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Prices have fallen while purchasing power has continued to grow.
Back in 1981, a $1,500 per month, 30-year fixed rate loan payment would finance approximately $100,000. Over the last three decades, that figure has climbed pretty steadily. The same $1,500 may now finance over $300,000.
 
The steady rise in incomes over time has contributed to affordability. With higher earnings, a typical fixed rate loan payment has become a progressively smaller piece of the average paycheck.
 
Though increasing affordability enabled rising prices in the early 2000s, things went wrong. Some buyers started purchasing homes they could not afford. Some used loans that were manageable only as long as they could quickly "flip" for a profit, cash out or use equity loans to make the payments. Add in a good dose of speculative over-building, and the market suffered tremendously.
 
The Federal Reserve has since taken specific steps to reduce mortgage rates. The potential downside of these actions is future inflation. Fortunately, home values have traditionally risen faster than inflation, providing protection for owners. Inflation and growing populations will typically increase values over time, while the real cost of mortgage interest on a fixed rate loan will decline.
 
The combination of locking in a low fixed rate while securing a home at a great price is tough to beat. Home prices and interest ... more

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