You would think rising home prices would decrease home affordability. This simply is not the case as the home affordability index nears all-time highs.
If you look at the chart, home affordability was greatest back in 2012. Median home prices averaged $131,000 for the year compared to $289,000 in 2020. Today home prices are higher, so we took the yearly average.
So, what would cause affordability to rise if home prices are also rising? Interest rates. Lower rates equate to a lower mortgage payment, and it offsets the rising cost of the home. Therefore, we are saying there is more room for further price increases.
Home Affordability Index Nears All-Time High
The home affordability index currently stands at 16. It went as low as 13 in 2012 and hovered below 16 for 5 years. The other thing that is different today is that we have end users for every home and rental. Back in 2005 we had speculators bidding up prices to flip with no real end user in sight. It was a house of cards. Today’s market is no house of cards. We have legitimate demand. In fact, we have more demand than supply.
Even if rates rise, we have room for that in the index. As you can see, traditionally the index stands between 19 and 22. At 16, we have some room if rates rise. If interest rates do not rise much, we have room for further price growth.
Furthermore, we believe Florida has been undervalued for years relative to what it brings to the table. Sunshine, low taxes, and freedom to work are just a few, and people are taking notice. With the transition to work from home jobs, Florida is on the radar. We just might see affordability numbers rise above their traditional numbers of 19-22. That makes sense to us.
Of course, nobody knows what exactly will happen. We do not know how much the price of oil will increase, what interest rates will do, and how the economy will react. We do not know if northern states will continue to increase taxes, and we do not know what Covid-19 will do. What we do know and are observing all looks favorable to Florida.
Our best advice for buyers would be to purchase as soon as you can. As prices rise, and interest rates rise, your next home will inevitably cost you more than it does today. If you have a home to sell, think about doing it now. Waiting to get more money down the road will only cost you on the buying end. It may cost you more in higher rates than you will receive with a higher price.
Our best advice to sellers would also be, do it now. You are in the driver’s seat, and that’s a fun seat to be in. While the market looks on the up and up, we never really know how long these markets will continue like this. While we can make the case for increased prices, the price gains may not continue to rise at the same rate we have just witnessed.
History shows us the market never gives advanced warning when it is going to turn. Sometimes we see signs, and we report those. We are not seeing those signs, but someday we will and there will be those that miss out. It always happens and will until the end of time. It is true in the real estate market and the stock market. You can never time the top perfectly, just as you cannot predict a bottom perfectly. It is only after it occurs that we can tell you with certainty.
If you are thinking of selling, call Sande or Brett Ellis at 239-310-6500 or visit www.SWFLhomevalues.com for an instant home valuation.
See last week’s article “National Housing Supply Shortage Predicted Years Ago”
Good luck, and happy selling! Don’t miss this market!