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I am the author of this blog and also a top-producing Loan Officer and CEO of InstaMortgage Inc, the fastest-growing mortgage company in America. All the advice is based on my experience of helping thousands of homebuyers and homeowners. We are a mortgage company and will help you with all your mortgage needs. Unlike lead generation websites, we do not sell your information to multiple lenders or third-party companies.
For any observer, the real estate market has made an interesting sport over the last two years. With home prices going up so much, there has been speculation that homes just aren’t affordable anymore. While there may be some truth to this statement for some people, it is not accurate for everyone. Here’s a snapshot of housing affordability in 2022.
Home Affordability in 2022 – the 3 Factors
When you think about it, there are really only 3 things that come into play to determine if a home is affordable.
Factor #1 is wages. How much money are families making? Is it enough to qualify for a home in the area where they live?
Factor #2 is home prices. How much does the average home cost in the area? Yes, we know that if you look at a home price index, it shows a fast climb over the last two years. But there’s more to house affordability than just the home prices.
Factor #3 is mortgage rates. Your mortgage rate plays a major role in how much your monthly payment will be and thus, your ability to afford a home.
How Everything Comes Together
These factors all play into something called the Housing Affordability Index. While it can be easy to get lost in the words, the key is looking at the chart and where it tells you what the numbers mean.
An affordability index of over 100 means a family with the median income in an area has more than the income required to afford a median-priced home.
If the index is over 120, that means a family earning a median income has at least 20% more income than the level needed to afford a median-priced home.
Even though the index did decrease a lot after Q1 or 2021, it was around 147 in December. In other words, a family with a median income in an area would make 40% more than the income required to buy a median-priced home!
If Houses are Affordable, Why is it Hard to Buy a Home?
It is important to note that difficulties in buying a home shouldn’t be equated with affordability. They are two different things.
Even though you may be able to buy a home, that doesn’t mean you’ll win the bidding war. In today’s market where there is much higher demand than supply, great homes have fierce competition and will get dozens of offers within a few days.
Why is there such a big shortage? It is actually based on several things:
First, Millennials – the largest generation ever born – have been in the workplace for a few years now, saving up to buy a home. Second, interest rates are going up. Mortgage rates are still very good compared to years past but they will keep going up to combat inflation. Homebuyers want to get into their homes now before the rates get too high, making homes less affordable.
Third, remote work has opened the opportunity for people to live anywhere they want, so they’re moving out of expensive cities into less expensive ones. Fourth, home builders just can’t keep up. It doesn’t help that there are still labor shortages and supplies are expensive.
While the housing shortage makes things interesting, the great news is that home affordability in 2022 looks good. You can probably qualify for a great mortgage, the key is to get in now before the market gets really hot in the spring and summer.
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