By Amy Hoak, MarketWatch
A median-priced, three-bedroom home bought in the fourth quarter of 2013 costs a homeowner 21% more per month, compared to one bought a year before, according to an analysis by RealtyTrac, a housing data provider. That monthly cost includes mortgage payments, insurance, taxes, and maintenance and factors in the estimated income-tax benefit.
“There’s no doubt about how affordability has been affected here in the past year or so,” said Loren Haley, a Redfin agent in Silicon Valley. “Prices have been driven up so quickly and intensely; there are a lot more buyers in the market than there is inventory.”
Despite a more competitive market, it’s important that buyers keep a sense of perspective. If your goal is to move into a new home this year, there are things you can do to position yourself to get the best deal possible – even if bargains are becoming rarer.
“It’s not fair to say it’s a huge shock…we’re still well above normal levels of affordability,” said Mark Fleming, chief economist for CoreLogic, a provider of consumer, financial, and property information.
The National Association of Realtor’s national Affordability Index dropped to 175.8 in 2013, from 196.5 in 2012. For comparison’s sake, the index reading was 107.6 in 2006 around the peak of the housing bubble. The higher the number, the more affordable the market. The index is based on the relationship between median home prices, median family incomes, and the average mortgage interest rate.
While prices are expected to rise, early indications suggest that the increases won’t be quite as steep as last year. Although mortgage rates are also expected to increase, their rise so far has been somewhat gradual. The 30-year fixed-rate mortgage averaged 4.3% in February.
Fleming also points out that if you already own a home and plan to sell it to finance a new one, you’ll see even less of an impact on affordability. While the price of the home you’re buying will be more expensive than last year, you’ll be able to sell your home for more too.
Most importantly, remember that every market is different. Yes, inventory shortages are widespread but shopping in the red-hot silicon valley market is different than shopping in Chicago. While finding a home may be a challenge when inventory is tight, the more attractive of a buyer you are, the more negotiation chips you have with the seller.
Click here for six tips to help you get the best possible deal when purchasing a new home.