Most articles in today’s news-of-the-day environment we live in, especially about mortgage rates and housing prices, are just pretty much useless.
I recently read this article on CNBC about mortgage rates plunging just as home prices hit new records and the article basically misses the larger point.
The article proceeds to talk about a “perfect timing” for buyers for the rate drop (on one particular day) and how that helps buyers because it means they have more “purchasing power”.
This is true in most cases but the article (like many thrown together to create “content” in the digital age) – fails miserably to capture the current state of the housing crisis we are in right now.
There are so few homes for sale (throughout much of the country) and on Long Island that prices have gone up so much, that affordability will start to take centerstage (you heard it here first!).
However, the article doesn’t cover that and most people aren’t talking about this very serious issue.
What do I mean by affordability?
The Homeowner Affordability Index is something many statisticians pay close attention to when measuring home prices. According to the National Association of Realtors, a good measure for affordability is a 25% expenditure on a mortgage payment.
“That means the monthly P&I payment (principal and interest) cannot exceed 25 percent of the median family monthly income.”
That’s also only reflective of Principal and Interest and not taxes and insurance. Another words, this index accounts only for what you pay the lender to service the debt on the mortgage.
I decided to figure a few things out about this Affordability on Long Island.
So I googled some stuff.
As per the US census, the median income as of 2019 for Long Island (Q,N,S) – was $95,266. I know it’s 2019, but that’s the most accurate number I came up with for this article.
Now the average selling price on Long Island as of December, 2021 was $664,862 in Suffolk County, $774,047 in Nassau and $713,526 in Queens. However, this affordability index is tabulated on “median” price – which is almost always lower than the average.
Math Class Revisit
|Average||Add All Numbers And Divide By The Total Numbers|
|Median||Pick The Number In The Middle Of All The Numbers|
So for Queens, Nassau and Suffolk, let’s use the median number for the whole Island – which was $595,000 for the end of 2021. Let’s not look at the average which was $717,478.
So according to the Housing Affordability Index, we take the median household income – which was $95,266 in 2019 for Queens, Nassau and Suffolk.
We then calculate the Principle and Interest of the median price ($595,000) and assume a 20% payment.
That comes out to $2,272 per month at 4% interest rate (30 year fixed).
Stay with me…
That’s $27,264 in payments per year which comes out to 28.6% of the median family income on Long Island. That’s higher than 25%.
Now, let’s look at reality.
The national average down payment on a home purchase, according to the National Association of Realtors is about 9%.
That changes these numbers considerably.
That comes out to $3,105 per month at 4% interest.
That’s $37,260 in payments per year, which is 39% of the median family income on Long Island.
And…we haven’t even discussed property taxes or insurance.
What Does This All Mean?
The buyer pool is shrinking despite historically low mortgage interest rates which have been kept low by The Federal Reserve for over 10 years.
The prices of homes on Long Island, are beginning to soften just a little, as per my latest podcasts from our MLS data, which I analyze each month. However, there are currently record lows of homes and condos for sale throughout Nassau and especially Suffolk county.
Queens has somewhat low inventory but not nearly as low as Suffolk county.
So why would prices be leveling off?
The answer is – home prices have skyrocketed so much in the last 2 years, that what once was an affordable 3 bedroom, 2 bath house with $10,000 taxes is now over 20% higher in price and there are 50 showings on this house and over 5 offers on it within 5 days.
Additionally, Long Island has higher prices than 96% of the rest of the country so our prices and taxes were already higher before the pandemic and housing shortage.
Lastly, the fact that there aren’t more buyers out there now, qualifying for mortgages with such low interest rates, despite a global pandemic hangover, is rise for concern.
What This Info Means To You
The market isn’t going to change overnight. Home prices will not be going down dramatically. However, negotiation strategies will become more important and your ability to find good opportunities will be a huge advantage.
I’m a Certified Buyer Representative and I’ve got a lot of experience with helping folks find great deals. Contact me if you’d like to talk about how I can help you.
You’re still in a very strong sellers market but there is absolutely no one who knows how long that will last.
I can help you make sense of your pricing, marketing and negotiating strategies or just answer any questions you have about your local housing market
If you’d like – book an appointment online with me or call/text me at (631)831-9048.
Here’s the link to the Instagram Live videos where you can grab quick info and real estate tips every Tuesday at 12:30pm (subject to my schedule/availability). You can also ask me any questions you have.
Follow me at Linktr.ee/TomMcGiveron – Thanks.