Over the last couple of months, I’ve written quite a few blog posts about affordability. It’s easy when looking at houses to focus solely on the price, but even though home prices have been going up affordability has as well. With that in mind, it’s important to understand that the total cost of a house is more important than the price.

Housing inventory is currently at an all-time low. Nationally, there are 39% fewer homes for sale today than at this time last year. Locally, inventory is even lower as there are 57.1% fewer homes for sale in Frisco and 58.7% fewer in Prosper. Inventory continues to fall as buyer demand continues to rise. Zillow recently reported:

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

Again, locally our numbers are up even more. Year-over-year pending sales in Frisco are up 30% while they are up 47% in Prosper.

Whenever there is a shortage of supply of an item that’s in high demand the price of that item increases. That is exactly what we are seeing in the real estate market currently. Corelogic’s latest Home Price Index reports that values have increased by an average of 5.5% in the last year. In Frisco we are matching the national average, but in Prosper prices are up 9%.

This is great news if you are planning on selling your home, but could cause some concern if your are planning on buying a home. However, this is where buyers need to look at the overall cost and not just focus on the price.

There are several factors that influence the cost of a home, but two major ones are price and mortgage interest rate, which is where affordability comes back into this equation.

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%. Here’s an example that shows the impact that can have.

Assume you purchased a home last year and took out a $250,000 mortgage. Using the average home price increase of 5.5%, to buy that same home this year your mortgage amount would be $263,750. Due to the drop in interest rates, even though your mortgage amount is higher, your monthly payment would actually be lower.