When it comes to housing affordability, there are three main factors to consider: home prices, mortgage rates, and wages. While mortgage rates have been on the rise this year, they aren’t the only thing that affects how affordable a home is.
In general, when prices are high, and wages are low, it’s more challenging to afford a home. On the other hand, when prices are low, and salaries are high, it’s easier to buy a home.
So it’s important to look at all three factors when considering whether or not you can afford a home.
Mortgage Rates
The current interest rates for buying a home are much higher than they were at the beginning of the year. This is something to take into consideration if you’re thinking about buying a home in the near future.
U.S. 30-year fixed mortgage rates have increased since the end of last year. That’s the biggest year-to-date increase in rates in over 50 years.
While the current global uncertainty makes it difficult to predict where mortgage rates will go in the future, experts agree that they will likely remain high as long as inflation does. This increase in mortgage rates is impacting how much it costs to finance a home purchase, creating a challenge for many buyers that are pricing some out of the market.
Home Prices
Although home prices have been on the rise over the past few years, they have begun to slow down recently. This may be in part due to the pandemic, as people are now less able to afford homes. The most recent Home Price Index from S&P Case-Shiller shows that home values have continued to decelerate for a fifth consecutive month.
The deceleration of home prices is due to the fact that demand is decreasing because of the high mortgage rates. This is helping to ease the competition and bidding wars that were previously driving prices up. It’s worth noting; however, that home prices are still higher than they were before the pandemic. When both mortgage rates and home prices are high, it becomes more difficult to afford a home.
While prices are still high in many markets, some areas are seeing declines. It all depends on your local market. For insight into what’s happening in your area, reach out to a real estate professional.
Wages
While the affordability of college may be a hot topic issue, there is one big positive component to consider: American wages have been on the rise. The graph below, using data from the Bureau of Labor Statistics, shows how wages have grown over time. This year is no exception, with wages increasing at a steady rate. This is great news for students and their families who are trying to afford college tuition.
In the third quarter of 2022, the median weekly earnings of America’s full-time wage and salary workers were $1,070. This represented a 6.9 percent increase from the same period in the prior year.
Although mortgage rates are an important factor in the affordability of a home, they are not the only ones. Home prices and wages also need to be considered. Because wages have been rising, they are a big reason why buyers are still purchasing homes this year.
If you have questions or want to learn more, reach out to a trusted advisor who can explain how all of these variables work together and what’s happening 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.”
Sandi & Debbie Say…
It’s important to have a trusted lender and a full-time realtor on your team when buying or selling a home. Let’s connect today to make sure you’re informed about your options.
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