A home buyer purchasing a typical American home at the prevailing average mortgage rate today would have a mortgage payment of $698 a month. This figure is not much different from what a home buyer would have faced 30 years ago. In 1981, home prices were much lower but mortgage rates were reaching 18 percent. Today, home prices have come down by about 33 percent on average from the bubble years, but prices still remain comfortably higher than those of the 1980s. However, thanks to record low mortgage rates, the monthly payment obligations have been greatly reduced.
Compare the chart below on the 30 year payment growth of the overall consumer price index, rent, food prices, gasoline prices, college tuition, and medical costs, versus the monthly mortgage payment. The rapid increases in college tuition bills may also imply too much demand, perhaps even a bubble in term of students not getting their money’s worth. A recent spike in college student loans is due primarily to weak job market conditions, but may also be due to ‘over investment’ in education in relation to the cost.
At the other end, one sees the slowest growth in monthly mortgage payments for homebuyers. It is not that this cost element rose slowly and steadily over time; rather, it is the result of volatile swings in home prices and mortgage rates. Compared with the other items, the value proposition for homebuying is blaring!
Very tight underwriting standards, unfortunately, are keeping some good, hard-working Americans from taking advantage of the super affordable conditions.
Please note that homeownership costs include not only principal and interest payments on a mortgage, but also property tax, insurance, and home maintenance costs, which probably rose in line with the overall consumer price index.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.