With mortgage rates reaching a historic low, more and more people are choosing now to buy. It seems like an obvious choice; you can save thousands or even tens of thousands of dollars by buying now at these rates, instead of waiting and potentially paying more when rates inevitably climb up again. But beyond saving you money, these rates have an overarching implication: with the current mortgage rates, home affordability is at a 50-year high. What does this mean for you as a homeowner or potential buyer?
Mortgage Rates are at a 60-Year Low
The current mortgage rates are low – the lowest they’ve been in 60 years. Yes, that’s right – in the period between July 1950 and February 1951, long-term rates averaged just over 4%. The latest average 30-year rates have beaten the 4% mark, making this the lowest interest rates since the 1950s – and the lowest rates since official mortgage entity Freddie Mac began keeping records!
Home Affordability is a 50-Year High
So we know mortgage rates are low – but another measure that spells good news for home buyers is the home affordability index. The National Association of Realtors’ compiles a quarterly Housing Affordability Index, which is based on the relationship between median family income, median home price and the average mortgage interest rate.
A composite index of 100 means that a median-income household has exactly enough income to qualify for a median-priced home. In May, this index climbed to 205.9 for the first quarter of 2012! That’s the highest it’s been since record keeping began in 1970, and it means that the average median income family has enough income to afford a home that’s more than double the median single-family home price!
What does this mean for you as a buyer? It means that you can now afford to buy more home than you ever have before. A few years ago, you might have only been able to afford a home valued at around $150,000. Today, a median income family can afford a home costing $325,000 – which is more than double the price! Realistically, you can pay less and still afford to buy more home than you ever have in the past, making now the perfect time to buy.