It’s good to be a homeowner these days. After all, home prices are rising at an incredible pace, and have been for nearly a decade now since bottoming out.
On top of that, many of today’s homeowners hold fixed-rate mortgages with ultra-low mortgage rates, making it very affordable to own rather than rent.
Unfortunately, the same can’t be said of those looking over the fence, or sitting on the fence, wondering if they too should make the move to homeowner.
One of the biggest hurdles to homeownership that continues to worsen is the pesky down payment.
And as property values increase, so too does the minimum amount required to get a mortgage, assuming a down payment is needed, which it often is unless you’re taking out a USDA loan or VA loan.
This has made it more and more difficult for renters to become homeowners, despite mortgage rates being at/near all-time lows.
It also highlights the fact that low mortgage rates, while certainly great, aren’t a be-all, end-all solution to affordable housing.
Home Price Gains Outpace Mortgage Rate Discounts
- Median monthly mortgage payment on an existing single-family home increased to $1,059 in Q3
- That number was up from $1,019 in the second quarter and $1,032 in Q3 2019
- Mortgage payments accounted for 15.6% of income in Q3 based on median income of $81,477
- That was up from 14.8% in the second quarter unchanged from a year ago
In the National Association of Realtors (NAR) latest statistical release, they noted that the median existing single-family home price surged 12.0% on a year-over-year basis to $313,500.
These home price gains were seen all throughout the country, with double-digit year-over-year increases in the West (13.7%), Northeast (13.3%), South (11.4%), and the Midwest (11.1%).
Meanwhile, home prices are growing four times as fast as median family incomes, which have only ticked up about 2.9%.
Still, with mortgage rates so low at the moment, the monthly mortgage payment on an existing single-family home has only increased to $1,059 from $1,019 a quarter earlier and $1,032 a year ago.
For most prospective home buyers and existing homeowners, this is probably incidental, and not a deal-breaker in terms of qualifying for a mortgage.
But NAR chief Lawrence Yun still remarked that “housing prices are increasing much too fast.”
Interestingly, the low mortgage rates are a double-edged sword because they’re continuing to lure buyers to market, thereby increasing demand and raising home prices in the process.
So while you might get a lower mortgage rate, you’ll pay more for the house, assuming you don’t already own it.
In fact, 65% of metro areas , or 117 areas out of 181, experienced double-digit price gains from one year ago.
Biggest Year-Over-Year Home Price Gainers
1. Bridgeport, Conn. (27.3%)
2. Crestview, Fla. (27.1%)
3. Pittsfield, Mass. (26.9%)
4. Kingston, N.Y. (21.5%)
5. Atlantic City, N.J. (21.5%)
6. Boise, Idaho (20.6%)
7. Wilmington, N.C. (20.6%)
8. Barnstable, Mass. (19.4%)
9. Memphis, Tenn. (19.1%)
10. Youngstown, Ohio (19.1%)
These are the hottest metros nationwide when measuring home price growth from the third quarter of 2019 to the third quarter of this year.
Shockingly, home values were up nearly 30% in Bridgeport, Connecticut, which certainly doesn’t sound like healthy home price appreciation.
Yun noted that home prices have “jumped” in cities that contain larger properties with more open space, a symptom of the ongoing COVID-19 pandemic.
More frightening is the continued lack of housing inventory – at the end of the third quarter there were just 1.47 million existing homes available for sale, which was down a whopping 19.2% from a year earlier.
That represented just 2.7 months at the current sales pace, as of September 2020, which tells you why it’s overwhelmingly a seller’s market still.
Sure, you can probably get your hands on a super low mortgage rate, but good luck finding a house if you don’t already own one!
Read more: Would You Rather Have a Low Mortgage Rate or Pay a Lower Price for a Home?