Skip To Content

The Missing Piece of The Affordability Equation

Did you know? In 2020, a double-digit increase in home values was observed. The real estate market is booming today. Residential home values are on the rise, and that’s a big win for homeowners. It is expected that we’ll still see a massive increase in home values in this year.

Due to the skyrocketing prices, some are starting to question the affordability in the current housing market. People are quick to emphasize the fact that homes today are significantly less affordable than they were last year. Black Knight, a leading provider of data and analytics across the homeownership life cycle, just reported on the issue.

The findings show the historical averages of the national payment to income ratio, which they define as “the share of the median income needed to make the monthly payments on the median-priced home.” Their study reveals:

  • The average over the last 25 years was 23.6%
  • The average over the last 5 years was 20.1%
  • The average today stands at 20.5%

The housing payments as of the moment are slightly less affordable than the five-year average, but only by less than a half of a percentage point. That said, the pricing today is significantly more affordable than the 25 year average. This means that a buyer will likely make a greater financial sacrifice to afford a home today than if they purchased a home within the last five years. On the other hand,  it is also means that the potential financial sacrifice is not nearly as great as it was over the last 25 years.

Does making a sacrifice to buy a home today make financial sense in the long term?

If you’re on the market for a house, then you definitely asked yourself this question many times. Last week, the Federal Reserve announced that, in the first three months of the year, household net worth increased by $968 billion based solely on the values of the real estate they owned. Another report from CoreLogic reveals the average annual gain in homeowner equity was $33,400 per borrower.

Homeownership continues to be the cornerstone to building personal wealth. For most Americans, their home is the largest asset they own. On top of that, the difference between the net worth of homeowners and renters is significant at every income level. First American created a table detailing the that point:

Owning a home is an essential steppingstone to grow a household’s net worth. Despite the slightly greater sacrifice in the percentage of monthly income you’ll spend on housing today, for most homebuyers, the payoff of starting to build equity now will be worth it.


Since market prices has significantly grown from last year, it is slightly less affordable to buy a home today. But if you consider the equity gain and think of the long term benefits, you may question if you can afford to not buy now. 

Trackback from your site.

Leave a Reply