Compared to previous generations, when we look at it from a percentage of income basis, Home prices today are still relatively cheaper than what our uncles and aunts and grandparents used to deal with. So if you're planning on buying a home for yourself, now might be the best time to do it.
The COST of a home is determined by three major components: price, mortgage interest rate, and wages. The big question? Are we paying a greater percentage of our income toward our monthly mortgage payment today than previous generations? Surprisingly, the answer is no.
Historically, Americans have paid just over 21% of their income toward their monthly mortgage payment.
Though home prices are higher than before, wages have risen as well. And, the most important component in the cost equation - the mortgage rate - is dramatically lower than it was in the 1970s, 1980s, 1990s, and 2000s.
Today, according to the latest Home Affordability Index just released by the National Association of Realtors, Americans are paying 17.4% of their income toward their mortgage payment. That is much lower than the 21% average previous generations have paid.
The cost of purchasing a home today is a bargain compared to previous generations when we look at it from a percentage of income basis. However, with mortgage rates expected to increase and home prices continuing to appreciate, that will not always be the case. Whether you are buying your first home or looking to move-up to a more expensive home, purchasing sooner rather than later probably makes sense.