Forget The Price Of The Home The Cost Is What Matters

Dated: November 9 2019

Views: 38

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

Why The 2021 Forecast Doesnt Call For A Foreclosure Crisis

Why the 2021 Forecast Doesn’t Call for a Foreclosure CrisisAs the current forbearance mortgage relief options come to an end, many are wondering if we’ll face a foreclosure crisis next

Read More

Gutter Cleaning Tips And Tricks

Gutter Cleaning Tips And Tricks Oct 29, 2020Bevia PatrickThere are some chores around the house that make you feel like you’ve really done something, giving you a sense of massive

Read More

How Down Payment Assistance Opens The Door To Homeownership

How Down Payment Assistance Opens the Door to Homeownership Many people are eager to buy a home right now while affordability continues to be a highlight of the current housing.

Read More

Why Pricing Your House Right Is Essential

Why Pricing Your House Right Is Essential In today’s real estate market, setting the right price for your house is one of the most valuable things you can do.According to the U.S.

Read More