Are we looking at another crash? Many Americans, who have lived through 2008 market collapse, are increasingly growing uncomfortable amid a steady stream of headlines warning of a possible downturn.
The concern is understandable given the shifts across the markets. Currently, the mortgage rates around the 6.3 to 6.5% range, reversing the short-lived drop below 6% that buyers experienced in February. The CPI surged from 2.4% to 3.3% in March, as per the US Bureau of Labor Statistics data, this suggests inflation may stay elevated longer than anticipated. Additionally, the Iran war added more pressure, partly contributing to these trends and making overall market conditions more negative.
To avoid such financial stress, personal finance guru advises keeping your housing costs within 25% of your income, which ensures they remain manageable and reduces chances of financial struggle.
What Dave Ramsey?
Ramsey says that ‘keep your housing costs at or below 25% of your take-home pay’ and if you stick to this rule, “your home will be a blessing.”
“Anything beyond 25%, and you risk not having enough margin in your budget every month,” he warns
Is it possible to follow in today’s market?
But, in today’s market, the rule is tricky to follow.
In March, the median existing-home sale price rose to $408,800, according to the National Association of Realtors. That’s the 33rd consecutive month of annual price increases. With mortgage rates high and and rising further after the , affording a home has become even tougher, and that 25% target may seem off
Lynette Arrasmith, home loan specialist at Churchill Mortgage, told the US News “Dave recommends that your monthly house payment, including property taxes, homeowners insurance and homeowners association dues, should not exceed 25% of your monthly take-home pay. For some, that is very attainable. For others, it’s a struggle”
In a similar note, Ashley Harris, director of homebuyer education at Neighbors Bank, says though the idea is good in theory, ‘but for most of our first-time buyers, it’s generally not realistic’
But are we truly on the brink of another housing market crash?
Though the macro pressures are stacking, the chances of 2008-style crash are low, BiggerPockets Chief Investment Officer Dave Meyer tells The Street.
The US has experienced exactly one housing market crash in the last century, and the fundamentals driving that collapse are not present in today’s market, he tell the publication
Speaking about the rising housing prices, Meyer said that, over time, home prices usually rise by about 3.5% a year—much slower than the sharp increases seen during the pandemic, and nowhere near the steep drop seen in 2008.
(With inputs from US News and The Street)