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Homes in Putnam County are about as affordable as they have been in over 13 years.
What do I mean by that? It’s simple. Basically, the monthly mortgage payment it takes to purchase the average-priced home in Putnam is about as low as it’s been since 2002 – and probably well before that.
If you look at the attached graph, you’ll see what I’m talking about. On that graph, we’ve plotted the monthly payment that a purchaser in the county would have to make to purchase the average-priced home at various points over the years. After all, affordability is not just a matter of the sales price – it’s a matter of the monthly payment you’re going to have to make, which is partly a function of the prevailing interest rate. And then to measure the change in the monthly payment over time, we factored in the effects of inflation.
So we took the following data points:
- The average price of a single family home up to the second quarter of 2015 – from the local MLS data.
- The average interest rate for a 30-year fixed-rate mortgage for June 2015 – from Freddie Mac.
- The prevailing inflation rate up to 2014 year-end – from the US Department of Labor.
You can see the results on the graph. The monthly payment you have to make to purchase the average-priced home in the county is just about as low as it’s been in years. We’ve seen just the slightest uptick in the past few years, partially because of a slight increase in pricing and a slow inflating of interest rates. But we’re still talking about a monthly payment that is as low as anytime in the past 12 years. Moreover, although we don’t have data for Putnam going back further than that, we do have data in Westchester going back to 1981 – and the monthly payment there is about as low right now as it’s been in those 35 years. Given how closely Putnam tracks Westchester, it’s likely that homes in Putnam are more affordable right now than they’ve been since the 1980s.
Why? Part of it is that we have not seen prices go up in any measurable way in almost 10 years, during which inflation has reduced the “true” cost of purchasing a home.
But more importantly, rates are significantly lower than they’ve been at any time in modern history. After all, about ten years ago, the average interest rate was about 6%. It’s now 4%. That’s a huge difference in your monthly payment.
Listen, I HATE it when real estate professionals say that “this is a great time to buy,” because at many times in our history that has been bad advice. But if you measure a “great time to buy” by looking at the monthly payment you’ll have to make to buy a home, then we’re talking about as good a time to buy as any in the past decades. Prices have been flat for almost 10 years, and they’re down significantly if you factor in the effects of inflation. And interest rates are still as low as we’ve ever seen them, even while they’re slowly creeping up (and most observers think they will continue to increase). Unless we see some major shock to the economy, I think we’re looking at a near-decade of reasonable price appreciation coupled with increasing interest rates – both of which are going to drive that monthly payment up over the next few years.
So if it’s up to me, I’m buying right now. And just so you know, I’m putting my money where my mouth is – I closed on my new home in the Hudson Valley 10 days ago.
To learn more about Rand Realty, visit their website and Facebook page, and make sure to “Like” their page. You can also follow them on Twitter.
