Buyers and Sellers: What Should be Your Perspective on the Current Drop in Affordability?

How have recent changes in our market impacted affordability, and how will current market conditions influence your ability to buy or sell? Let’s discuss these critical questions today.

Welcome back to the Phoenix & Scottsdale Real Estate Show. On today’s episode, we’ll discuss a critical question: “What does the current drop in home affordability mean for you?”

First, it’s important to know that home affordability is defined by the size of the monthly mortgage payment needed to buy a home.

The government began tracking home affordability as an index in 1970. And just a few years ago, homes were recorded as being more affordable than ever before, or at least more affordable than any other time since we began recording this index.

But now, this index, which takes into account inflation, current mortgage rates, and home prices, indicates that affordability is shrinking rapidly. Why is this the case?

Well, rates and home values, which have been significantly low in the recent past, are slowly but surely on the rise. As a result, home affordability dropped by 5% in just the first quarter of this year.

This drop has primarily been the result of increasing interest rates, which the Fed is expected to bump up once or twice more by the end of 2018. In turn, affordability is expected to drop an additional 15% to 20% by that point in time.

So what does this all mean for you?

For sellers, it may mean that finding a buyer could be more challenging than in the past. And if a buyer does come along, sellers must realize that what buyers actually pay for a property tends to fluctuate within a 10% range of the actual list price. Whether sellers achieve a price that is higher than or lower than their list price depends on how and who manages the listing process on their behalf. The right agent will help sellers make the most of their home sale using strategic marketing and negotiation.

As for buyers, it isn’t time to panic yet. According to Arch Mortgage Insurance, homes are 15% to 20% more affordable than has been the case since this index was first recorded. Even though affordability is lower than in the recent past, it is still significantly higher than it was between 1987 and 2004. Rates are still low, historically speaking, so homeownership remains well in reach for those interested in pursuing it.

If you have any other questions, would like more information, or are interested in how my team and I can help you pursue your real estate goals, feel free to give us a call or send us an email. We look forward to hearing from you soon.