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Thursday, June 17, 2010

Great Deals in Housing

If you were offered the chance to buy dollars for $0.70 a piece, how many would you buy?  

When you compare today's home loan rates to the average in effect for the last 10 years, that is approximately what you are paying. And given lower home prices, there has never been a better opportunity to buy a home than today.

Home Affordability: The Key to Your Market

Mark Zandi, Chief Economist for Moody's Analytics stated recently in an audio interview with MarketWatch Radio that he has never seen a better time to buy a home, with low interest rates and affordability being one key component.  When people decide to buy a home, the monthly payment is a crucial factor.  

Affordability is a function of home price, interest rate and down payment.

Conservative underwriting for mortgage payments state that borrowers should allocate no more than approximately 30% of their income for a house payment. Looked at from another perspective, this means if your monthly income is $4,000, you should keep your mortgage payment under $1,200 a month.

You also want to keep in mind that your total monthly debt payments should not exceed 41% of your income. While exceptions will sometimes allow you to exceed that number, you don't want to be stressed out, feel like you're married to your home or miss out on opportunities for investments in a 401K or retirement account.  

That said, many experts have said that when median home prices exceed median incomes by three times in a market, then that market could be viewed as a high cost market. As an example, median household income in the U.S. is approximately $51,233 and the median home price in the U.S., according to the most recent statistics released from the National Association of Realtors, is $173,100.  

Based on this one statistic, it could be reasoned that housing overall may be somewhat unaffordable. However, you also have to take into consideration what the monthly payment would be based on existing interest rates.

Assuming a homebuyer puts 10% down on a median home price, the monthly payment, assuming the cost of property taxes and insurance at 1% and .5% respectively, would be 28.9% of income, well within reason.  

Another consideration should be the cost of renting a home when compared to a house payment for the same type of home. When the cost to rent is similar to the monthly cost to own or more, housing may well be affordable for that particular market.  

When the tax deductible portion of the payment is taken into consideration, the after tax mortgage payment was approximately 15% less, making the cost to own even more affordable when compared to renting.