How Much More Can Homebuyers Take?

Apparently, much more pain than we all thought was possible.

At the peak of the housing bubble in 2006, the median home price was $230,300, and 30 year fixed rates were at 6.76%. With 20% down the monthly payment was $1,196. The median household income was $4,071 at the time, so housing accounted for 29.8% of household income.

Let’s apply the same calculation to today to see where buyers stand in comparison.

The national median home price is up 53% to 353,900, but household income is also way up – 40% to $5,627.

Using 3.65% (the average rate reported by MortgageNewsDaily.com) as the current 30-year rate, and assuming the same 20% down, the monthly payment comes out to $1,295.

That’s only 23% of median household income, well below the average of 28%.

If that 28% holds true, homebuyers could stomach interest rates up 5.25% before stretching past the affordability comfort zone.

If interest rates keep increasing but hold at 4%; in that scenario, homebuyers could still stomach another 16.5% in home appreciation before surpassing the historical affordability average.

In San Diego numbers, that 16.5% equates to a median price of $891,671 (up from $765,000 today).

Eye-opening data, to say the least.

Your partner in success,

Brian

About the Author

Brian Daly

Publisher of Real Report

Founder of The San Diego Home Buyer

This is an excerpt from an article written by Brian Daly, originally appearing in the March 2022 issue of San Diego Real Producers. Follow San Diego RP on Instagram and Facebook.