Home affordability in the United States is incredible; and it’s important that homebuyers and homesellers keep perspective when looking beneath surface statistics to make informed decisions. Chart A below illustrates the dramatic effect that our record low interest rates are having on housing costs as well as the affordability of homes in the United States. The price for a loaf of bread and a gallon of gas has more than tripled since 1989, and car prices have nearly doubled. And even though the median price of a new home has increased by 70 percent since then, mortgage interest rates are less than half of what they were. And despite the increased sales price, the record low interest rates we are currently experiencing means that the monthly note today is only $4 more than it was way back in 1989.

More often than not, unless a buyer is purchasing with cash, the monthly payment is a far more relevant number than the home’s actual purchase price. Buyers who are waiting for home prices to hit the floor prior to buying need to understand that the possibility of a slight price drop will have only a minimal effect on the monthly note, while even a miniscule rise in interest rates (a far more likely scenario) will have a significant impact. Timing the market is impossible and in the current market, staying on the sidelines is more likely to result in a missed opportunity than a small savings.

Even facing those facts though, reluctance in the current market can blind potential buyers to very compelling facts. Most buyers are nervous about the housing market and the simple fact is that market skittishness is actually a GOOD reason to buy now. Market uncertainty and the general reluctance to buy only increases the number of transactions and negotiating room that the savvy hombuyer can take advantage of. Homebuyers waiting for the “housing recovery” are in fact waiting for inventory reduction, both in fair market homes and bank foreclosures, rising home prices and unmotivated sellers. Sellers, banks and the economy as a whole would most certainly welcome that scenario!