for principal, interest, taxes, and insurance. 

Homes aren’t unaffordable, they’re just less affordable in comparison

Triangle area housing affordability

It’s true that home prices are appreciating, which makes buying a home less affordable today than it has been since the housing crash fifteen years ago. However, when you compare today’s housing affordability with historical data, you’ll discover that homes today are more affordable than any time from 1975 to 2005. 

Housing affordability is higher when you consider equity 

realtor discussing housing affordability

Offering a different financial perspective, Odeta Kushi—Deputy Chief Economist at First American—notes that appreciation impacts both home prices and equity. Although house price appreciation does make purchasing a home more expensive, it also helps build equity that benefits you as the homeowner. When taking into consideration the appreciation benefit in their rent versus own analysis, Kushi found that it was less expensive to own a home in each of the top 50 markets. 

Here’s how you can build your net worth through homeownership

To drive her point home, Kushi analyzed the rent versus buy situation in Dallas, Texas—Kushi chose this specific city because home prices there are near the average of the top 50 markets in the country. Kushi first used a 5% down payment and a 3% mortgage rate to calculate the monthly mortgage payment on a median-priced home in the below graph. 

monthly cost of owning a Dallas home chart

To determine the equity benefit of owning a home in Dallas, Kushi took the monthly cost and subtracted the appreciation the home experienced over the past year. The average home price in Dallas increased 17.5% in the second quarter of 2021 compared to last year, which is on par with the national rate. As shown in the below graph, the equity benefit of owning a home in this area equated to $3,550 each month—this is if the appreciation pace were to remain the same. 

monthly cost after appreciation chart

Since the equity gained each month ($3,550) was greater than the monthly mortgage payment ($1,720), this means a buyer in Dallas could build their net worth by $1,830 each month—after paying their mortgage.  

Still not convinced that owning is cheaper than renting? 

chart comparing mortgage to rent

Using her previous finding of a Dallas homebuyer’s potential net worth and the median rent of a Dallas home ($1,310), Kushi found that the cost of renting is $3,140 more expensive than owning. This brings us to the bottom line: owning a home has proven to be cheaper than renting when you add equity into the equation. 

Ready to Increase Your Net Worth?

Don’t let the real estate rumors about housing affordability prevent you from purchasing a home. As your Triangle area experts, our agents at Linda Craft & Team know how the equity increase in our local market could benefit you. Contact our team today to turn your home purchase into a profitable investment! 

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