Source: Keeping Current Matters

 

Buying a home has been a struggle for a lot of people over the last couple of years. Although affordability is still an issue, there are signs that things are starting to improve and could keep getting better as the year progresses. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), sums it up:

“Housing affordability is improving ever so modestly, but it is moving in the right direction.”

Let’s dive into the latest data on the three main factors that impact home affordability: mortgage rates, home prices, and wages.

 

1.    Mortgage Rates

Mortgage rates have been a bit up and down this year, fluctuating between the mid-6% to low 7% range. But there’s a silver lining—In the graph below Freddie Mac data shows that since may, rates have been on a downward trend overall:

 

Recently, mortgage rates have improved thanks to favorable economic, employment, and inflation data. While some rate fluctuations are likely in the future, experts believe that mortgage rates could keep going down as long as economic data continues to cool.

This is great news for homebuyers!  Even a slight drop in rates can make a significant difference. Lower rates mean more affordable monthly payments, making it easier to get the home you want. However, it is unlikely they’ll reach the 3% range like we had in the past.

 

2.    Home Prices

The next key factor is home prices. While they are still rising nationally this year, the pace has slowed compared to a few years ago. The graph below, based on Case-Shiller data, demonstrates this trend:

If you’re considering buying a home, this slower price growth is encouraging news. During the pandemic, home prices surged, making homeownership challenging for many. Now, with prices climbing more gradually, buying a home may seem more within reach. As Odeta Kushi, Deputy Chief Economist at First American, explains:

“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

Another factor making it more affordable to own a home is rising wages. The graph below illustrates the growth of wages over time by using data from the Bureau of Labor Statistics (BLS):

 

The blue dotted line represents the usual wage increase in a typical year. The green line is what’s actually happening. Check out the difference between the two lines on the right side of the graph. The green line is higher indicating that wages are rising much more quickly than usual! 

This is great news for you because a higher income means you’ll spend a smaller portion of your paycheck on your monthly mortgage payment, making your dream of homeownership more affordable!    

 

In Summary

While buying a home has been challenging in recent years, there are promising signs of improvement. Mortgage rates have been trending downward, home price growth has slowed, and wages are rising faster than usual. These positive developments suggest that affordability could be improving, making homeownership more attainable. Keep an eye on these trends. It could bring new opportunities for prospective buyers like you in the months ahead!