Two weeks ago, we posted a blog which explained that current increases in home prices were the result of the well-known concept of supply & demand and should not lead to conversations of a new housing bubble. Today, we want to look at home prices as compared to current incomes. Here is a graph showing the monthly mortgage payment on a median priced home in the U.S. over the last 25 years:
Mortgage payments are currently well below the historic average over that time period. Purchasers are not overextending themselves to buy a home like they did on the run-up to the housing crash. Lawrence Yun, the Chief Economist at the National Association of Realtors, recently explained in a Forbes article:
“Even though home prices are climbing far above people’s income, exceptionally low mortgage rates have permitted people to buy a home without overstretching their budget. For someone making a 20% down payment, the monthly mortgage payment at today’s mortgage rates would take up 15% of a person’s gross income. During the bubble years, it was reaching 25% of income. The long-term historical average is around 20%. Therefore, a middle-income household does not need to overstretch their budget much if at all to buy a typical home.”
Due to low interest rates, demand for housing has dramatically increased. This has caused a jump in home prices. However, low interest rates have also allowed the monthly cost of buying a home to remain well below historic norms. We are in a strong housing market, not a housing bubble.
Author:JP Piccinini Phone: 480-980-9025 Dated: March 24th 2016 Views: 453 About JP: JP Piccinini is CEO and Founder of JP and Associates REALTORS (JPAR), Founder and CEO ofOdasi Real E...
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JP And Associates REALTORS (JPAR) is one of the top 100 independently owned brokerages in the US. A full service real estate brokerage firm specializing in real estate sales and marketing services with multiple offices across the US and expanding quickly. JPAR is also one of Real Trends top 500 Brokerages in the US for volume and sales and in the top 1% in the US for sales.
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