Will higher prices and rates snuff out the real estate market?
A recent hot topic with clients has been about waiting out this hot market rather than buying in 2017. Their reasoning is that higher interest rates and home prices will ultimately snuff out the real estate market and prices will likely come back down. There is significant fear about current home prices. Clients don’t want to get caught buying at the top. So I decided to do some research, I wanted to know:
Is housing affordability getting out of reach for most families and should you hang tight and wait it out?
Thankfully, there is an index that tracks this. It’s called the Housing Affordability Index and it measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home. This index is based on average home prices, current interest rates, and national income data. A value of 100 means a family earning a median income earns enough to qualify for a mortgage on a median priced home; anything above 100 means the family has more than enough to qualify. The higher the score the easier it is.
Check this out – going back 27 years to 1990 we can see that housing is more affordable today than it has been during any period other than the great recession years (where interest rates were 3% and foreclosures were discounted significantly). Also note how low the index got in the years before the crash: 2005 to 2007 saw an index reading below 120; I would consider this the danger zone. But today the index reading is over 160, well above the unaffordable danger zone.
What does this mean?
1. It means that incomes are increasingly in line with housing costs and mortgage payments nationally.
2. There is NOT a lack of housing affordability and it’s unlikely you will see lower home prices in the near future.
When the time is right, I’d be honored to help you, your colleagues, friends, and family with excellent mortgage advice.
P.S. One of the most frustrating things for buyers in this market is the challenge of getting their offer accepted when there are multiple offers on most properties. We’ve developed a strategy to help buyers and their Realtors get their offer accepted over the others. We’ve found that our clients are over 200% more successful when implementing this system. If you are interested in finding out more about how we do it, I’d invite you to give me a call.
This is a guest post by our friend Josh Mettle the director of Physician Lending at Fairways Independent Mortgage Corporation.