If Prices Keep Going Up, How Has Affordability Increased?

The average sale price of a home in Los Angeles was $760K in January, up 9.5% since last year. The average sale price per square foot in Los Angeles is $475, up 3.7% since last year. Yet housing affordability in Los Angeles has increased.  A full 4% more Angelenos could afford to purchase $607,040 median-priced single-family home in the Q4 of 2019, as compared to Q4 of 2018.  How can more people afford homes if prices keep going up? Simple: A lower cost of borrowing and higher income levels have allowed more people to afford a home purchase, according to research by the California Association of Realtors (C.A.R). Basically, substantially lower interest rates have offset price gains.   As of last week, mortgage rates remain at the lowest levels in 3 years.  According to the Freddie Mac Primary Mortgage Survey, the 30-year fixed-rate average was 3.47% A minimum annual income of $119,600 was needed to purchase a $607,400 median-priced single-family home with a monthly payment of $2,990. That payment included principal, interest, property tax and insurance with a 20% down payment, and a 30-year fixed loan.   Affordability also increased for condominiums and townhomes from one year ago. The report revealed that 41% of California households could afford a $480,000 median-priced condominium or townhouse, up from 37% one year ago. An income of $94,400 was needed to qualify for a monthly payment of $2,360 on a median-priced condominium or townhome. Many people are wondering if we are in another ‘housing bubble,’ and if so, when that bubble is going to bust.  During the last housing bubble (2002-2005), and home prices outpaced per capita income, banks and lenders “fixed” that problem by offering exotic loans and lightened up on the qualification process.  We all know how that turned out.  The big difference today is that we no longer have the type of loans that feed that type of bubble.  With incomes high, interest rates low, and inventory limited, prices are likely to hold.  If you’re considering getting into the housing market but are put off by sales prices, you’d be wise to try to focus more on your interest rate and monthly payment.  A $1,000,000 home today, at a 3.75% interest rate with a 20% down payment would be approximately $3,728 per month.  If interest rates go up, even if prices go down, you’ll end up paying the same for a lot less house.  I work with a number of great lenders who can analyze your personal financial situation and help you find the most competitive rates. I'd love to connect you to start your home buying process.