Charlotte housing affordability is steady in the 2nd quarter of 2014, according to data released by the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) last week. The data show that 68% of the homes sold during the 2nd quarter were affordable to Charlotte metro area homebuyers earning the median family income of $64,200.
Nationally, the housing affordability index (HOI) dipped slightly from 1st quarter 2014 levels to 62.6% of families being able to afford a home purchase at the national median salary of $63,900. According to the study’s authors, the slight dip in housing affordability reflects a firming up of home prices in 2014. HOI levels are now very similar to the affordability levels experienced before the mid-2000’s housing boom.
Charlotte Housing Affordability – Impact of Mortgage Interest Rates
Charlotte housing affordability is at a good place. The job market has steadied a bit, and families are feeling more confident in their ability to afford to buy a home. With mortgage interest rates still at historically low levels, Charlotte housing affordability is even better. In the 2nd quarter of 2014, mortgage interest rates averaged 4.4%, which is lower than the 4.57% average in the 1st quarter. Interest rates are a huge factor in housing affordability, as with every percentage point increase in the mortgage interest rate, there is roughly a 10% reduction in home purchase affordability. This difference is HUGE for first-time home buyers! There is definitely a strong correlation between mortgage interest rates and Charlotte housing affordability!
Let’s look at an example to help illustrate this point. In real estate business niche of South Charlotte, a moderately priced house might sell for $300,000. Let’s assume that the home buyer wants to put down a 10% down payment. The loan amount would therefore be $270,000. If you were lucky enough to buy this house a few years ago when interest rates dropped to a fixed rate of 3.75% for a 30 year conventional loan, your mortgage payment (principal and interest only) would have been just $1,250.
Now let’s assume that you are quite comfortable with that $1,250 interest payment, and do not want to pay anymore. Take a look at my chart below, and watch how your Charlotte housing affordability DROPS with each increase in the mortgage interest rate. For example, if mortgage rates rose up just one percentage point to 4.75, you would LOSE $33,750, or 11.25% of your purchasing power! If rates rose 2 percentage points to 5.75%, you would lose $62,003 or 20.67% of your purchasing power. That’s some serious money!
Charlotte Housing Affordability – What Does All This Mean to Me?
If you are seriously thinking about buying a home for sale in Charlotte, NC (or anywhere, for that matter), please pay attention to mortgage interest rates and housing affordability. Yes, home prices have ticked upward in Charlotte in 2014, and we’re delighted to see home value appreciation return to the area. But mortgage interest rates are still historically low, and rates have as much impact on your budget as home prices do! When mortgage rates start to rise, your purchasing power will fall.
To find out more about buying a home that you can afford and are comfortable with, please contact me. I would be thrilled to refer you to 3-4 experience and smart mortgage lenders who can help you figure out your purchasing power. These trusted advisors will discuss all of your options, and help you decide which mortgage program is right for you.
I am a South Charlotte Realtor® with lots of experience helping people sell their home to a new family, and helping homebuyers find the best home and neighborhood that fits their needs. Do you want to be next? Contact me today at 704-654-9700, and I’ll help you every step of the way in your home buying or home selling journey!
Melissa Brown, ABR, SFR
Savvy + Co. Real Estate
14825 Ballantyne Village Way, Suite 165
Charlotte, NC 28277
© Melissa Brown, 2014