The Cost of Waiting to Buy a Home
The National Association of Realtors (NAR) recently released their July edition of the Housing Affordability Index. The index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national level based on the most recent price and income data.
NAR looks at the monthly mortgage payment (principal & interest) which is determined by the median sales price and mortgage interest rate at the time. With that information, NAR calculates the income necessary for a family to qualify for that mortgage amount (based on a 25% qualifying ratio for monthly housing expense to gross monthly income and a 20% down payment).
Here is a graph of the income needed to buy a median priced home in the country over the last several years:
And the income requirement has accelerated even more dramatically this year as prices have risen:
Bottom Line
Some buyers may be waiting to save up a larger down payment. Others may be waiting for a promotion and more money. Just realize that, while you are waiting, the requirements are also changing.
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Obviously, housing prices are rising at a faster rate than people’s qualifying income. The income difference between 2012 and 2015 is a 38% increase. Don’t we wish housing had increased that much? This is an important message for buyers….
That is so true Isabel. It’s creating huge issues for a lot of people especially the ones who already don’t make a lot of money. What to do? No really, it’s not a rhetorical question. Too many of the worker bees have no money for starter homes.