Rising home prices have many concerned that the average family will no longer be able to afford their own home.
It’s not just the price of a home that determines affordability. The monthly cost of a home is determined by the home price and the interest rate on the mortgage used to purchase it.
Today’s mortgage interest rates are below 4.75%. The average annually mortgage interest rate from 1985 to 2000 was almost double that number at 8.92%. And when comparing affordability of homeownership over the decades, we must also realize that incomes have increased.
That’s why most indexes use the percentage of median income required to make monthly mortgage payments on a typical home as the point of comparison.
Zillow recently released a report comparing home affordability over the decades. The report revealed that, though homes are less affordable this year than last year, they are more affordable today (17.1%) than they were between 1985-2000 (21%). Additionally, homes are more affordable now than at the peak of the housing bubble in 2006 (25.4%).
Let us walk you through it! Give The Garatoni Group a call at 612.821.7456 and we’ll answer all your real estate questions.