The Cost of a Home Is Far More Important than the Price!

Housing inventory is at an all-time low. There are 39% fewer homes for sale today than around this time last year, and buyer demand continues to set records. Zillow recently reported:

Newly pending sales are up 25.5% compared to the same week last year, the highest year-over-year increase in the weekly Zillow database.

Whenever there is a shortage in houses when they are high demand, the price of that home increases. That's exactly what's happening in the real estate market right now. CoreLogic's latest Home Price Index reports that values have increased by 5.5% over the last year.

This is great news if you're planning to sell your house! Unfourtenly, as a first-time or repeat buyer, this may instead seem like bad news. However, buyers should realize that the price of a house is not as important as the cost. Let's break it down.

There are several factors that influence the cost of a home. The two major ones are the orice of the home and the current intrest rates at which a buyer can borrow the funds necessary to purchase the home.

Last week, Freddie Mac announced that the average interest rate for a 30-year fixed-rate mortgage was 2.87%. At this time last year, the rate was 3.73%. Let's use an example to see how that difference impacts the true cost of a home.

Assume you purchased a home last year and took out a $250,000 mortgage. As said above, home values have increased by 5.5% over the last year. To buy that same home right now, you would need to take out a mortgage of $263,750.

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