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.

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

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Hope you are having a great weekend!

Lee McLain

The Rake, Hoe, and Shovel: Little Costs that Really Add Up

Most people will say that buying a home means thinking about a down payment, closing costs, and tax escrows. But what a lot of people forget about is that buying a home means buying much more than just a house.

When I first started out as a loan officer, my first boss told me, “don’t forget about the rake, hoe, and shovel.” So often, people shopping for homes are tempted to spend on the top of their budget and beyond to get the kind of house that they want. But buying a bigger home often means that there are going to be expenses that are needed to make that house into a home.

For example, are you getting an extra bedroom? How much will it cost to buy a new mattress, bed frame, bedding, and other furniture? All of that could be at least an extra $3000! Appliances like washing and drying machines and fridges are often taken with the sellers, all of which can cost at least another thousand. Of course, moving from an apartment to a house often means lawn care—do you have a lawn mower, weed eater, and edger, or are you planning on using a lawn care serve?

Planning for the extra expenses that your new home will need means accounting for the “rakes, hoes, and shovels,” all of the little costs that can really add up. That new home will certainly be a lot more comfortable if you plan to have a cash cushion—not hard plastic— to feather your new nest.