Home Affordability Not Just Based On Home Values

In today's market there is a lot of talk about whether home prices are stabilizing, getting better or are goign to get worse. While no one can ultimatley predict what the future holds in the housing market ; there are certain variables we can track. One is the affordability of a home.

A lot of people think it may be better to wait to buy a home. Prices still may drop lower. We have not seen the bottom is a common phrase we hear a lot today form consumers who are reading news headlines or watching TV. However; is it still wise to wait?

A common misconception is that prices of homes dictate the affordability of the home only. When in reality it is a combination of home prices and current average mortgage rates. We have not in history seen interest rates on 30 year mortgages as low as they have been now. Couple that with the price decrease in homes and more people can qualify for a home now than ever before. Of course, the third variable is credit which is individually controlled and not controlled by the market.

But, let's say that home prices in your area average $200,000. With current 30 year fixed mortgage rates at approximately 4.4% right now a majority of homebuyers could afford to buy this priced home. Now, let's say that prices drop 10% on this home (a good thing?) but interest rates go up 1%. You would lose approximately 10% to 15% of the buyers who could afford this home before. Why? Because even though the price went down; the itnerest rate went up. The price drop was not signifcant enough to offset the increase in the mortgage rate.

So, when you are looking or thinking of buying a home. You need to consider more than just how the home prices are doing right now. A fluctuation in interest rates can have a more dramtic impact on yoru purchasing power than the price of the home.


Dave diCecco
Realtor/Broker
www.davedicecco.com

How Much Home Can You Afford?

This is a question that I ask each and every day to every client I talk with. I NEVER ask them what their price range is; instead Ii ask them what they are comfortable paying a month. The Internet is a great tool for prospective home buyers. You can search from the comforts of your home and see what is available in any given area at anytime.

In addition, you can calculate mortgage payments based on a sale price and down payment. However; there are variables that not even the mortgage calculators can equate in properly. How much is the property taxes for that property? Homeowners Insurance? Any HOA fees or dues? Financing through FHA where you need to pay mortgage insurance? What rate do I use? These all factor in and affect the final monthly payment. So what on paper may look like to you an affordable payment may in reality not be. Once you start adding in all the additional expenses that come with owning a home the payment can increase $100.00 to $300.00 a month.

So, I always ask my clients the same question. "what are you comfortable paying a month for a mortgage payment?" I have found this answer has gotten me to a more true sale price point that is affordable or the client. A lot of times; they think they can afford X amount only to find out they need to be looking less than that to achieve what is comfortable for them monthly.

Once you know what you are comfortable at monthly ; you need to talk with a Mortgage broker about interest rate and back into a sale price...Otherwise you may end up looking at homes that you are not comfortable in making the monthly payments on and fall in love with a home.

Dave diCecco

Realtor/Broker

www.davedicecco.com