Home Affordability Reaches Historic Low as Market Improves

In 2006, during the height of the seller’s market, home prices reached an all-time high. At the time, an interest rate of 6.4% was reasonable. Since then, both home values and interest rates have dropped significantly. The home affordability percentage is the percentage of median family income required for a median price home payment. This year, the United States broke another record with Home Affordability at it’s lowest ever. Today, the home affordability percentage is at 12.9%. The long term average is 21.6%.  Just a few short years ago, this percentage was 23.2% and in the early 1980’s this percentage was as high as 36.3%. 

In 1989, the average home sale price was $94,000.  Today, that average is $176,600.  Yet, the monthly principal and interest payment is nearly $200 a month less today than it was in 1989.  Meanwhile, inflation has caused the price of a new car to nearly double during that time period and the cost of gas has gone up from .97 cents to over $3.54.

Statistics show that the US housing market is slowly recovering. Last year, home sales increased by 9.2% and we have now returned to the 2007 level. In addition to increased home sales, seller inventory has seriously decreased down to 5.9 months of inventory. A balance market is when we have 6 months of inventory. History shows us that we never stay in a balance market long and that it takes approximately 6 months for a market to complete its turn to either a buyer or seller market. These facts cause us to ask the following questions; are we making the turn from the buyer’s market into a seller’s market? And when will we hit rock bottom home prices? These statistic’s seem to prove that we are making the change to a seller market. We will know the  answer to home prices hitting rock bottom when it’s too late.  Perhaps it already is. Interest rates are already on the rise. My recommendation is simple, if you can afford a home and you qualify for a mortgage, you better call me today because tomorrow may be too late.

Article written by: Daniel J. Smith

                                      Statistics provided by NAR