Is the opportunity in housing over?

Q: I heard recently that home prices have gone up a lot over the past year. Does this mean the best opportunity for home buyers is behind us?

A: Everything is relative. The most recent release on the S&P/Case-Shiller Home Price Indices shows their composite of prices from 20 major metropolitan areas is up 9.3 percent over the past year. However, it is still down about 30 percent from its peak, and about where it was in late 2003. So, while housing is more expensive than a year ago, it is still much cheaper than at the height of the real estate boom, and cheaper than it was for much of the past decade.

What puts this in further perspective is the level of mortgage rates. The market continues to see some of the best mortgage rates in history. Although home prices have risen over the past year, this is partially offset by the fact that mortgage rates have continued to fall.

As an example, consider a house that cost $200,000 a year ago. 30-year mortgage rates at the time were at 3.91 percent, which would have yielded a monthly mortgage loan payment of $944.48.

If that house increased by the national average of 9.3 percent over the past year, it would now cost $218,600. However, recent mortgage rates were down to 3.40 percent, which would yield a monthly payment of $969.45. That's just 2.6 percent higher than the payment would have been a year earlier. The recent rise in home prices has not really cost buyers as much as it might seem.

Of course, real estate varies a great deal from community to community, so you need to do some shopping around in your area to see where prices are. Remember, affordability is what counts. It doesn't really matter where prices were, because you can't bring those prices back. What matters is making sure you find a house you can afford when you are ready to buy.

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