What's Affecting Home Affordability today?

Aspiring homebuyers may be feeling discouraged by the recent surge in mortgage rates, but it's important to remember that there are other significant factors at play when it comes to buying a home. Yes, rates have risen significantly since the pandemic lows, but it's not just about the rates. To truly gauge home affordability, we must take into account home prices as well as wages.

It's a combination of these three factors that determine whether purchasing a home is a feasible option right now. Want to get the full scoop on today's home affordability? Keep reading.

1. Mortgage Rates:

Mortgage rates have maintained a range of 6% to 7% for the past eight months with slight fluctuations in between, despite being higher than last year. However, even a slight change in mortgage rates affects your buying potential significantly. Therefore, rely on your real estate team for expert guidance to stay informed about the market developments. Although predicting future mortgage rate trends is difficult, most experts expect them to remain stable at 6%-7% in the next few months. It is essential to keep yourself updated to make informed decisions about your future investments.

2. Home Prices:

As we've witnessed over the past few years, home prices have rapidly increased due to record-low mortgage rates during the pandemic. With an influx of buyers in the market and a limited supply of homes, prices were driven up. However, with higher mortgage rates now in effect, the rate of price appreciation has slowed down. As Selma Help, Chief Economist at CoreLogic, explains:

“The divergence in home price changes across the U.S. reflects a tale of two housing markets. Declines in the West are due to the tech industry slowdown and a severe lack of affordability after decades of undersupply. The consistent gains in the Southeast and South reflect strong job markets, in-migration patterns and relative affordability due to new home construction.”

It's important to note that home price appreciation isn't universal across all markets - while some areas are experiencing slight declines, others are still seeing prices climb. As always, it's essential to consider local factors when assessing the state of the housing market.

To find out what's happening with price in your local market, reach out to a local real estate agent.

3. Wages:

A major contributor to affordability is the increase in earnings. The graph below uses data from the Bureau of Labor Statistics (BLS) to show how wages have grown over time:

Did you know that higher wages can actually make your dream home more affordable? By earning a larger paycheck, you won't have to allocate as much of your income towards your mortgage payment, ultimately reducing the percentage you spend on housing costs. When it comes to home affordability, it's a complex equation that involves rates, prices, and wages. If you'd like to gain a better understanding of how these factors impact your ability to own a home, seek guidance from a real estate professional who can provide you with local insights and expertise.

Bottom Line:

Aspiring homebuyers should be aware of the crucial factors that affect the affordability of a property. With the right information, smart decisions can be made. Contact me to keep yourself up to speed with the latest developments in this matter. Let's make your dream home a reality.