Home affordability hits lowest level in 13 years

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Anyone who is trying to buy a home in the current market can tell you that it is no easy task. Between limited stocks and inflated prices, buyers today face their share of challenges.

But it’s not just that it’s hard to to buy a house today – it has also become more difficult, financially speaking, to own a. According to the Federal Reserve Bank of Atlanta, a household earning a median salary should spend 32.1% of its income on mortgage payments for a house at the median price. This is the highest percentage of income needed to get a mortgage since November 2008, according to the the Wall Street newspaper.

In fact, the percentage of income needed to cover a median mortgage payment has increased significantly this year alone. At the start of 2021, this percentage stood at 29.1%. It has since risen to 32.1%.

When the Federal Reserve Bank of Atlanta calculates the cost of mortgage payments, it takes into account other ongoing expenses such as property taxes, home insurance, and additional costs that may be bundled into monthly payments. Many mortgage borrowers pay their loan managers more than they owe for principal and interest, and their loan managers take care of property taxes and insurance costs for them.

If you are thinking of buying a home, you might be wondering if you can afford to take care of it. Although we would like to give a definitive answer, the truth is that in today’s market, it is difficult to know.

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Follow the 30% rule

As a general rule, aim to keep your housing costs at 30% or less of your take-home pay. And by “housing costs,” we’re talking about the items accounted for above: mortgage principal and interest, property taxes, insurance premiums, and other expenses (like PMI) for which you might be responsible.

Currently, a median-income household would exceed this threshold by 30% by paying for a house at the median price. This is because this year the growth in home prices has outpaced the growth in wages, making it more difficult for homeowners to keep pace.

If you’re not sure if you can afford a home, your best bet is to run some numbers with a mortgage calculator. This way, you will have an idea of ​​how much you could spend monthly based on factors such as the price of the house you are buying, your down payment, and the interest rate on your home loan.

There is some flexibility

If you can usually keep your non-housing expenses to a minimum (for example, you don’t own a car and spend very little on non-essential expenses), then you can spend just over 30% of your income on the home. lodging. But for the most part, there’s a reason the 30% rule exists, and that’s to prevent buyers from buying too many homes and getting into financial hardship as a result. So if the homes you see for sale where you want to live are too expensive for your budget, you may have to sit back and wait for prices to drop.

When that will happen is a guess. Right now, house prices are high because housing inventories are low. If more homes come on the market, it could help property values ​​go down. At this point, it’s fair to assume that we won’t see a huge influx of homes hit the market until the end of the year. But things could accelerate in 2022 and homes could become more affordable across the board.

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