Are Homes Really More Affordable Today?
This post is in the: Salt Lake City Buyers category.
Affordability in terms of housing measures your ability to buy. It does this by measuring how much of your gross income is spent on your mortgage. For example, if your gross income was $4,000 a month and your mortgage payment was $800 a month, your affordability index would be 20% ($800 / $4,000).
Why does this matter? If we look at the trend of affordability over time, some very exciting numbers reveal themselves about how truly AFFORDABLE housing is today.
- In 1981, it took 36% of a family’s average gross income to afford the mortgage payment on the average house.
- In 1989, it took 24% of a family’s average gross income to afford the mortgage payment on the average house.
- In 2010, it only took 14% of a family’s average gross income to afford the mortgage payment on the average house.
If you need further proof that owning a home is more affordable than ever, take a look at this comparison of mortgage rates.
|
1989
|
2010
|
|
|---|---|---|
| House | $94,000 | $173,000 |
| Monthly Payment | $825 | $896 |
| Mortgage Rate | 10% | 4.69% |
The table above shows that even though home prices were nearly half in 1989 of what they are today, the monthly payment on that house was nearly IDENTICAL, due to more than double the mortgage rate. You’re paying the same each month as you did 20 years ago for a home twice the price!
What if you find a short sale or foreclosure in Salt Lake City and decide it would be a great investment. It needs work though, lots of work. You know that once the property has been improved, the value of the home will be much more than the cost of the improvements. There’s only one snag. You don’t have the money to make the improvements once you own the home.
