3 Important Factors Affecting Home Affordability

Over the last year, many people have discussed housing affordability and how tight it has become. But recently, there has been some relief on that front. Mortgage rates have fallen since their most recent high in October. However, being able to afford a home involves more than just mortgage rates.

To really understand home affordability, you need to look at the combination of three important factors: mortgage rates, home prices, and wages. Let’s dive into the latest data on each one to see why affordability is improving.

1. Mortgage Rates

Mortgage rates have come down in recent months. And looking forward, most experts expect them to decline further over the course of the year. Jiayi Xu, an economist at Realtor.com, explains:

“While there could be some fluctuations in the path forward … the general expectation is that mortgage rates will continue to trend downward, as long as the economy continues to see progress on inflation.”

Even minor changes in mortgage rates can have a significant impact on your purchasing power, allowing you to afford the home you want by lowering your monthly mortgage payment.

2. Home Prices

The second important factor is home prices. After going up at a relatively normal pace last year, they’re expected to continue rising moderately in 2024. That’s because even with inventory projected to grow slightly this year, there still aren’t enough homes for sale for all the people who want to buy them. According to Lisa Sturtevant, Chief Economist at Bright MLS:

“More inventory will be generally offset by more buyers in the market. As a result, it is expected that, overall, the median home price in the U.S. will grow modestly . . .”

That is good news for you because it means prices will not skyrocket like they did during the pandemic. However, waiting is likely to cost you more money. So, if you are ready, willing, and able to buy and can find the right home, buying now before more buyers enter the market and prices rise even more may be in your best interests.

3. Wages

Another positive factor in affordability right now is rising income. The graph below uses data from the Federal Reserve to show how wages have grown over time: 

The blue dotted trendline shows the typical rate at which wages rise. However, on the right side of the graph, wages are currently above the trend line, indicating that they are increasing at a faster rate than usual.

Higher wages improve affordability by lowering the percentage of your income required to pay your mortgage. That is because you do not have to devote as much of your paycheck to your monthly housing expenses.

What This Means for You

Home affordability is determined by three factors: mortgage rates, home prices, and wages. The good news is that they are moving in a positive direction for buyers in general.

Bottom Line

If you're thinking about buying a home, it's important to know that the main factors impacting affordability are improving. To get the latest updates on each, let's connect.

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