Determine If You Can Afford To Buy A Home

Dated: 10/30/2019

Views: 17

How to Determine If You Can Afford to Buy a Home

How to Determine If You Can Afford to Buy a Home


The gap between the increase in personal income and residential real estate prices has been used to defend the concept that we are experiencing an affordability crisis in housing today.

It is true that home prices and wages are two key elements in any affordability equation. There is, however, an extremely important third component to that equation: mortgage interest rates.

Mortgage interest rates have fallen by more than a full percentage point from this time last year. Today’s rate is 3.75%; it was 4.86% at this time last year. This has dramatically increased a purchaser’s ability to afford a home.

Here are three reports validating that purchasing a home is in fact more affordable today than it was a year ago:

CoreLogic’s Typical Mortgage Payment

“Falling mortgage rates and slower home-price growth mean that many buyers this year are committing to lower mortgage payments than they would have faced for the same home last year. After rising at a double-digit annual pace in 2018, the principal-and-interest payment on the nation’s median-priced home – what we call the “typical mortgage payment”– fell year-over-year again.”  

The National Association of Realtors’ Affordability Index

“At the national level, housing affordability is up from last month and up from a year ago…All four regions saw an increase in affordability from a year ago…Payment as a percentage of income was down from a year ago.”

First American’s Real House Price Index (RHPI)

“In 2019, the dynamic duo of lower mortgage rates and rising incomes overcame the negative impact of rising house price appreciation on affordability. Indeed, affordability reached its highest point since January 2018. Focusing on nominal house price changes alone as an indication of changing affordability, or even the relationship between nominal house price growth and income growth, overlooks what matters more to potential buyers – surging house-buying power driven by the dynamic duo of mortgage rates and income growth. And, we all know from experience, you buy what you can afford to pay per month.”

Bottom Line

Though the price of homes may still be rising, the cost of purchasing a home is actually falling. If you’re thinking of buying your first home or moving up to your dream home, make sure to reach out to a real estate professional to help you understand the difference between the two.

Blog author image

Bevia Patrick

Since its inception in 1995, Patrick Team Properties has exemplified a profound commitment to its clients by providing the highest standard of service, integrity and work ethic in the field. Patri....

Latest Blog Posts

This Is Not 2008 All Over Again

This is Not 2008 All Over Again: The Mortgage Lending Factor Some are afraid the real estate market may be looking a lot like it did prior to the housing crash in 2008. One of the factors

Read More

Homeownership Rate Remains On The Rise

Homeownership Rate Remains on the Rise In the third quarter of 2019, the U.S. homeownership rate rose again, signaling another strong indicator of the current housing market.The U.S.

Read More

75 Years Of VA Home Loan Benefits

75 Years of VA Home Loan Benefits Today, on Veterans Day, we salute those who have served our country in war or peace, and we thank them for their sacrifice.This year marks the 75th 

Read More

10 Fun Facts About Maryland You Probably Dont Know

10 Fun Facts About Maryland You Probably Don’t KnowDuring revolutionary times Rockville was known as Hungerford's Tavern the name of its most familiar landmark. One of the first calls to

Read More