Hi, I am Tom Scott, Realtor with Jean Scott Homes at Keller Williams.
I am continuing our series of videos about how COVID-19 is affecting our real estate market and how overall conditions today are quite different than they were just ahead of the Great Recession. Today I will talk about affordability.
There are three main components that determine affordability. Median home price, median household income, and mortgage loan interest rates.
According to the National Association of Realtors, in 2006 the average mortgage interest rate was 6-1/2 percent and the monthly mortgage loan payment was 23% of median family income.
In 2019, interest rates averaged just 4% and the monthly mortgage payment took only 16% of median family income.
Long term appreciation in home prices is 4% per year as this graphic shows in yellow. The rapid appreciation shown in the years when median home prices were above the trend line made median priced homes unaffordable to many households earning median income.
While COVID-19 has had a profound effect on our economy, we don’t expect the collapse in home values we experienced during the Great Recession. One of the reasons is that homes are significantly more affordable than they were then.
For more information about the real estate market and how that relates to your situation, please give us a call. We’d be glad to help get all your questions answered!
Next up, Rachel will discuss how mortgage loan requirements were very different in the run up to the Great Recession than they are today.
Stay safe and healthy!