Gary Keller recently blogged about home affordability. The chart below shows the impact of lower interest rates on housing costs, and the relative affordability of housing.
The cost of a loaf of bread and a gallon of gas has more than tripled since 1989, and car prices have nearly doubled.
The median price of a new home has increased by 70 percent, mortgage interest rates, which stood at 10 percent back in 1989, are less than half of what they were back then. The impact of rock-bottom interest rates is that the monthly mortgage payment on a median priced home in the United States has increased by a mere $4 since 1989.
- Unless paying cash, a buyer's monthly payment tends to be a far more relevant number than the home's actual purchase price.
- If buyers are waiting for home prices to hit the floor, then, they might consider the possibility that a slight drop in the price of a home will have little impact on monthly payment. Even a slight rise in interest rates (a far more likely scenario) will have a significant impact.
- Timing the market is never possible and in the current market, staying on the sidelines is more likely to result in a missed opportunity than a small savings.
- Even so, buyer reluctance in the current market can outweigh compelling facts. U.S. buyers are skittish about the housing market, and the fact is market skittishness is actually a good reason to buy now.
- Reluctance to act only contributes to the number of deals and negotiating power available to astute buyers.
- U.S. buyers waiting for the real estate market to "recover" are in fact waiting for a reduction in inventory, fewer foreclosed properties on banks' books, rising home prices and sellers who don't need to be as motivated.
That scenario will be welcome news for sellers, banks and the U.S. economy as a whole, but not for buyers. Now is the time for buyers to act . jroosevelt@kw.com
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