Home values are rising, but low mortgage rates will keep monthly payments affordable.

Dec 20, 2021, 15:49 PM by Nuvision 

The following article includes views from Reports on Housing by Steven Thomas, economics expert and experienced real estate executive, and is not a reflection of the opinions, views, or predictions of Nuvision and its representatives. 

As the past year of housing reports have documented, home values are rising. Sellers, who have multiple buyers bidding on their homes and end up selling above the asking price, are thrilled. But some potential buyers are concerned. Will rising prices make homeownership unaffordable?

The short answer is no. Price isn’t the only factor that impacts affordability. Record low mortgage rates could still create net savings for your monthly payment.

Tip for buyers: Think about your monthly budget before the total price tag.

Once you’ve moved beyond the purchase process and begin living day-to-day life in your new home, the price tag won’t be on your mind. Monthly payments will be. Understanding how those payments fit into your budget is the most important part of the purchasing process. This requires looking at more than the list price.

Interest rates and your household income are also crucial factors in determining what your monthly mortgage payment will be—and what you can afford. Remember: the price tag doesn’t include what you will pay in interest. Falling interest rates mean lower monthly payments. With today’s record-low rates, this is good news.

If you put 10% down on a $1 million house today, current 3.1% interest rates would make your monthly payment around $3,843. Now consider this: if rates rise next year to 3.5%, as they are expected to, that will add an extra $198 per month. Over 5 years, that’s an extra $11,880. Rates matter.

Another factor to consider is household income. Home prices in 1980 look cheap compared to today—the median was just $108,000. But mortgage rates were 13.75%, and the median household income was only $22,000. Monthly payments required a larger portion of the owner’s monthly income in 1980 than they do now. Again, it’s important to keep your mortgage in perspective and understand where it fits into your total budget.

During the Holiday Market, limited inventory means buyers may have a hard time finding the right home. 

We’re well into the Holiday Market, but that hasn’t changed the insanely fast pace. Current buyers should know that inventory is at its lowest since tracking began in 2004. At 1,363 homes, the market has shed 94 homes in a matter of weeks. An inventory drop is typical for the holidays. It will continue to decline as we begin 2022 and will hit another record low in January.

Demand has dropped too, but it is still running strong, considering the season and the reduced inventory. Expected Market Time is at 21 days, continuing the Hot Seller’s Market that has persisted through 2021.

Last year, buyers had more choices. There were 3,152 homes on the market in December, 131% more than today. This environment may make it difficult to find the right property, with so many homes hitting the market and selling above the asking price just days later. But for those buyers who stay engaged and manage to find a home, record low mortgage rates mean it will pay off in the long run. 

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