A neighbor asked me, "Is buying a home still affordable, even with sales prices rising rapidly here in Northern Virginia (NOVA)?"
The answer is YES houses are still affordable because most folks use a mortgage to finance a portion of their purchase, and interest rates are still near historic lows, 2.5%-3.25% on conventional and government backed home loans.
He asked, "Why are so many people buying, and not enough people are selling?" If you go back in time to the 1980's and 1990's, and look at a graph showing the number of babies being born, you will see an uptick above the curve, a short-term baby boom between 1986 and 1994. That demographic is what we now call Gen Y.
Gen Y folks are in their late 20's and early 30's in age, and they are buying their first homes.
Some are buying first-time-buyer homes in the $500,000 range with 3.5% down ($17,500) and a monthly payment of $2,931.46 at 2.5% (2.43% APR).
Others are sprinting past the first-time buyer homes, and buying their move-up homes right off the bat. A young married couple who are both in $180,000 - $250,000 jobs as financial analysts, computer gurus, attorneys, and physicians are more than willing to buy a single family home here in NOVA for $800,000, with a 20% downpayment ($160,000). That gives them a total payment, PITI of $3,783.27 with a 3.00% loan (3.22% APR).
You can get an accurate interest rate quote at www.QueenOfMortgages.com.
We are in the early years of the Gen Y baby boom that is expected to last 5-7 years. So long as there is a shortage of homes in the resale market, and new home builders can't keep up with the pace of new home sales, we will experience a fast market, low inventory, and rising prices.
Is it a bubble that will burst at some time in the near future? Experts say it is not a bubble, and sales will ease slowly over time.
Meanwhile, the Federal Reserve (FED) Chairman recently announced that the overnight FED funds rate will bounce between 0% and .25% for the next two years, thereby holding mortgage rates low. Despite the rise in home purchases, the FED's target inflation rate is holding at 2.0%.
Demand for new homes is high. Meanwhile, the fast sales pace is pushing new home prices higher because of a shortage of building materials. For example, a 4'X8' sheet of plywood that cost $9.00 in 2020 is now priced at $52.00, and rising in 2021. I read an article that said the prices of new homes are up 35% over last year, and expected to go higher. A new home is still a good value for first-time buyers and move-up buyers.
This is a time to jump into the market and buy a house. If you already own a house, and you need to sell it before you move up, you'll have plenty of buyers, eager to buy your house.
On the other hand, you'll have to deal with multiple bidders for your move-up house. If you are buying your next house with financing, be sure you get an underwriter pre-approved loan. A prequalification letter isn't woth the paper on which it's printed. You can get a preapproval started at www.QueenOfMortgages.com.