Homebuyers who wait pay steep cost
The most recent iteration of a local guide illustrates perfectly why waiting to buy a home can be a bad idea: A prospective buyer who a year ago decided to wait today would pay a higher price and need 11.2 percent more income to buy a median-price single-family home in the San Fernando Valley.
A year ago April, the median priced local home sold for $555,000; this April the median price came in at $588,000— a $33,000 difference, the Southland Regional Association of Realtors reported.
Consequently, the minimum annual income needed to qualify for a loan to buy the same home rose from $116,074 in April 2017 to $129,083, a 11.2 percent leap, according to SRAR’s most recent “Income-to-Loan Guide.”
The guide offers benchmarks for prospective buyers on the key numbers in a home purchase. In that same period, interest rates for loans on previously occupied homes jumped from a national average of 4.11 percent to this April’s 4.66 percent. Two years ago, the interest rate stood at 3.83 percent. Price increases favor home sellers, but buyers are feeling the pinch.
“The solid gain in home prices added roughly $150 billion to housing wealth during the month,” said Lawrence Yun, chief economist for the National Association of Realtors. “But the continuing run-up in home prices above the pace of income growth is simply not sustainable. “From the cyclical low point in home prices six years ago,” he said, “a typical home price has increased by 48 percent while the average wage rate has grown by only 14 percent.”
Rising interest rates also do not help with affordability. “More supply is needed to level out home prices,” Yun said. “Homebuilding will be the key as to how the housing market performs in the upcoming years.” Here’s a breakdown of the main numbers used in development of the home and condominium income-to-loan guides. Keep in mind that hundreds of properties sold for more and hundreds sold for less than the median price, which gives prospective buyers an idea about how much home they can afford. For personalized, specific numbers, always work with a Realtor. Assuming the buyer made a downpayment of 20 percent, an 80 percent loan of $470,400 would be needed to finance April’s median priced home of $588,000.
April’s national average effective mortgage rate of 4.66 percent would require a monthly mortgage payment of $2,428. Add in property taxes of $613 per month along with the typical insurance monthly premium payment of $186 for a total monthly housing payment — known as PITI — of $3,227.
PITI stands for principal and interest, plus taxes and insurance.