Are Homes Getting To Expensive?

Diving deep into today’s BIGGEST buyers' concerns

Fannie Mae released their "Home Purchase Sentiment Index" last week. The recent survey showed that 77% of respondents think it is a good time to sell homes, which confirms what many have sensed since the start of the year: The percentage of Americans are less optimistic about buying a home. It's now 64% of people who think it’s a bad time, up from 56% last month and 38% last July.

Let’s explore how the changing market conditions are impacting home affordability.

The market conditions are changing and this is impacting home affordability. Homeownership has been a major part of the American dream and for many people, it still is. The high cost of living, however, has made it difficult to afford a house without a down payment.

  1. A mortgage payment includes the home's price and the rate you borrow at. Recently, there've been two big drivers of monthly payments:
  2. It's been a while since mortgage rates increased to this magnitude. From 2.65% in January  they've now risen up to 2.9%.

Over the last 12 months, homes prices have increased by an impressive  15.4%.

It’s fair to say a home may not be as affordable as it used to be, but by no means is it unaffordable.

The housing market is not as affordable as it used to be, but it is far from unaffordable. Home prices are increasing at a steady rate and wages may not be keeping up with the increase in home prices. Mortgage rates are going to be the most important factor in determining how affordable homes will be in 2021-2022.

Just three weeks ago, ATTOM Data released their second-quarter U.S. Home Affordability Report highlighting that the major ownership costs on a typical home had increased from 22.2% of the average national wage in the 2nd quarter -  in the second quarter of this 2021. 

People are paying more than the average monthly mortgage payment to their lenders as ATTOM data shows. but they’re not expensive when you consider their cost over the last 30 years. 

When adjusted for inflation, your mortgage payments have dropped by 10.7% since 1990.

Bottom line: you may not get the same homebuying deal someone else got last year, but that doesn’t mean you shouldn't still buy a home. Let’s explore some of your alternatives to buying and the trade-offs you might have with each option.

Alternative 1: I’ll rent instead.

Renting is not always the best option. In fact, the monthly cost of renting a home is skyrocketing.. 

Purchasing a home is a sound decision as your rent may keep increasing over time. This could result in you spending an increasingly larger amount of income on rent and becoming less capable of buying a home.

Alternative 2: I’ll wait it out.

It might be worth waiting for a year in case property prices drop.

Now we know that mortgage payments are determined by monthly payments and interest rates. A lower monthly payment will depend on either of those two options decreasing drastically in the next year. However, experts are forecasting the opposite:

  • The MBA projects that mortgage rates will go to 4.2% by the end of next year.
  • The Home Price Expectation Survey (HPES) found that home prices will increase 5.12% in 2022. 100+ economists, investment strategists and housing market analysts involved say that this is a solid figure and is only going to rise in the future.

Based on these projections are homes getting to expensive, let’s see the possible impact on a monthly mortgage payment:

Mortgage Payment Chart

Buying a house can be expensive, which is why waiting until next year might not be the best idea. You'll pay a little more for your monthly payments and you'll end up paying $3,696 more each year. 

Bottom Line

The Arizona housing market is in a constant state of flux. Prices change, interest rates change, and rules for buying a home are constantly being tweaked. There are typically two times of year where prices are at their lowest: at the end of the holiday season and during the summer months.