Home prices have continued to rise here in San Diego County. So have rent prices. At the same time, inflation continues throughout most facets of the nation’s economy as a whole. It’s important for prospective homeowners to look at all the considerations when it comes to buying a home and understanding how much home they can truly afford.

At Transparent Mortgage, we get calls every day from borrowers looking to buy their first home or to refinance their current mortgage while interest rates are still reasonably low. However, there has been more of a sense of urgency as of late. As home and rent prices continue to increase, borrowers are afraid to wait.

A Matter of Perspective

I want to take this time to ease some of those concerns. The sky is not falling. In fact, when you really look at all the economic factors, the real estate and mortgage industries are in very good shape right now and most borrowers are still in a great position to buy or refinance despite rising home prices.

It’s important to not just look at nominal home prices. In other words, you can’t necessarily take things at face value. Economists will study what they’ll call “real” house prices that are adjusted for inflation. The linked article shows several graphs comparing actual home prices to real home prices after inflation is taken into consideration. By these standards, home prices are actually comparable in relative value to what they were in 2004. The National index is at December 2004 levels while the Composite 20 index is back to June 2004 levels.

Real Home Prices vs. Price-to-Rent

A lot of prospective homeowners are also buying because rent prices have gone through the roof. Again, these economists studied “price-to-rent” figures compared against inflation. By these terms, today’s rent prices are actually comparable to 2003-2004 numbers.

To put this in simpler terms, inflation has happened across the board in the past 14 years. This means that wages and consumer goods have gone up at very similar percentages as home values and rent prices. A home that may have cost $500,000 in 2010 may now be worth $650,000. However, it’s all relative because other economic indicators have also gone up accordingly.

According to the numbers, the current housing bubble is still 15.7% below the typical bubble “peak,” like what caused the real estate market to crash in 2008. It’s just helps to understand the real values of homes rather than solely looking at face values that seem so high right now.

Making the Right Mortgage Decisions

With the right mortgage loan strategy and still-good interest rates, you can afford a great home or get your home loan refinanced under better terms. It’s never too late to buy or refinance if you work with a knowledgeable mortgage lender.

Call Transparent Mortgage today at (619) 929-0199 if you need expert help with your home loan.

Beau Hodson

Beau Hodson

About the Author Since 2003, Beau has been a mortgage professional and is a leading mortgage broker and lender in San Diego. As Founder and Senior Mortgage Advisor at Transparent Mortgage, he is truly committed to serving the needs of his clients and raising industry standards for integrity and transparency.