Special offer

Expensive Does Not Mean Unaffordable

Reblogger
Real Estate Agent with Thompson Company, REALTORS® 240.593.2860 MD594797

This is a blog post that I am just happy to share with my buyers, anyone on the fence about buying, or getting frustrated with the competitive market we find ourselves in.

To my buyers: I am having so much fun house-hunting with you. We will find just the right one!

To anyone on the fence: consider jumping off it, this post may just help you do so. Call John. Then call me.

To anyone frustrated with the competitive market: review the terms you are willing & able to offer. Are you putting your best foot forward? If no, have a heart-to-heart with your agent. If yes, be patient! This journey is worth it.

Seeing the escalating prices, and experiencing the frenzy, it is hard to grasp that this market can be considered a favorable one for buyers. It will all make a lot more sense after reading this post. 

Thank you for putting this together! ⇐ Need an expert loan officer? Call John Meussner!

Escalating home prices and affordability.

Original content by John Meussner NMLS #138061 MMCD #1141

Expensive Does Not Mean Unaffordable

 

"Affordable" is not the first word that comes to mind for anyone involved on the buying side of today's real estate market.  While we realize that real estate is local and every market is somewhat different, the vast majorities of markets in the US today have one thing in common - prices that are going up, up, and more up.  DOGE coin isn't the only thing that's been going "to the moon" the past year, as real estate prices have risen nationally in the 10-12% range.

 

With that in mind, would you believe we're in the midst of the 7th most favorable housing market for buyers in history when it comes to affordability?

 

This is because affordability involves much more than a price tag.  And one data metric that has gone largely ignored until recent months is wage growth.  For nearly a decade following the great recession, wage growth was stagnant, increasing by nominal margins while the prices on everything outside of  housing remained fairly stable.  In 2020, however, that changed.  Wage growth, year over year, currently sits at a national average of a whopping 7%!  While that's a huge gain, it is following years of stagnation, so there should be room for that trend to continue short term.  And what does this have to do with the price of apples?  I mean....housing?

 

Well, let's look at it this way - let's compare the median household income, currently sitting between $65,000 and $70,000/year - we'll use $68,000/year for our example, or $5,666/month.  With a 7% wage growth, it's expected that year over year, that $5,666 will increase to $6,063, or an increase of about $400/month.

 

The median home price in the US sits just north of $300,000, and for our example, we'll use $325,000.  Year over year, the price of that home, appreciating at 10%, will be $357,500 after 1 year.  While $32,500 is a lot of money for most people, affordability is based on monthly payment, not the total dollar amount of appreciation.  Stick with me.....

 

Let's look at things for an average borrower that's putting 10% down on their home.  For the sake of simplicity, I'm using an example interest rate of 3.5% and not bringing PMI, taxes, or homeowners insurance into the equation.

 

On a $325,000 house with 10% down, a buyer ends up with a monthly payment of $1313/month.

 

On a $357,500 purchase and 10% down, the payment would increase to $1444/month, an increase of $131/month, or in terms of affordability, much less than the buyer's wage increases.  And since most of the money due at closing is financed, the down payment increases by just about $5,000 over the course of a year.  

 

It's this type of analysis that shows many prospective buyers out there on the fence about buying or "waiting for the dip" are going to be disappointed as home values continue to rise, markets continue to be competitive, and everything gets more expensive as builders struggle to keep up with demand.  Yet another reason to buy now is that the real estate inventory issues aren't going to disappear overnight, but what could put a huge damper on affordability is the expected increase to interest rates - inflationary metrics have skyrocketed since Joe Biden took office (this is not political opinion, but fact), and that trend is expected to continue.  With inflation comes increased mortgage rates, which could turn a competitive AND affordable market into a competitive, unaffordable market, which makes the best time to buy yesterday, but the next best time to buy today.

 

While the price tags on homes may not seem affordable, and bidding wars continue to drive up prices, based on the data and forecasts in terms of wage inflation and home appreciation, the market is still presenting a great opportunity for prospective buyers, so putting in the extra effort (and money) to get a home today should be worthwhile for people in most markets.

 

Curious how affordable your market is?  Need advice on winning a bidding war and getting the house?  We have local data for nearly every market in the US, and can help you get the home of your dreams!  Give me a call at 484-680-4852 or if you have any mortgage or real estate related questions, you can ask an expert here!

John Meussner

NMLS# 138061

Visit My Website!

 

Posted by

Andrea Bedard
Thompson Co., REALTORS®

Silver Spring, Maryland
andreabedard.com

Fluent in Real Estate and German.
Old house lover.
Accredited Buyer's Agent.
Certified International
Property Specialist.
REALTOR® on the Run.

Let's write your unique
Real Estate Story.
Happy Ending Guaranteed.

My Blog
About Me
Email Me

Call or text
(240) 593-2860

   

 

Comments (7)

John Meussner
Mortgages in AZ, CA, CO, DE, FL, GA, IN, MD, MN, MT, NC, NJ, NV, OK, OR, PA, SC, SD, TN, TX, UT, VA, WI - Fair Oaks, CA
#MortgageMadeEasy Fair Oaks, CA 484-680-4852

Thanks so much for sharing, Andrea Bedard !  I think this information is really important because buyers may have to jump through some extra hoops in this market, but it is so very worth it to do so.  Appreciate you spreading the word!

May 10, 2021 09:54 PM
Andrea Bedard

I thank you for penning this post so I can spread the word John! 

May 11, 2021 09:26 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices California Properties - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

excellent advice to your clients on a side note it took three attempts to be able to comment the platform today or now should I say is a bit wanky:)Endre

May 10, 2021 11:09 PM
Andrea Bedard

I appreciate you being so patient and making 3 attempts Endre!  And it's just taken multiple tries to be able to respond to you. Yikes! 

May 11, 2021 09:30 AM
Endre Barath, Jr.

Haha so we are even Andrea Bedard :)) 

May 11, 2021 11:14 PM
Ed Silva, 203-206-0754
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Well worthy of a re-blog. Patience is key for sellers and they also need to develop an aggressive attitude and accept that trying to negotiate just won't cut it.

May 11, 2021 05:41 AM
Rocky Dickerson
Realty One Group - Las Vegas, NV
Superior Service!

Great post Andrea! 7th most affordable market in history. Wow that is something I did not know.

May 11, 2021 06:10 AM
Andrea Bedard

Please stop by John's post, too, Rocky - if you haven't yet. 

May 11, 2021 09:32 AM
Brian England
Ambrose Realty Management LLC - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

Such a great choice for a reblog, John Meussner definitely knows what he is doing and will put buyers in the best loan product for them!

May 11, 2021 06:22 AM
Andrea Bedard

He does! I love reading John's post. They are always chock-full of information and sage advice!

May 11, 2021 09:33 AM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Andrea - this is good information and a wonder way to introduce John's blog.

May 11, 2021 06:40 AM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Comparing prices becomes easier and easier if you know where to look, especially online

May 13, 2021 10:06 PM