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Are Homes Still Affordable Today? just reported that there are 39% fewer homes for sale today than there were last year. With housing inventory at an all-time low, the laws of supply and demand dictate that whenever there is a shortage in the supply of an item that’s in high demand, the price of that item increases. Which is exactly what’s happening in the real estate market right now. As a result, home values are surging. And, if I’m a homeowner thinking about selling, that’s great news for me.

But what if I’m a potential home buyer? Maybe I’m thinking, “uh oh, that’s not such great news for me”. Relax. Let’s look at the affordability issue another way: the price of a house is not as important as the monthly cost. Say what? Here’s the low-down:

Several factors influence the cost of a home. Two of the major ones are:

  • The price of the home
  • The interest rate at which a buyer can borrow the funds necessary to purchase the home

Okay, so how do these factors impact affordability?

The National Association of Realtors (NAR) produces a Housing Affordability Index which takes these factors into account, and determines an overall affordability score for housing. The Housing Affordability Index “measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.” Here’s a graph of the index going back to 1990:

The blue bar represents today’s affordability. The orange bars represent 2009 to 2015, when distressed housing dominated the market (foreclosures and short sales, which were sold at huge discounts not typical of a normal housing market). We can see that homes are more affordable now than they were from 1990 to 2008, and 2017 to 2018.

What is NAR’s methodology?

A numeric value system is one of the components that NAR uses to calculates Housing Affordability. A value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. A value above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home. So, the higher the index, the more affordable it is to purchase a home.

The number one factor impacting today’s homebuying affordability is record-low mortgage rates. There’s no doubt that prices are on the rise. However, mortgage rates have fallen dramatically, with current rates averaging 2.72% compared to 3.68% one year ago, per Freddie Mac.

The Bottom Line for Buyers: If you’re considering purchasing your first home or moving up to the one you’ve always hoped for, it’s important to understand how affordability plays into the overall cost of your home. With that in mind, buying while mortgage rates are as low as they are now may save you quite a bit of money over the life of your home loan.

The Bottom Line for Sellers: Sellers, you’re in the driver’s seat right now, because you control the inventory. If you’re thinking about selling, it’s practically a no-brainer, especially in a market where there are nearly 40% fewer homes for sale than a year ago. The buyers are out there, waiting for you to give them something to buy.

Whether you are a buyer or a seller, we know you have questions. Let the professionals at The Lisa Mathena Group help you. Call/text Lisa at 302-236-6232 or email

Portions of content for this article supplied by Keeping Current Matters. Copyright © 2020 – Keeping Current Matters.

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. The Lisa Mathena Group does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. The Lisa Mathena Group will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

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