Every August, The Federal Reserve (Fed) hosts its “Economic Policy Symposium” addressing an important economic issue facing both the U.S. and world economies. The financial markets try to get a glimpse into the future as the Fed sees it as many believe the Fed’s actions encourage the growth of the economy. Naturally, one of the areas of interest for consumers like you and me is the Fed’s position on interest rates and whether they expect rates to increase or decrease in the future. Media outlets jump on that bandwagon and bring a level of unnecessary hysteria to the market about the potential impact on mortgage rates and how home buyers will be less able to afford a home if rates increase.
There is a more important data point to consider than interest rates when buying a home! It’s called the “Affordability Index”. The Affordability Index looks at the median price of a home in a particular region and compares that to the median household income for the area. A ratio of 100 means that the income of the “typical” consumer’s household in the region exactly meets the income necessary to qualify for buying a home at current market interest rates. The higher this index, or ratio, is above 100, the more affordable the “typical” house is for a “typical” consumer.
The table below shows that, using 2018 as a base year, housing in the Twin Cities is more affordable today than in 2018. This is reflected in the base index of 148 which has grown to 151 currently!
While you will commonly read about increases in the average price of a house, or the anticipated increase in mortgage rates, you rarely read about the Affordability Index. I believe this index is the most important reference point to use when considering buying a home.
I’d love to talk more about how I could guide you through the “mysteries of the market” and help you find the home of your dreams! Call or text me at 651.353.3111 or e-mail me at chuckhannema@edinarealty.com.