When I tell clients that homes are affordable right now, this is what I mean.
Is homeownership overhyped? Is purchasing a home in today’s market a bad idea? To get to the bottom of it all, let’s first do a comparative analysis of renting a home here in the Chattanooga area versus owning one. If you’re renting a decent three-bedroom house, you’ll pay about $1,600 per month. As a renter, you have no control over the property’s management, the owner’s decision to either renew your lease or kick you out, or the new cost of your rent if you do renew. Also, you can only decorate the house to a certain extent—there’s a definite limit to how much of your own touch you can apply to things.
Compare that $1,200 per month on a 30-year fixed mortgage for a home in which you can build equity. Homeownership offers greater stability for your family and puts you in full control of the life you lead within the home. Want to paint your kids’ rooms bright colors? Go for it! Want to turn your basement into a recording studio? Nothing’s stopping you. Additionally, homeownership comes with some great tax benefits.
Perhaps you don’t need any further convincing; you know you want to purchase a home. Now you’re faced with this next set of questions: “Is right now a good time to buy? Aren’t home prices on the rise?” Yes, home values are appreciating at an impressive clip (they’re up 11.6% year over year, to be exact). While there’s no sugarcoating this, it does help to put it into perspective. Remember: Home affordability has to do with more than just the sale price of a home. Consider what’s happened to the interest rates. In 2020 alone, they dipped to new record lows on more than 10 separate occasions.
If you bring your interest rate down by just one percentage point, that equates to a 10% increase in your purchasing power. When rates go down, your money goes farther, meaning you can likely get more home for your buck than you think. Don’t believe me? Let’s do the math:
In 2019, your average home price was about $215,000, compared to $240,000 today. Your interest rate then was 3.618%, compared to 2.844% today. Assuming you put 20% down on that average-priced home in 2019, your monthly payment would have been $784 a month. Of course, you’d then have to add a couple of hundred dollars onto that for your taxes, insurances, and escrows. If you bought that same home here in 2021, your monthly payment would be $793—a measly difference of $9. That’s surprisingly affordable despite these rising prices.
What if you can’t afford to put 20% down ($48,000 in our example)? Don’t fret; you can get a loan for just 3% down. There are even 0% loans available depending on the home’s location and whether you’re a veteran. For the sake of example, let’s go with 3% down, which is common in our market. With that down payment, your payments in 2019 would have been $950 a month, as opposed to $962 a month in 2021.
By now, I’m sure you’re aware of our incredibly low inventory. While that does make the home-buying process tough, it doesn’t make it impossible. I suggest hiring an experienced real estate agent who can guide you through the bidding process and provide you with the tools you need to succeed. If you’re ready to jump into the market and make one of the smartest investments of your life, give me a call today; I’d love to hear about your specific needs and get started on a plan that works for you.