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    Forget the Price of the Home, it's the Cost that Matters

    Forget the Price of the Home, it's the Cost that Matters Home buying activity (demand) is up, and the number of available...

    • Juan Murray
    • November 7th, 2019
    • 3 min read

    Forget the Price of the Home, it's the Cost that Matters

    Home buying activity (demand) is up, and the number of available listings (supply) is down. When demand outpaces supply, prices appreciate. That’s why firms are beginning to increase their projections for home price appreciation going forward. As an example, CoreLogic increased its 12-month forecast for home values from 4.5% to 5.6% over the last few months.

    The reacceleration of home values will cause some to again voice concerns about affordability. Just last week, however, First American came out with a data analysis that explains how the price is not the only market factor that impacts affordability. They studied prices, mortgage rates, and wages from January through August of this year. Here are their findings:

    Home Prices

    “In January 2019, a family with the median household income in the U.S. could afford to buy a $373,900 house. By August, that home had appreciated to $395,000, an increase of $21,100.”

     Mortgage Interest Rates 

    “The 0.85 percentage point drop in mortgage rates from January 2019 through August 2019 increased affordability by 9.7%. That translates to a $40,200 improvement in house-buying power in just eight months.”

    Wage Growth

    “As rates have fallen in 2019, the economy has continued to perform well also, resulting in a tight labor market and wage growth. Wage growth pushes household incomes upward, which were 1.5% higher in August compared with January. The growth in household income increased consumer house-buying power by 1.5%, pushing house-buying power up an additional $5,600.”

    When all three market factors are combined, purchasing power increased by $24,500, thus making home-buying more affordable, not less affordable.  Here is a table that shows the data:

    Bottom Line

    In the article, Mark Fleming, Chief Economist at First American, explained it best:

    “Focusing on nominal house price changes alone as an indication of changing affordability, or even the relationship between nominal house price growth and income growth overlooks what matters more to potential buyers – surging house-buying power-driven by the dynamic duo of mortgage rates and income growth. And, we all know from experience, you buy what you can afford to pay per month.”

     

     

     Courtesy of Simplifying the Market 

     

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    About the author

    Juan Murray

    (617) 721-0961
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    Juan got his start in the residential real estate market in 1994 and has never looked back. His mission is to provide excellence to his clients, and he is always looking for ways to improve the real estate experience for his clients and colleagues in the industry. Early in his real estate career, he worked as the Housing Rehabilitation Director for a national non-profit organization, Neighborhood Assistance Corporation of America (NACA). His goal was to gain more knowledge of the construction and renovation of existing homes in conjunction with working with 1st-time buyers. He effectively managed over 25 residential construction project managers on the East & West coasts while implementing procedures to improve communication between contractors, property owners, and banking representatives. He also developed resources, designed processes, and organized all aspects of real estate property acquisition and renovation. Juan completed a home inspector licensing course on his way to becoming a licensed home inspector. But after completing 30 inspections as an apprentice observer, after crawling under numerous porches and “crawl spaces,” he decided it wasn’t his cup of tea. Juan has always had a sharp eye for market trends and an innate understanding of what his clients need. That’s why, as a top real estate agent in Boston, he is constantly ahead of the curve, anticipating changes in the market and helping his clients manage their real estate goals. His keen intellect, quick wit, and tireless work ethic make him an invaluable partner for anyone looking to buy or sell property in the Boston area (or via his referral partners worldwide). Although Real Estate is a large part of his life, it is not the only part. He loves hanging out with family and friends, being in the kitchen, enjoying great food, anything Apple or Cole Haan, gadgets, great cigars, F1, motorcycles, photography, and traveling (to name a few). He lives with integrity and tries not to take life too seriously.

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    Juan Real Estate Group

    769 Centre St, Suite 209, Jamaica Plain, MA 02130

    769 Centre St, Suite 209, Jamaica Plain, MA 02130

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    [email protected]

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