Thanks to low mortgage rates, the monthly costs of homeownership in the Washington, DC MSA are among the lowest in the last three decades. If rates rise, as the bond market seems to suggest will happen, and prices and incomes rise as we forecast, affordability will return to normal three years from now. Buyers should really be buying now.
Falling interest rates, rising incomes, and relatively flat home prices, have increased affordability in the MSA over the last two years. Affordability now stands at a near-historical low of 1.3. (The cheapest time in 30 years would be 0.)
What are the appropriate strategies for a home builder during a time of historical affordability?
- Short-term: Promote low monthly payments and the impact that rising interest rates will have on home shoppers’ monthly housing costs—a 1% rise in interest rates equals a 12% rise in monthly payment.
- Long-term: Focus on the Millennials, who have been noticeably reluctant to buy a home in recent years, and consider how you will price and sell your homes if rates rise. We have been working with builders to identify cost-conscious home designs that will target this market successfully.