Helpful Article

“How to Determine If You Can Afford to Buy a Home”

The gap between the increase in personal income and residential real estate prices has been used to defend the concept that we are experiencing an affordability crisis in housing today.

It is true that home prices and wages are two key elements in any affordability equation. There is, however, an extremely important third component to that equation: mortgage interest rates.

Mortgage interest rates have fallen by more than a full percentage point from this time last year. Today’s rate is 3.75%; it was 4.86% at this time last year. This has dramatically increased a purchaser’s ability to afford a home.

Here are three reports validating that purchasing a home is in fact more affordable today than it was a year ago:

CoreLogic’s Typical Mortgage Payment

“Falling mortgage rates and slower home-price growth mean that many buyers this year are committing to lower mortgage payments than they would have faced for the same home last year. After rising at a double-digit annual pace in 2018, the principal-and-interest payment on the nation’s median-priced home – what we call the “typical mortgage payment”– fell year-over-year again.”

The National Association of Realtors’ Affordability Index

“At the national level, housing affordability is up from last month and up from a year ago…All four regions saw an increase in affordability from a year ago…Payment as a percentage of income was down from a year ago.”

First American’s Real House Price Index (RHPI)

“In 2019, the dynamic duo of lower mortgage rates and rising incomes overcame the negative impact of rising house price appreciation on affordability. Indeed, affordability reached its highest point since January 2018. 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.”

Bottom Line

Though the price of homes may still be rising, the cost of purchasing a home is actually falling. If you’re thinking of buying your first home or moving up to your dream home, let’s connect so you can better understand the difference between the two.

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

The Difference an Hour Will Make This Fall
[INFOGRAPHIC]

Every Hour in the U.S. Housing Market:

• 614 Homes Are Sold
• 95 Homes Regain Positive Equity
• Median Home Values Go Up $1.38

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

Todays rates & Commentary provided by:

FEDS TAKE ACTION

This past week the Federal Reserve cut the Fed Funds Rate for the third time this year, by .25%. Along with the rate cut, the Fed released a statement that suggested a “pause” in further cuts, but stated they will be ready to act again should “slowing global conditions” continue or if inflation declines further.
Speaking of inflation, it is important to remind ourselves that the Fed rate cut does not affect home loan rates. Home loan rates are slightly higher than they were right before the Fed started cutting rates in July. The main driver of long-term rates is inflation. If inflation goes up, long-term rates go up. The opposite is also true.

With that said, here’s an important quote from Fed Chairman Jerome Powell yesterday: “I think we would need to see a really significant move up in inflation that’s persistent before we would consider raising rates to address inflation concerns.” This means that the Fed is not likely to hike rates anytime soon, and long-term rates should not go too high too soon either because there is no threat of high inflation at this time.

Bottom line: home loan rates are near three-year lows and this week’s modest price improvement can be quickly erased should good news regarding U.S./China emerge.

Forecast for the Week:
After last week’s risk-event filled reports, headlines, and earnings, the upcoming week’s economic calendar and newsworthy events may pale in comparison.

The headlines that the markets will cling to will be the ongoing U.S./China trade issues. Late last week a Chinese official doubted a long-term deal with the White House could be hammered out but hopes for a “phase one” signing in the next two to three weeks are bright.
Corporate earnings season will also continue in the upcoming week with most companies already reporting and beating expectations. Of the S&P 500 companies that have reported thus far, about 75% have exceeded profit estimates.

The Treasury will be selling a boatload of notes and bonds with the 10-year offering as a highlight.

Reports to watch:
The only reports that could impact the markets this upcoming week are Tuesday’s ISM Service Index and Friday’s Consumer Sentiment Index.

TODAY’S RATES:

5 year ARM 3.72% range
15 year fixed 3.30% range
30 year fixed 3.96% range
VA 30 year fixed 3.250 range