By S.E. Slack
Frustrated with housing prices in your area? Make a move in the next year to take advantage of current affordability levels. Mortgage rates are rising, which is kicking some areas out of the reasonably priced range for potential home buyers.
Mortgage rates are hovering above 4 percent, which is a marked difference from the under 4 percent interest rates seen over the past two years, according to real estate firm Zillow.
“Overall, the U.S. is still below its historic average (of affordability),” says Sveja Gudell, director of economic research at Zillow.
Historically, homeowners have paid out about 20 percent of their income for housing. She points out that in the third quarter of 2013, new homeowners spent about 15 percent of their income on mortgage payments. That was a two percent rise from the second quarter of the year. Forecasts expect the U.S. to remain fairly affordable in most areas of the country as long as interest rates remain below 7 percent in 2014.
“Mortgage rates are currently forecasted to remain below 5 percent for the entirety of 2014,” says Gudell. “On a national level, homes will remain more affordable.”
Some great places to buy a home still include Chicago, which holds a current affordability rate of 14 percent. As mortgage rates rise in the metro area, affordability will drop approximately 1 percent for each percent of increase. Greensboro, N.C. – where the median home value is $105,100 – has current affordability levels of about 12 percent.
While affordability will remain roughly the same in the Southeast as mortgage rates rise above five percent, they will begin to decrease about two percent when rates move above 6 percent.
Be glad you don’t live on the West Coast, according to the latest research. Nine of the 10 most expensive metro areas are in California; the tenth is Honolulu. San Francisco and Los Angeles are the most expensive locations; homeowners spend about 40 percent of their income on monthly housing payments.