May 26th, 2011
But maybe you’re tired of hearing about statistical matters and just want to know how this affects your pocketbook.
If your parents bought a home in 1963, it probably cost them 43 percent of your dad’s income to finance it. If they were buying that same home right now, it would take only about 22 percent of their monthly income to finance it.
The National Association of Realtors today recommends an average of 25 percent of an individual or family pretax income. That means no more than 25 percent can be spent on mortgage payments, taxes, insurance and utilities.
Because the affordability index is now 22 percent, a home buyer would be in a better position than the association recommends.
Still, people who need a home may be confused about whether this is a good time to buy. They wonder if it will cost even less to buy a home in the future.
That isn’t likely to happen, because interest rates and inflation have a big impact on the true cost of buying a home. And both are going up.
The chief economist at Moody’s Analytics says, “Based on incomes, this is as affordable as it gets. If you can get a loan, these are pretty good times to buy.”
For renters, that is especially true. Those who are renting a nice apartment or home for $1,000 a month, for example, will typically experience a 3 percent rise in their rent per year.
At that rate, over the next 10 years, they would pay a total of $137,567 in rents.