What’s the Latest?

Week of July 3rd - July 9th

Real Estate News

A pinch of salt

Every week, the housing market releases new statistics that capture attention in news articles and publications. However, with the vast number of houses and markets, no single statistic can perfectly represent the overall state of the market. This week, there was news of a rise in median sales prices in certain areas. Does this indicate an upward swing in the housing market? Let's dive in.

The median sales price represents the midpoint where half of the prices are lower and half are higher. So, when the median sales price increases, it generally means that prices have gone up, suggesting that your house is now worth more. However, it's important to consider the context. In today's market, we are observing a trend where more homeowners at lower price points face challenges in affording to move compared to homeowners at higher price points. This discrepancy can lead to fewer transactions at the lower end, driving up the median sales price, perhaps artificially.

For example, let's consider Monterey County, where the median household income is around $82,013, and the median home price is approximately $800,000. Suppose someone purchases a house for $650,000, resulting in a monthly housing payment of approximately $4,300 at the current borrowing rates of 7.22%. This payment includes mortgage, property taxes, and insurance. However, without factoring in other costs or debt obligations, the borrower would need to earn $120,000 per year, or 1.5 times the median income, to afford the housing payment. This translates to a high debt-to-income ratio of 43%. Conversely, if the borrower had a 3.5% mortgage rate, they would only need to pay around $3,000 per month to cover the same costs.

Therefore, someone could be earning significantly more than the median income but still struggle to afford a home priced below the median sales price. This is the main reason homeowners are opting to stay in their current homes rather than make a move. For others, the increase in mortgage interest rates may impact the attractiveness of buying or moving, but it might not be significant enough to sway their decision.

While it is a good idea to stay tuned in to the most recent real estate stats, exploring a broad range of data over time is the most reliable.

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Jonathan Balog

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Broker
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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