Hint: it wasn’t a small number.
- In October, house prices rose by 6.6% year on year.
- Before buying a house, it’s important to calculate your numbers to make sure you don’t fall into the trap.
It’s no secret that housing prices in the country have been raised for several years. These price spikes began in the second half of 2020, when mortgage rates fell to record lows and consumer demand began to pick up.
But while mortgages were affordable in terms of interest rates in 2020 and 2021, they have become almost unbelievably expensive this year. These days, an average 30-year mortgage will cost you about 7%. Compare that to the 3% rate you might have been looking at a year ago and it’s easy to see why homeownership might seem out of reach.
Meanwhile, in October, the median selling price for an existing home was $379,100, according to the National Association of Realtors. This is 6.6% more than in October 2021. And since it is much more expensive to take out mortgages now than it was in October 2021, you may have no choice but to get out of the housing market until prices cool and mortgage rates cool down. start falling.
Or maybe not. Maybe you are able to afford a home based on today’s interest rates and prices. Here’s how to find out.
How much can you download at home?
Just because the average US home recently sold for $379,100 doesn’t mean that’s the price you expect to buy your own home for. It may be that house prices are much higher or lower in your neck of the forest.
But in any case, it is important to know the formula for determining housing affordability, no matter where you live. And the formula is simple: make sure your total housing costs don’t exceed 30% of your salary.
Read more: Our pick of the best FHA mortgage lenders
So let’s say you bring home $5,000 a month. This means that you can afford to spend $1,500 a month on housing costs.
However, this does not mean that you can take out a $1,500 monthly mortgage. Rather, the $1,500 is needed to cover additional ongoing housing costs, such as property taxes and homeowners insurance. And if you’re buying property from a homeowners association, that $1,500 should also include HOA fees.
Should I wait to buy a house?
Now real estate prices are rising, and mortgage rates are high. So, if you decide to leave the housing market and wait, it will not be a bad decision.
But you need to think about your financial and housing situation before making a decision. If you have affordable rentals that are convenient, staying locally can make sense. If you feel bad about your apartment and your landlord keeps raising your rent, you can continue looking for a home to buy.
Similarly, if you’re unsure of your ability to afford a home, waiting may be your best bet. But if you have a lot of money to invest in a house and a steady job with a big salary, then you might be able to find a house that you like and that works within your budget.
Remember that mortgage rates may be high right now, but they are unlikely to stay that way forever. We may not see 3% mortgages in the near future, but in a year or two, rates could drop to 5%. So if you sign a mortgage today, you can refinance your loan shortly after the fact and lower your monthly payments while still getting home equity.