I was born at the wrong time, at least when it comes to housing.
When my husband and I got married in 1991, there was no way we could afford a house. I had student loan debt, we had wedding debt, and I had credit card debt from my last 2 years in graduate school. So, we rented an apartment for the first two years of marriage. Apartment living really wasn’t that bad, but when I became pregnant, we decided to start our search for a home.
Our first house cost $95,000, and it was a 1200 square foot, 3 bedroom ‘starter’ home. I believed that due to FHA rules, we could not purchase a home that cost greater than $104,000 (may not be remembering the exact dollar amount). So, we were really happy with the home we were able to find that fell within FHA guidelines. We were also happy with the interest rate, which was around 8 percent way back in 1993.
Happy with 8 percent?
Why yes! Just three years prior, mortgage rates exceeded 10 percent on average, and two percent made a big difference in your monthly payment.
Now, fast forward to today where interest rates are less than half of what they were when we bought our house in 1993.
According to my mortgage calculator, our $95,000 loan at 8 percent resulted in a monthly payment of $697 for a 30 year loan. That same loan amount today would only be $453. That extra $244 would have covered our car payment back in 1993!
Now, couple historically low interest rates with low home prices, and this economy can be a homebuyer’s dream!! As a matter of fact, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index, home ‘affordability’ is at record levels.
So, why isn’t the housing market just taking off?
Part of the reason is the restrictions on mortgage loans. Apparently, the days of offering huge mortgage loans to those that really have no business buying an expensive home are over, at least for now. Also, the employment rate is still not stellar, and you just can’t buy a home if you are not employed.
How Affordability Is Measured
The NAHB considers a home affordable if it can be purchased by people earning the average median income, which is $64,200. The percentage of homes that can be purchased based on the median income is then determined, based on recent home sales. Right now, nationwide, 75.9% of all new and existing homes are affordable to those who earn at least $64,200, which is the highest percentage since the inception of the Housing Opportunity Index (HOI), which was more than 20 years ago. Obviously, some markets have a higher percent and are more affordable than others. For example, only 29 percent of the homes in the New York metro area were considered affordable by those that earn the median income for that area of $67,400. On the other hand, Kokomo, Indiana homes were very affordable, with 99.2 percent of homes being deemed affordable according to the median income of that area of $59,100. (If you are curious of how different areas in the nation rank in terms of affordability, check out the NAHB Reference List.)
It is amazing to think about how much easier the process of finding a home is now than it was back in 1993. Twenty years ago, you almost solely relied on a realtor to give you information on homes that were available. For financing, you might call a few mortgage brokers or go with your realtor’s recommendation for getting a decent mortgage rate. Today, you can search for a home, compare mortgage rates, and check out affordability indexes all online- 24 hours a day.
So, I wonder, for those readers out there that have some disposable income, what keeps you from either buying a larger home, or perhaps investing in rental property? According to this info, there may not have ever been a better time in history to purchase a home, so are people crazy for NOT investing in real estate now? Does this information make you think about your own situation, or are you totally set with the house you live in? Thoughts?