A lot of us grew up on the American Dream our homeownership through our parents, but the number one objection we hear from buyers is that they don't think they can afford to buy a home. They feel it's not as easy as when their parents were able to purchase a home. Now, there is no doubt that the price of a home in Boston and most regions of the country is higher 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 before. In fact, you might end up getting a better deal than your parents!
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 house 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 study 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:
Rates would need to jump to 7% for the percentage of necessary income to be higher than historic norms. 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.
The COST of Buying in Boston
The graph above assumed that the buyer put 20% down, has a 30-year fixed rate mortgage at a competitive interest rate, earns the median household incomes, and is buying a median-valued home. Let's break that down into Boston terms. Zillow reports that the median cost for a home in Suffolk County is $569,500 and, accordingly to PayScale, the average salary in Boston is $70,927. Assuming you put down $113,900 as your 20% down payment, your mortgage payment would be $2,231. That's almost $800 less than the average renting price in Boston!
What Homes in Boston at the Median Price Look Like
The list below will automatically update with new listings that fit the criteria above. Are you ready to make a move?
Parts of this article originally appeared on Simplifying the Market.