A question we get from clients a lot is when the market is going to come back down, which is to say when home prices are going to start decreasing so that they can afford to buy a home.
Obviously, we can remember the sharp downward turn of prices in 2008, and so it’s not true or entirely honest to answer this question with “never”, but a better answer would probably be “don’t hold your breath.” Home prices always trend up. Even adjusted for inflation, we are well beyond where we were in the depths of the crash. This is part of why homes are such a good investment. (Although there’s a lot more to this, which we’ll cover in a later blog post. Home equity alone is only an okayish investment. Anyway, we’ll talk about it later.)
“So, thanks, Square 1. You’re saying I’ll never be able to afford a home.”
No, wait! Don’t close the tab yet! There’s actually very very good news in this for you. You see, a better way to look at homes than Price vs Affordability. Let us explain.
The median sales price in Salt Lake and Utah Counties is $289,900. But unless you’re a cash buyer (and even then, there are other expenses) that’s not the amount of money you’re going to pay for the house. Most people are buying homes using loans, though, and one of the documents you’ll look at during Settlement will show you how much money you’ll end up paying for the home if you make the minimum mortgage payment every month. Let’s call this the Amortized Total.
In practical terms, your monthly payment is a better reflection of your ability to afford a home. Of course, the monthly payment is affected quite heavily by the sales price of the home, but it’s also affected by other factors, including the lifespan of the mortgage, insurance, and very importantly: Interest Rate.
A low interest rate gives you a (significantly) lower Amortized Total, and a significantly lower Monthly Payment. And interest rates are at historical lows right now, and have been for years.
So what we’re saying is counterintuitive, I know, but it’s perfectly reasonable to think that a $300,000 home would be far more affordable right now than a $250,000 home two years from now.
Of course, the chief factors in deciding whether and when to buy should be your life situation, your budget, and other things, but we wanted to help assuage your fears when you hear about this rabid Seller’s Market.
As always, if you have any questions, don’t be afraid to ask your Square 1 Team!
Written by Cavan Helps with Square 1. He is a specialist in both Commercial and Residential real estate.