Larry, Diane & Connor Bearse
Interest rates have been increasing along with the inflation rate as of late, which has spawned a string of headlines about affordability. While the rate hike has knocked some buyers out of the market without a doubt, general affordability hasn't taken a big hit yet. According to the National Association of Home Builders and Wells Fargo, buyers making the median family income could still afford 65% of what sold in the Valley last quarter. A measure between 60-75% is considered normal.
Let's look at the historical cost of a 1,900sf home in Greater Phoenix, for example. In March 2005, a home that size would run $281K on average. Today that same home would be $309K, $28,000 more (+10%). However, the interest rate back then was 5.9% compared to 4.5% today, meaning that the principal and interest payment has dropped nearly $100 from where it was 13 years ago for the same home. At the same time, the median family income rose from $58K to $69K according to HUD (+19%). Which is why despite recent increases in interest rates, the affordability of real estate in the Valley is still considered very good.