We have reached the end of another year. I have been getting bombarded with financial news, housing data and predictions for 2020. I have seen many Facebook post recently, “Study: Arizona No. 2 most affordable state in the U.S”., Value of Tucson homes rise at second highest rate in US”, “New 2020 Loan Limits just posted call me to refinance”, “FHA increases maximum loan amount”, “Mortgage Rates will stay low for 2020”, “Mortgage Rates will spike in 2020” and the opinions continue to fly. The most concerning post I have seen are the comments to these articles.
The comment I read this morning is the motivating factor behind me sharing my thoughts on this topic. The article talked about how Tucson had the 2nd highest rate of housing appreciation in the nation in 2019.
The Top Three Comments To Address:
- Worst time ever to buy a home
- 2008 all over again
- Just as I am trying to buy a home. What a terrible investment.
The Median Sales Price of a home in Tucson is $250,000.00, the Median Income in Tucson is $52,000. You are going to spend 4.8 times your annual income to purchase a home. The Median Sales Price of a home nationally is $322,500, the national Median Income is $61,000. Nationally Americans are spending 5.3 times their annual income to purchase a home. What do these above figures mean? Tucson is one of the most affordable cities in the country to purchase a home in.
Buying a home should be looked at as a long-term investment. Every generation has had different and unique housing market challenges. I would like to argue that every year is a better opportunity to buy and not the “Worst time ever to buy”. I would like to pick on the 1970’s home buying market. Side note, the “Worst time ever to buy a home” was 1981 when mortgage rates hit 19%! At 19% there where still 88,000 new homes constructed and sold in the US in 1981!
In the 1970’s the average annual household income was $6,200 per year or $516 per month and the average sales price of a home was $24,000, 3.8 times your annual salary. The average mortgage rate in the 70’s was 9% and you would need 10 to 20% down payment and the average monthly payment was $177 per month 35% of your monthly income.
Compare that to today. Rates are currently at 3.50% for a well-qualified FHA borrower with 3.5% down. You can buy an 1,800 square foot 3-bedroom 2-bathroom 2-car garage house in a nice neighborhood in Tucson for $225,000. Your PITI payment would be $1320 per month. That is 28% of your monthly income. This is not the “Worst time ever to buy a home”!
The day of buying a home for $24,000 living in it for 20 plus years and selling it for $240,000, 10 times what you paid for it, are long gone. We need to change our thinking. We purchase a home to ensure we have a roof over our head. The average American works from 22 years of age to 62 years of age, 40 years. Average life expectancy is 81 years old. The number one expense for American Retirees in 2019 is housing. In 2019 34% of retiree’s income went to making a mortgage payment or rent, $17,000 a year of their fixed income. The new thinking in your retirement plan needs to be paying your home off in the 40-year window you are working. If you retire at 62 and do not own a home free and clear you are going to need $340,000 in that 20-year period just to keep a roof over your head. Looking at owning a home from this perspective, I just do not see how buying a home is ever a terrible investment.
This is not 2008 all over again. This is the financial cycle. Since May 17th, 1792, the birth of the NYSE, America has had financial cycles. We are currently riding some very nice highs. The fact that Tucson had 10% property appreciation in 2019 is no indication whatsoever that property values are too high or that we are at risk of loosing significant value anytime soon. If anything, this is what Tucson needed to get back to normal market dynamics. I could write an entire book on why this is not 2008 all over again covering everything from Government Regulation on lending to more educated home buyers and everything in between. I have entered my 26th year of being a Mortgage Professional and I have seen many highs and lows. The sky is not falling!
Is it a good time to purchase a home? Only you can answer that question for yourself. You need a plan and a budget. You need to be responsible in your spending and savings and look at all the facts out there. Most importantly you need honest and trustworthy professionals in your corner. You need to find a Financial Planner, a Mortgage Broker and a Real Estate Agent that can work together to help you develop a plan to meet your financial and life goals.