Key Factors Affecting Home Affordability Today


Every time there is a housing market news segment, we hear about the affordability issues that buyers are currently facing. The focus of those headlines is on how much mortgage rates have risen this year. While interest rates have risen dramatically, it's important to remember that they aren't the only factor in determining affordability.

Home prices, mortgage rates, and wages are three measures used to determine home affordability. Let's take a closer look at each one.

1. Mortgage Rates

When discussing current homebuying conditions, most people focus on this factor. Current rates are nearly four percentage points higher than they were at the start of the year. As Len Kiefer, Deputy Chief Economist at Freddie Mac, explains

“U.S. 30-year fixed mortgage rates have increased 3.83 percentage points since the end of last year. That’s the biggest year-to-date increase in rates in over 50 years.”

Mortgage rate increases are affecting how much it costs to finance a home purchase, posing a challenge for many buyers and pricing some out of the market. While the current global uncertainty makes forecasting mortgage rates difficult, experts agree that rates will likely remain high for as long as inflation remains high.

2. Home Prices

The second factor to consider is home prices. Home prices have been in the news recently because they skyrocketed during the pandemic. Now, the most recent Home Price Index from S&P Case-Shiller shows home values continued to decelerate for a fifth consecutive month (shown in green in the graph below):

This slowdown is occurring as a result of higher mortgage rates moderating demand and, as a result, easing buyer competition and bidding wars that previously drove up prices.

What is worth noting, however, is how much higher home prices remain than they were prior to the pandemic (shown in blue in the graph above). Even now, we have a long way to go before we reach more normal levels of home price appreciation, which have historically been closer to 4%. When mortgage rates and home prices are both high, affordability and purchasing power become more difficult.

While prices in many markets remain high, some areas are seeing slight declines. Everything is dependent on your local market. Contact us if you want to know what's going on in your neighborhood.

3. Wages

The increase in American wages is the one major, positive factor in the affordability equation. The graph below uses data from the Bureau of Labor Statistics (BLS) to show how wages have grown over time. This year is no exception.

As the Bureau of Labor Statistics (BLS) reports:

“Median weekly earnings of the nation’s 120.2 million full-time wage and salary workers were $1,070 in the third quarter of 2022 (not seasonally adjusted), the U.S. Bureau of Labor Statistics reported…This was 6.9 percent higher than a year earlier…”

So, when considering affordability, keep in mind that the big picture includes more than just mortgage rates. Home prices and wages must also be considered. Wages have been rising, which is one of the main reasons why serious buyers are still buying homes this year.

If you have any questions or want to learn more, please contact us so we can help you understand how all of these variables interact and what's going on in your area.As Leslie Rouda Smith, President of the National Association of Realtors (NAR), says:

Buying or selling a home involves a series of requirements and variables, and it’s important to have someone in your corner from start to finish to make the process as smooth as possible… and objectivity to deliver trusted expertise to consumers in every U.S. ZIP code.”

Bottom Line

To learn more, contact us; we are your trusted real estate professional, and we can help you make an informed decision if you are looking to buy or sell a home right now.

Contact us if you have any questions about selling your home in today’s market. Our team can help you understand what’s going on right now so you know what to expect when you’re ready to move in.

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