Homes are a lot cheaper than they look, Harvard study finds

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Despite the long, stratospheric rise of home prices in the U.S., the inflation-adjusted monthly payment on the median single-family home in 2017 was less than in 1987, when home prices were lower but interest rates were higher, Harvard University's Joint Center for Housing Studies found.

The center released its annual State of the Nation's Housing report on Tuesday. Among other things, it indexed monthly homeowner costs and interest rates over the decades to study the power of muted rates to keep housing costs in check:

It's no surprise that higher interest rates mean higher monthly payments. What's striking is how effectively lower rates have served as a counterweight to surging home prices.

"Even though interest rates are well into the 4% range these days, historically they have been, like, 10%, 16%," Sarah Mikhitarian, an economist at online real estate company Zillow Group Inc., said in an interview.

Prices and mortgage rates alone don't define housing affordability. Americans' income, adjusted for inflation, increased 27% between 1980 and 2016, according to a separate report from the real estate website Trulia, while home prices jumped 62%.

"In the end, buying a home is more than just taking a gamble on mortgage rates," Alexandra Lee, a housing data analyst and author of the Trulia report, said in an interview. "The idea that mortgage rates will help with affordability won't really help the family that's trying to scrape together a down payment."

Bloomberg News
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