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Right now seems like the perfect time to buy a house, but is it really? Mortgage rates are lower than they have been in decades and home prices have been continually dropping for months, so one would assume home ownership should be more easily attained than ever. However, the rate of foreclosures so far this year has been hitting record numbers and new home sales have plunged to the lowest level in 50 years. Obviously, something is amiss.
[The infographic below gives a detailed look at the current state of the housing market and several indications as to why it's still suffering, as well as how you can best prepare to buy a home of your own during present market conditions:]
(CLICK on the image for a larger version)
Home Prices Falling–Still Too High for Buyers
Even though home prices are dropping left and right, they’re still comparatively much higher than in years past. Not only are houses seven times more expensive than when the first housing census was done, but the rise in prices decade-by-decade is increasing exponentially.
Between 1950 and 1960, the median price of a home rose from $44,600 to $58,600–an increase of roughly 23 percent. However, from 2000 to 2010, the average home price went from $119,600 to $219,700, which is a jump upwards of 84 percent over a similar 10-year period.
Additionally, it’s recommended that buyers spend the equivalent of three years’ worth of income for a 20 percent down payment on a home, yet the average household now requires an entire extra year to come up with the money needed to purchase a home in today’s market.
Unemployment Leaves Potential Home Buyers without the Necessary Cash
You’d think that the current historically low mortgage rates would somehow balance out the problem of overly expensive property, but unfortunately, they don’t. The problem really isn’t the cost of a home today, but the fact that more Americans are out of work than ever.
Back in the ’50s when home prices were low, most people also had jobs. In fact, the national unemployment rate hovered around 2.5 percent. Now, about one in 10 workers is unemployed. Couple that with skyrocketing home prices and it’s easy to see why so many people are not only unable to afford a new house, but even pay off the one they currently own.
When Will the Housing Market Recover?
It appears from the data above that it doesn’t matter how low mortgage rates go–as long as the job market remains a mess, housing won’t do any better. If you are currently employed and ready to buy your first home, consider yourself lucky. You might get the deal of a lifetime. Unfortunately for most, home ownership won’t be a possibility until employment rates improve significantly.
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Thanks to Sweating the Big Stuff for including this article in the Carnival of Personal Finance #284: Thanksgiving Preparation Edition.
Casey Bond has a long professional history in the finance industry. She worked as an assistant in a successful financial planning firm for many years while obtaining her B.A. in English. She then went on to obtain a degree in Publishing and was eager to change career paths.
That’s when Casey joined the Go Banking Rates team, ready to meld her interest in finance with her passion for writing. Now she strives daily to bring readers the most compelling and topical banking information while battling a personal addiction to shoes and handbags. She is making progress and takes it one day at a time.
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It’s so sad that even if mortgage rate is lower, people cannot still afford to keep their houses. This just shows how hard up people still are.
A lot of people are only starting to recover financially and so they might not have the confidence yet to buy a house.