Are Home Prices More Affordable Now?

Back to the Year 2006

Since home prices have increased so much since 2009, one question I have been hearing recently is, “Are homes more affordable now or back in 2006?”  If we allow time to take us back to the month of June 2006, we would see that the Manteca housing market peaked with the average single family home priced at $455,000.  Currently, Manteca’s average home price is $345,000 – that’s $110,000 less than 2006.  This is a large difference in price compared to now and then, but what is the difference between mortgage payments?

Don’t Forget the Interest Rate

Before the mortgage payments can be compared, we have to know what the interest rate was for an FHA loan.   In June of 2006, the interest rate for a FHA mortgage was 6.72%.  Today’s FHA rate is about 3.75%.  So, not only was the average house price in 2006, 24% higher than today, the interest rate was 56% higher.

Time to Calculate

If you compare the average mortgage and interest rate from the year 2006 with today’s averages, you will find that the average household paid a monthly mortgage of $2,838.00 per month just for the principle and interest with a FHA loan.  The same house today would only cost a homeowner $1,597.00 per month.  That is $1,241 difference!  The only way a person could afford a home in 2006 is with a variable interest rate loan that started ridiculously low, like at 1.5%, and then adjusted to the current interest rate after five years.  Let’s not go back there again.

And the Answer is…

You are in a much better situation today to buy a new home than ten years ago.  The house prices are more affordable and the interest rates are about half of what they were in 2006.  If you are thinking about looking for a new home this is a great time to take action and get a low interest rate loan.