Thanks to the rise in interest rates in November, homebuyer’s purchasing power declined for the first time in over two years.
Housing Market Since November 2016
Purchasing power wasn’t the only thing to change in November. According to the National Mortgage News article “Homebuyer’s Purchasing Power Drops for First Time in Two Years,” the housing market has seen a number of changes.
In November, home prices increased. The increase of 8% resulted in the decrease in purchasing power.
According to Bloomberg article “Home Prices in 20 U.S. Cities Increased 5.1% in October” the increase in prices is reducing housing affordability. Chairman of the S&P index committee, David Blitzer said, “Home prices and the economy are both enjoying robust numbers. However, mortgage interest rates rose in November and are expected to rise further as home prices continue to outpace gains in wages and personal income.”
The increase in demand and low inventory are continuing to drive home prices up.
Thanks to this increase in home prices and rising interest rates, consumer purchasing power is decreasing, especially for first-time home buyers. Mark Fleming, First American Chief Economist, said, “Rising rates and nominal home price growth are outpacing the influence of strong income growth, leading to declining affordability for first-time home buyers. However, housing remains as affordable as it was in late 2009.”
What do we mean by purchasing power. If you want the exact definition, (thanks to Investopedia) “purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.”
For example if you would have taken $20 to a convenient store in the 1970s, you would have been able to purchase more goods with that $20 in the 70s than you would be able to with the same $20 today. You would have had greater purchasing power in the 70s.
So, with inflation, increasing mortgage rates and rising home prices, purchasing power is decreasing.
What this Means for You
So, consumer purchasing power may be decreasing, but does that mean you’re in the hole? Does this mean that you have no chance of getting your dream home? NO!
In fact, affording a home hasn’t completely gone through the roof. According to HousingWire’s article “December Becomes First Month to Feel Impact of Rising Interest Rates,” the price of homes is “still 33.1% below their housing-boom peak and 10.1% below price levels in January 2000.”
If you’re thinking of purchasing a home this year, DON’T WAIT! The housing market is still looking up. In fact, the Phoenix housing market has many reasons to get excited for 2017. CLICK HERE to read the article on why the Phoenix housing market is looking positive.
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