The affordability of homes (affordability index) is something that has been tracked since 1970. The affordability index takes into account sales prices, interest rates, and income levels (along with other, less significant factors). According to the index, homes are more affordable right now than at any other time in the 42 years they have been tracking this number.
Who should consider acting soon to take advantage of the market?
Anyone currently renting. Prices are already starting to increase, and interest rates won’t stay this low forever. The same house that you could buy today for a monthly payment of $1200 could easily cost $1500 a month or more within a few years. (You can qualify for a mortgage in 3 years or less after a bankruptcy or foreclosure)
Anyone who wants to move up to a bigger home. “Starter home” owners selling their current home and buying a larger home is a crucial step in the housing recovery, and it’s currently the step we’re stuck on. Also, since the home you’re selling and the home you’re buying are likely to go up in value at roughly the same rate (%), then the longer you hold off moving, the more money you lose since your new home will increase in value at a higher dollar figure than your current home.
Who should hold off on taking action in the current market?
Anyone who wants to “downsize”. Try to hold on a little longer. It might take a year or two until we reach an ideal spot for you to move, but the longer you can wait between now and then, the better. The math that works for you in the “move up” situation described above works against you if you move now. Also if you attempt to downsize now, you will be competing for your next home in a very crowded price range in the midst of an inventory shortage. That’s not a situation you want to intentionally place yourself in.
A word of advice: Given the low prices and low interest rates, consider pushing yourself just a little on the home you buy. If you can stretch yourself (without being reckless of course) and buy a little bigger home than you planned on, you might be able to get into a home that will suit your needs for the next 10-20 years instead of the next 5-10 years. The decision to do this will need to be carefully analyzed by you, your mortgage lender, and your Realtor.