Arch MI concluded [1] that housing isn’t as expensive as previously thought, as the average household income has grown 28% since 2012 while the Federal Housing Agency reports home prices have risen 46% during the same time period.
The percent of median income needed to afford an average monthly payment is nearly 10% lower in Q3 2019 than it was during Q4 2006—29% compared to 38%, respectively. The average from 1986 to 2004 was 34% and that average fell to 23% during Q4 2012.
According to the National Association of Realtors, the median-existing home price in U.S. is nearly $271,000. Using a 90% loan-to-value loan, the monthly mortgage payment would be around $1,600—nearly 29% of the average household’s $5,400 monthly income.
This is better than the 34% average from 1987-2004. Monthly payments, however, would have been the same to buy a home in 2006 but affordability is better now because of higher income.
California is home to the worst price bubble in the nation as it currently takes almost 50% of monthly income to afford a monthly payment on a median-priced home. This is a considerable drop from the nearly 80% ratio needed during Q4 2006.
Texas had one of the best pricing bubbles, as just more than 20% of income is needed to make a monthly payment on an average home during Q3 2019.
Analysis from MyMove [2]found that while the average rate for a 30-year fixed-rate mortgage is near historic lows, the National Association of Realtors found home purchases fell 1.7% in 2019.
One of the factors studied is the correlation between income and mortgage rates—more specifically the difference 1% can make.
Working under the assumption a mortgage payment was $1,000 on a $360,000, a consumer would pay $33,233 in interest with a mortgage rate of 3.65%. The total amount of interest paid skyrockets to $101,936 if the mortgage rate grows by just 1% to 4.65%.
The good news, the report found, is that the American consumer is making more money than ever before—$89,930. Home prices, however, are growing at a faster rate than income.
MyMove reports that the average sales price for a home last year was $377,500—growing by more than $100,000 since the start of the decade.