For many of us, our next homes could cost less than our parents’ homes. No, we do not mean that the price of your next home will be less than what your parents paid for theirs. As you are most likely aware, home prices in our area are higher now than almost any time in history. However when we look at the cost of a home rather than the price of a home, we find that the cost of a home has decreased since when our parents purchased their homes.
The Difference Between Price and Cost
- The price of a home is the dollar amount the buyer and seller agree to at the time of purchase.
- The cost of a home is the monthly expense of the mortgage payment.
To accurately compare costs in different time periods, we look at home prices, mortgage rates, and wages. Home prices were less expensive years ago, but paychecks were smaller and mortgage rates were much higher. The average mortgage interest rate in 1988 was 10.34%.
Zillow released research that compares the historic percentage of income necessary to afford a mortgage to the percentage needed today. This research revealed the impact of rising mortgage rates on housing costs:
Rates would need to jump to 7% in order for the percentage of necessary income to be greater than historic norms.
While it seems hard to believe that our homes could cost us less than our parents’, it’s true! By comparing the percentage of income needed to afford a home then to now, we can see that this is an even better time to buy a home than when our parents invested in their homes years ago.
Whether you are considering selling and moving up to the home of your dreams or trying to purchase your first home, it’s a great time to move forward. If you have any questions about buying or selling a home, contact us today. We would love to help.
*Assumptions in the Zillow report: Buyer puts 20% down, takes out a conforming, 30-year fixed-rate mortgage at rates prevailing at the time, earns the median household income, and is buying a median-valued home.