Forget The Price Of The Home The Cost Is What Matters

Dated: November 9 2019

Views: 63

Forget the Price of the Home. The Cost is What Matters.

Forget the Price of the Home. The Cost is What Matters.


Home buying activity (demand) is up, and the number of available listings (supply) is down. When demand outpaces supply, prices appreciate. That’s why firms are beginning to increase their projections for home price appreciation going forward. As an example, CoreLogic increased their 12-month projection for home values from 4.5% to 5.6% over the last few months.

The reacceleration of home values will cause some to again voice concerns about affordability. Just last week, however, First American came out with a data analysis that explains how price is not the only market factor that impacts affordability. They studied prices, mortgage rates, and wages from January through August of this year. Here are their findings:

Home Prices

“In January 2019, a family with the median household income in the U.S. could afford to buy a $373,900 house. By August, that home had appreciated to $395,000, an increase of $21,100.”

Mortgage Interest Rates

“The 0.85 percentage point drop in mortgage rates from January 2019 through August 2019 increased affordability by 9.7%. That translates to a $40,200 improvement in house-buying power in just eight months.”

Wage Growth

“As rates have fallen in 2019, the economy has continued to perform well also, resulting in a tight labor market and wage growth. Wage growth pushes household incomes upward, which were 1.5% higher in August compared with January. The growth in household income increased consumer house-buying power by 1.5%, pushing house-buying power up an additional $5,600.”

When all three market factors are combined, purchasing power increased by $24,500, thus making home buying more affordable, not less affordable. Here is a table that simply shows the data:Forget the Price of the Home. The Cost is What Matters. | Keeping Current Matters

Bottom Line

In the article, Mark Fleming, Chief Economist at First American, explained it best:

“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.”

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

What Is The Strongest Tailwind To Todays Recovering Economy

What Is the Strongest Tailwind to Today’s Recovering Economy?Last year started off with a bang. Unemployment was under 4%, forecasters were giddy with their projections for the economy, and

Read More

Is It A Good Time To Sell My House

Is It a Good Time to Sell My House?Last year, many homeowners thought twice about selling their houses due to the onset of the health crisis. This year, however, homeowners are beginning to regain

Read More

How Smart Is It To Buy A Home Today

How Smart Is It to Buy a Home Today?Whether you’re buying your first home or selling your current house, if your needs are changing and you think you need to move, the decision can be complicated.

Read More

Did You Outgrow Your Home In 2020

Did You Outgrow Your Home in 2020?It may seem hard to imagine that the home you’re in today – whether it’s your starter home or just one you’ve fallen in love with along the way – might

Read More