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Your Home Equity is Growing, and more

** Sell a Home **

** Buy a Home **

It’s impossible to research the subject of buying a home without coming across a headline declaring that the fall in home affordability is a crisis. However, when we add context to the most recent affordability statistics, we soon realize that, though homes are less affordable than they have been over the last few years, they are more affordable than they historically have been.

Black Knight, a premier provider of data and analytics for the mortgage industry, recently released their latest Monthly Mortgage Monitor which includes a new analysis of the affordability situation. Here’s what the report reveals:

“The monthly payment required to purchase the average priced home with a 20% down 30-year fixed rate mortgage increased by nearly 20% (+$210) over the first nine months of 2021, . . . It now requires 21.6% of the median household income to make the monthly mortgage payment on the average home purchase, the least affordable housing has been since 30-year rates rose to nearly 5% back in late 2018.”

Basically, the report shows that homes are less affordable today than at any other time in the last three years. However, in a previous report earlier this year, Black Knight calculated that the percentage of the median household income to make the monthly mortgage payment on the average home purchase over the last 25 years was 23.6% (see graph below)

Today’s payment-to-income ratio is more affordable than the average over the last 25 years. Given that context, we can see that American households still have the same ability to be homeowners as their parents did 20 years ago.

This confirms the recent analysis of ATTOM Data resources where Todd Teta, Chief Product and Technology Officer, explains:

“The typical median-priced home around the U.S. remains affordable to workers earning an average wage, despite prices that keep going through the roof. Super-low interest rates and rising pay continue to be the main reasons why.”

It’s true that it’s less affordable to buy a home today than it has been the last few years. However, it’s more affordable to buy today than the average over the last 25 years. In other words, homes are less affordable, but they’re not unaffordable. That’s an important distinction.

** Finance a Home **

Homeowners continue to take advantage of the leap in their home’s equity by refinancing their mortgage. Many are taking cash out for debt consolidation, home improvements, or to expand their investment portfolio. 
 
For example, say a homeowner has $20,000 in debt (think: credit cards, auto loans, student loans, personal loans, etc.) with combined payments of $500 each month. Coupled with a P&I mortgage payment of $2300 a month (example: $500,000 loan @ 3.875%), that is a total debt payment of $2800 every month.
 
Now, say the homeowner qualifies for a cash out refinance to consolidate that same debt. For a new mortgage amount of $520,000 (current mortgage $500,000 + $20,000 other debt) on a Conventional 30 year fixed rate loan at today’s sample rate of 3.125%* / 3.181%* APR, that’s a new monthly payment of $2228. A savings of approximately $570 every month. 
*Rate and APR assumes cash out refinance, Conventional 30 year fixed rate loan, high balance county limit maximum, <60% loan to value, excellent credit, owner occupied, single family residence, with impounds. This is not a guarantee or offer to extend credit. Borrower must qualify. Rate and APR not available for every loan scenario and are subject to change until locked in.
 
Even if you bought a home or refinanced last year, there could be an opportunity for you to improve your financial position. So, what could extra money every month mean to you and your household? It’s worth a call to find out.

** Bottom Line **

Though it is Halloween week, don’t let the real estate or mortgage markets spook you. Rely on a trusted professional to inform you and be your guide, so you can make the best decisions for you and your family. If you or anyone you know is thinking about selling, buying, or financing a home this year, call me to start the conversation.