The Difference Between PRICE And COST

Dated: 04/13/2018

Views: 29

The COST of Your Next Home Will Be LESS Than Your Parents’ Home Was

The COST of Your Next Home Will Be LESS Than Your Parents' Home Was | MyKCM

There is no doubt that the price of a home in most regions of the country is greater now than at any time in history. However, when we look at the cost of a home, it is cheaper to own today than it has been historically.

The Difference Between PRICE and COST

The price of a home is the dollar amount you and the seller agree to at the time of purchase. The cost of a home is the monthly expense you pay for your mortgage payment.

To accurately compare costs in different time periods, we must look at home prices, mortgage rates, and wages during each period. Home prices were less expensive years ago, but paychecks were also smaller and mortgage rates were much higher (the average mortgage interest rate in 1988 was 10.34%).

The best way to measure the COST of a home is to determine what percentage of income is necessary to buy a home at the time. That would take into account the price of the home, the mortgage interest rate and wages at the time.

Zillow just released research that examined home costs using this formula. The research compares the historic percentage of income necessary to afford a mortgage to the percentage needed today. It also revealed the cost if mortgage rates continue to rise as experts are predicting. Here is a graph of their findings*:

The COST of Your Next Home Will Be LESS Than Your Parents' Home Was | MyKCM

Rates would need to jump to 7% in order for the percentage of necessary income to be greater than historic norms.

Bottom Line

Whether you are a homeowner considering selling your current house and moving up to the home of your dreams, or a first-time buyer trying to purchase your first home, it’s a great time to move forward.

*Assumptions in the Zillow report: Buyer puts 20% down, takes out a conforming, 30-year fixed-rate mortgage at rates prevailing at the time, earns the median household income, and is buying a median-valued home.

Latest Blog Posts

Are You Wondering If You Can Buy Your First Home

There are many people sitting on the sidelines trying to decide if they should purchase a home or sign a rental lease. Some might wonder if it makes sense to purchase a house before they

Read More

Top 5 Reasons You Shouldnt FSBO

In today’s market, with home prices rising and a lack of inventory, some homeowners may consider trying to sell their home on their own, known in the industry as a For Sale by Owner 

Read More

How A Lack Of Inventory Impacts The Housing Market

The housing crisis is finally in the rear-view mirror as the real estate market moves down the road to a complete recovery. Home values are up, home sales are up, and distressed sales (foreclosures

Read More

The Best Breeds For FirstTime Homeowners

If you’re a first-time homeowner, the odds are good you will soon be ready for the fun and responsibility of owning your first dog.If you’re looking for a pet that suits you and your lifestyle,

Read More