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It’s not just a home’s price that determines its affordability--it’s also the monthly cost determined by the price and the interest rate on the mortgage used to purchase it.

Today, mortgage interest rates stand at about 4.5%. The average annual mortgage interest rate from 1985 to 2000 was almost DOUBLE that number, at 8.92%. When comparing affordability of homeownership over the decades, we must also realize that incomes have increased.

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This is why most indexes use the percentage of median income required to make monthly mortgage payments on a typical home as the point of comparison.

Zillow recently released a report comparing home affordability over the decades using this formula. The report revealed that, though homes are less affordable this year than last year, they are more affordable today (17.1%) than they were between 1985-2000 (21%). Additionally, homes are more affordable now than at the peak of the housing bubble in 2006 (25.4%). Here is a chart of these findings:

Homes More Affordable Today than 1985-2000 | MyKCM

What will happen when mortgage interest rates rise?

Most experts think that the mortgage interest rate will increase to about 5% by year’s end. How will that impact affordability? Zillow also covered this in their report:

Homes More Affordable Today than 1985-2000 | MyKCM

Rates would need to approach 6% before homes became less affordable than they had been historically.

Bottom Line

Though homes are less affordable today than they were last year, they are still a great purchase while interest rates are below the 6% mark.  Buy your home today and lock in your interest rate! Contact Team Nest Builder’s Lynn Garafola at 973-222-3777 now! Liked this article? Check out our blog for loads of helpful information on real estate, home improvement and community events!