Interest Rates Make Home Payments More Affordable
While home prices are anywhere from 1.5 to 7 times the median income of most Americans, monthly home payments are more affordable than they have been in any time since the “bubble” of the housing market exploded in 2007. Because of the staggeringly low interest rates, it is possible for the average American to afford a higher priced home. Nationwide, home prices were 14.4% higher than the average rate in the 4th quarter of 2012. Overall, during the 4th quarter, monthly mortgage payments were 37% less than they were pre-housing bubble. During the housing boom from 1985 – 1999, interest rates hovered around 6% – 13%, but home prices were average, if not low, because of the demand of the market. However, during this time, the average American paid 19.9% of their income towards their mortgage vs. 12.6% during the 4th quarter of 2012.
The Fed still insists that they are going to keep the interest rates at 0% until the unemployment rate drops to pre-recession numbers, so the number of Americans refinancing their homes should stay steady despite a slowly recovering housing market. Addressing the housing market, though, the number of months of inventory has steadily declined over the past 9 months, and building permits have been on the rise, especially in St. Tammany Parish. Because of the decrease in interest rates, home buyers can afford to get “more home for their money” because they qualify for a higher mortgage because the interest rate is so low. ARM mortgages are becoming popular again to bring interest rates down even further. Many homeowners refinancing are reducing the length of their mortgages to 25, 15, and even 10-year loans.
Now is a good time to buy a home because even though home price valuations have risen over the past year, they are still not as high as the “pre-bubble” pricing we saw before the recession.
“The days of historically high levels of housing affordability are numbered,” Zillow Chief Economist Stan Humphries says. “Current affordability is almost entirely dependent on low interest rates, and there’s no doubt that rates will begin to rise in the next few years.”
If you are “on the fence” about whether or not NOW is the right time to buy, do your research; you may be surprised how much house you can get for your payment. To discuss purchasing a new home in St. Tammany Parish, Contact Bedico Creek Preserve’s sales representatives at 985-845-4200 or E-mail Us at [email protected].
