Is it the Perfect Time to Buy a New Home? Answer: Absolutely! Here are the reasons why…
1. Housing Most Affordable in Years
According to the May 2012 San Diego County Economic profile by the California Association of Realtors, the median price of existing detached homes has fallen to $363,710, which is one of the most affordable levels for housing since 2002!
This should be no big surprise because housing all across the nation has hit its most affordable level in more than two decades. Nearly 80% of the homes sold in the first quarter of this year were affordable to those earning the national median income of $65,000. Figure 1 illustrates how the median price of existing of detached homes in San Diego has continued to decrease since 2010 and is almost half of what the median prices of houses were in 2006-2007.
The news gets even better if you are thinking of buying a new home. According to the first time buyer affordability index, figure 2, new housing affordability has hit an all time high with 46% of households being able to buy a new home.
2. Mortgage Rates Continue to Drop to All Time Lows
Late last week, mortgage buyer Freddie Mac told the nation that the average on 30 year loan dropped to 3.67%, the lowest rate since long term mortgages began in the 1950’s! The 15-year mortgage rate, a popular refinancing option, also decreased to from 2.97% to 2.94%. This marks the sixth consecutive week that mortgage rates have decreased and many economists believe that the housing market has bottomed out and is now in midst of a slow recovery. Figure 3 illustrates the continual decrease in mortgage loans since 2000 and how mortgage rates are more than 25% less than they were one year ago.
3. Credit Loosening
Although the average required credit score remains at 700, banks are now lending up to 3.5 times borrower’s earnings which is up from the 3.2 standard during the crisis. Banks are also loosening loan-to-value ratios (LTV) which Capital Economics denotes “the clearest sign yet of an improvement in the mortgage credit conditions”. LTV ratios are now at 82 % which is significantly up from the 74% low in 2010.
Conclusion: This is one of the best times to purchase a new home.
Use the calculator below to see what happens to the cost of a loan if rates go up.