Over the past year, a lot of people have been talking abouthousing affordabilityand how tight its gotten. But just recently, theres been a little bit of relief on that front. Mortgage rates have gone down since their most recent peak in October. But theres more to being able toafford a homethan 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. Lets dive into the latest data on each one to see why affordability is improving.
1. Mortgage Rates
Mortgage rateshave come down in recent months. And looking forward, most experts expect them todecline furtherover the course of the year. Jiayi Xu, an economist atRealtor.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.
And even a small change in mortgage rates can have a big impact on yourpurchasing power, making it easier for you to afford the home you want by reducing your monthly mortgage payment.
2. Home Prices
The second important factor is home prices. After going up at a relatively normal pace last year, theyre expected to continue rising moderately in 2024. Thats because even with inventory projected to grow slightly this year, there still arent enough homes for sale for all the people who want to buy them.Accordingto Lisa Sturtevant, Chief Economist atBright 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. . .
Thats great news for you because it means prices arent likely to skyrocket like they did during the pandemic. But it also means itll probably cost you more to wait. So, if youre ready, willing, and able to buy, and you can find the right home, purchasing before more buyers enter the market and prices rise further might be in your best interest.
3. Wages
Another positive factor in affordability right now is rising income. The graph below usesdatafrom theFederal Reserveto show how wages have grown over time:
If you look at the blue dotted trendline, you can see the rate at which wages typically rise. But on the right side of the graph, wages are above the trend line today, meaning theyre going up at a higher rate than normal.
Higher wages improve affordability because they reduce the percentage of your income it takes to pay your mortgage. Thats because you dont have to put as much of your paycheck toward your monthly housing cost.
What This Means for You
Home affordabilitydepends on three things: mortgage rates, home prices, and wages. The good news is, theyre moving in a positive direction forbuyersoverall.
Bottom Line
If you're thinking aboutbuying a home, it's important to know the main factors impacting affordability are improving. To get the latest updates on each, call me, Marie McLaughlin 727-858-7569.
Source:https://www.keepingcurrentmatters.com/2024/01/18/3-key-factors-affecting-home-affordability/
