Housing still affordable as home prices strengthen

August 16th, 2012

The latest wrinkle for the economy: Housing is becoming less affordable. Fortunately, this problem hasn't become widespread -- yet. A new survey underscores the fact that the environment for home purchasers has been exceptionally welcoming in recent months, but also that this environment won't last forever.

Home prices are on the rise

A quarterly survey by the National Association of Home Builders and Wells Fargo looks at three factors that combine to determine the affordability of homes: median income, mortgage rates, and median home prices.

The good news is that 74 percent of the new and existing homes sold during the second quarter of 2012 were affordable at the national median income of $65,000. The bad news is that this is down from 77.5 percent in the first quarter. In other words, affordable housing is still readily available but starting to get a little more scarce.

The culprit is rising home prices. With wages stagnant and prices rising, housing became less affordable, despite the fact that mortgage rates continued to fall.

Mortgage calculators help keep track of a moving target

The survey results are a reminder that with constantly-changing components such as income, mortgage rates, and home prices, the affordability of housing is a moving target. Fortunately, mortgage calculators can help you keep track of that target.

Here's how to use a mortgage calculator to factor in changes to each of those three components of housing affordability:

  1. When mortgage rates change, simply update the interest assumption in your loan calculator to reflect the new rates, and the results will indicate the impact on your projected monthly payments.

  2. If home prices in your community change, you should raise or lower the target price in your loan calculator accordingly. This will tell you whether you are still on track to afford the type of house you had in mind, or whether you need to set your sights differently.

  3. If you have a change in income, figure out what type of loan payment you can now afford, and use a mortgage payment calculator to see how much house you can afford with that level of payment.

In an ever-changing market, the best decisions can be made by staying properly informed. A mortgage calculator can help you process new information quickly and accurately.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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