
The last year has put emphasis on the importance of one's home. As a result, some renters are making the jump into homeownership while some homeowners are re-evaluating their current house and considering a move to one that better fits their current lifestyle. Understanding how housing affordability works and the main market factors that impact it may help those who are ready to buy a home narrow down the optimal window of time in which to make a purchase.
There are three main factors that go into determining how affordable homes are for buyers:
- Mortgage Rates
- Mortgage Payments as a Percentage of Income
- Home Prices
The National Association of Realtors (NAR) produces a Housing Affordability Index. It takes these three factors into account and determines an overall affordability score for housing. According to NAR, the index:
…measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.
Their methodology states:
To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage...

There's no doubt that 2021 is the year of the seller when it comes to the housing market. If you're a homeowner thinking of moving to better suit your changing needs, now is the perfect time to do so. Low mortgage rates are in your favor when you're ready to purchase your dream home, and high buyer demand may give you the leverage you need to negotiate the best contract terms on the sale of your house. Here's a look at what's driving this sellers' advantage and why there's so much opportunity for homeowners who are ready to move this season.
1. Historically Low Inventory
The National Association of Realtors (NAR) explains:
Total housing inventory at the end of March amounted to 1.07 million units, up 3.9% from February’s inventory . . . Unsold inventory sits at a 2.1-month supply at...

Many people are sitting on the fence trying to decide if now's the time to buy a home. Some are renters who have a strong desire to become homeowners but are unsure if buying right now makes sense. Others may be homeowners who are realizing that their current home no longer fits their changing needs.
To determine if they should buy now or wait another year, they both need to ask two simple questions:
- Do I think home values will be higher a year from now?
- Do I think mortgage rates will be higher a year from now?
Let's shed some light on the answers to these questions.
Where will home prices be a year from now?
If you average the most recent projections from the major industry forecasters, the expectation is home prices will increase by 7.7%. Let's take a house that's valued today at $325,000 as an example.
If the buyer makes a 10% down payment ($32,500), they'll end up borrowing $292,500 for their mortgage. Applying the projected rate of home price appreciation, that same house will cost $350,025 next year. With a 10% down payment ($35,003), they'd then have to borrow $315,022.
Therefore, as a result of rising home prices alone, a prospective buyer will have to put down an additional $2,503 and borrow an...