Real estate prices across the country have increased dramatically in the past year.
With increases in the 10-12% range, many potential homebuyers have given up
and decided that homes are just too expensive to consider. While homes have
become more expensive, it does not mean they are unaffordable.
Would you believe that we are experiencing a historically favorable market for
buyers when it comes to affordability? Why? This is because affordability involves
more than just the purchase price of the home. When considering whether you
can afford a home, you must include wage growth and interest rates.
Interest rates are among the lowest we’ve seen in decades. In addition, wages are
increasing at a staggering 7% rate year-over-year. For example, a median
household income of $68,000/year with a 7% wage growth, will see an extra
The median home price is about $325,000. If we add a 10% growth factor to this,
that same home would sell for $357,500. At a 3.5% interest rate, the monthly
payment would increase from $1313/month to $1444/month, an increase of only
$131/month. In terms of affordability, today’s market offers homebuyers more
for their money.
Many homebuyers indeed have sticker shock; homes are getting more expensive.
But for many homebuyers, other economic factors combine to make homes more
affordable than ever before.