Home prices have crashed. Interest rates are at all-time lows. If you’re in the market to buy, homes are more affordable than they’ve been in years. Or are they?
From a WSJ report posted by Motley Fool:
The median down payment in nine major U.S. cities rose to 22% last year on properties purchased through conventional mortgages. … That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997.
Up 22%! yowza! More from MF:
The average home in America now sells for $272,000, so a 20% down payment totals about $55,000. The median household net worth, meanwhile, was $67,000 in 2010, suggesting the average homeowner needs to tie up a tremendous amount of their net worth in a down payment. Can you really afford to part with that much of your savings? Is it money you might otherwise need for an emergency fund, or saving for college tuition? Would it be better off somewhere else? There’s a real cost of sinking that money into a house that can’t be ignored. This is especially true when you detach yourself from the widely held belief that housing will make a good investment over the long run. As famed Yale housing economist Robert Shiller told me in an interview last year, that’s just not the case. [Emphasis mine]
Back in the day when you could get 98% or 100% financing for your home there really wasn’t an opportunity cost for buying a house now there is; the average homeowner needs to write a check for $55,000.00 to buy the average home which is 82% of their net worth for an ‘asset’ that may not appreciate in the foreseeable future. No wonder there were 1,000,000 plus new renters last year.
See the whole Motley Fool piece here: Housing May Not Be as Cheap as It Looks
Hat tip: Barry Ritholtz at TBP blog