Over the past few years, many have struggled to buy a home, with affordability remaining tight. However, recent trends suggest that things might be gradually getting better and could continue to improve throughout the year. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), notes:
“Housing affordability is improving ever so modestly, but it is moving in the right direction.”
Let’s take a closer look at the latest data on the three key factors impacting home affordability: mortgage rates, home prices, and wages.
1. Mortgage Rates
This year, mortgage rates have been quite volatile, fluctuating between the mid-6% to low 7% range. But there’s some positive news—Freddie Mac data shows a downward trend in rates since May.
Mortgage rates have improved lately, partly due to recent economic, employment, and inflation data. While some rate fluctuations are expected moving forward, experts suggest that if economic indicators continue to cool, mortgage rates could keep decreasing.
Even a slight drop in rates can make a difference. Lower rates mean a reduced monthly payment, making it easier to afford the home you want. However, don’t expect rates to fall back to the 3% range anytime soon.
2. Home Prices
The second key factor is home prices. Although home prices are still increasing nationally this year, they’re not rising as quickly as they did during the past couple of years.
For potential buyers, slower price growth is a welcome change. The rapid price increases during the pandemic made homeownership challenging for many. Now, with prices rising more gradually, buying a home might feel more attainable. As Odeta Kushi, Deputy Chief Economist at First American, puts it:
“While housing affordability is low for potential first-time home buyers, slowing price appreciation and lower mortgage rates could help – so the dream of homeownership isn’t boarded up just yet.”
3. Wages
Rising wages are another factor contributing to improved affordability. Data from the Bureau of Labor Statistics (BLS) shows that wages have been increasing at a faster pace than usual.
This is beneficial because as your income grows, it becomes easier to afford a home. You’ll spend a smaller portion of your paycheck on your monthly mortgage payment, making homeownership more achievable.
When you consider these factors together—mortgage rates trending down, slower home price growth, and rising wages—it’s clear that while affordability is still a challenge, there are encouraging signs of improvement on the horizon.
Comments