(Originally Published 06/26/12.)
Housing affordability conditions have reached the highest levels since recordkeeping began in 1970, according to the National Association of Realtors®. In addition, according to Fannie Mae, the economic fears shared by Americans are starting to subside, along with improving attitudes about personal finances, housing, and employment.
NAR’s (National Association of Realtors®) Housing Affordability Index compares median home prices, average mortgage rates, and the median family income. An index of 100 is defined as the point where a median income household has exactly enough income to qualify for the purchase of a median priced existing single family home. This assumes a 20% down payment and 25% of gross income devoted to mortgage principal and interest payments. Thus, the higher the index, the greater the household purchasing power.
In January, the Housing Affordability Index rose to 206.1 – a record high. “This is the first time the Housing Affordability Index has broken the two hundred mark, meaning the typical family has roughly double the income needed to purchase a median priced home,” said NAR President Moe Veissi. Factor in Fannie Mae’s reports for improving housing market sentiment, and you once more add to the increasing pile of evidence that now is a good time to buy a home.
So what’s holding the markets back? Why isn’t the tri-state area seeing a boom in real estate sales? Why are we seeing only a modest flow instead of a strong rush? In my opinion, there are two major reasons:
- The New York tri-state area is NOT median America. Home prices and real estate taxes here are much higher. In general, we have not experienced (and won’t) the same crash in values seen in many other parts of the country. However, income levels tend to be higher here than the US median income, thereby keeping debt to income levels in check.
- Traditionally, first time buyers have driven the housing market. Without first time buyers to prime the pump, home sellers cannot trade up, retirees cannot relocate, and it dominos throughout the industry.
So why haven’t first time buyers entered the market? A lot has to do with the perception that mortgage credit is not available. They see the so-called “experts” on TV claiming borrowers must have a 20% down payment in order to buy. They hear the horror stories about experiences with banks. One of my clients who called her “Big Bank” to inquire about a mortgage was told flat out not to expect a returned call for 90 days!!
I’ll be the first to admit that our mortgage industry has become much more challenging in recent years. However, I can also assure you that mortgage financing IS still available – even with down payments as low as 5%! Like most things in life, the key is preparation. You wouldn’t expect to run a marathon without preparing for months or even years. And you wouldn’t expect to retire without preparing for decades. So why do so many homebuyers consider their mortgage an afterthought; something they should think about after they’ve found a house?
When it comes to buying a home, an ounce of prevention is worth a pound of cure. A simple consultation completed before you begin your home search can position you to obtain the house of your dreams without the nightmares plaguing our industry.
Its crucial that homebuyers work with a true professional who knows the industry well; someone who can help you navigate around the expensive and time consuming pitfalls. Working together, we can ensure your transaction goes smoothly, your mortgage complements your financial plan, and that you truly enjoy your new home for years to come.
Warren Goldberg is a Certified Mortgage Planning Specialist and a published author. His interviews include Blog-Talk Radio, Newsday, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.