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Week of July 10th-16th

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It's more complicated than that

If you lived through the 1980s, you might think that today's mortgage interest rates of around 7%-7.5% are no big deal compared to the sky-high rates of 18% or more back then. However, to truly understand the impact of a 7.5% rate today versus an 18% rate in the 80s, we need to delve deeper into the numbers.

Currently, the median sale price in the USA stands at approximately $436,000 (Q1 2023), while the median household income hovers around $70,000. This means that the average household is spending around 6.22 times their yearly income to purchase a property. In the early 1980s, the median sale price was roughly $69,000, and the median household income was about $22,000. During that time, the average household spent around 3.14 times their yearly income to buy a home. When excluding mortgage/loan costs, homes were more affordable for most people back then.

Considering a 20% down payment, today's average buyer borrowing at around 7.5% will allocate around 41% of their income towards mortgage payments. In the 1980s, an average homebuyer borrowing at 18% spent around 46% of their income on mortgage payments. Therefore, for many buyers across the country, purchasing a home today is just as financially burdensome as it was in the 1980s, due to the comparable impact of a 7.5% mortgage rate now and an 18% rate back then.

What does this mean for the housing market going forward? When it comes to home affordability for most buyers nationwide, it seems we may be in a holding pattern for now. Inventory remains scarce, showing no signs of opening up in the near future, incomes are not experiencing significant growth, and interest rates are unlikely to decrease until there is a significant drop in unemployment rates.

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Jonathan Balog

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M: 831.747.0310
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Compass is a real estate broker licensed by the State of California operating under multiple entities. License Numbers 01991628, 1527235, 1527365, 1356742, 1443761, 1997075, 1935359, 1961027, 1842987, 1869607, 1866771, 1527205, 1079009, 1272467. All material is intended for informational purposes only and is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. No statement is made as to the accuracy of any description or measurements (including square footage). This is not intended to solicit property already listed. No financial or legal advice provided. Equal Housing Opportunity. Photos may be virtually staged or digitally enhanced and may not reflect actual property conditions.

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