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How to Get a Better Perspective on Affordability

Headlines spotlight the fact that buying a home is less affordable today than it was at any other time in more than a decade. Understandably, buying a home is more expensive now than immediately following one of the worst housing crashes in American history. As a result, mortgage rates were kept low to help the economy. This has impacted housing affordability. However, it’s necessary to give historical context to the subject of affordability. As they explain: “One way to measure the impact of inflation, mortgage rates and home prices on affordability over time is to use what we call the ‘typical mortgage payment.’ It’s a mortgage-rate-adjusted monthly payment based on each month’s U.S. median home sale price. It is calculated using Freddie Mac’s average rate on a 30-year fixed-rate mortgage with a 20 percent down payment… The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for to get a mortgage to buy the median-priced U.S. home… When adjusted for inflation, the typical mortgage payment puts homebuyers’ current costs in the proper historical context.” Here is a graph showing the results of CoreLogic’s research: As the graph indicates, the most recent calculation remained 28% below the all-time peak of $1,275 in June 2006. That’s because the average mortgage rate at that time was 6.68%. However, this does not mean that buying a house is an unattainable goal in most markets. Members: Sign in now to set up your Personalized Posts & start sharing today!

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