[vc_row][vc_column][vc_column_text]The real estate market is skyrocketing right now. Luckily for homeowners, residential home values are also on the rise. In 2020 alone, there was a double-digit increase in home values and we’re expecting to head toward similar digits this year.
However, the rising prices are causing some to start questioning affordability in the current housing market. Many are quick to point out the fact that homes today are less affordable than they were last year.
The historical averages of the national payment to income ratio, (the share of the median income needed to make the monthly payments on the median-priced home.) are as follows:
- The average over the last 25 years was 23.6%
- The average over the last 5 years was 20.1%
- The average today stands at 20.5%
Right now, housing payments are slightly less affordable than the five-year average – but only by less than ½ a percentage point. However, they’re significantly more affordable than the 25-year average.
In other words, buyer must make a greater financial sacrifice to afford a home right now than if they purchased a home within the last five years. On the other hand, it’s important to keep in mind that the financial sacrifice is not nearly as big as it was over the last 25 years.
Does this make financial sense in the long term?
Homeownership continues to be the foundation to building personal wealth. For most Americans, their home is the largest asset they own. On top of that, the difference between the net worth of homeowners and renters is significant at every income level.
Since prices have risen dramatically over the past year or so, it’s slightly less affordable to buy a home today than it was a year ago. However, when you consider the long-term benefits of building your net worth, you may feel inclined to reconsider.
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