3 Key Factors Affecting Home Affordability

In the last year, extensive discussions have centered around the challenging landscape of housing affordability. However, a glimmer of relief has emerged recently. Mortgage rates have experienced a decline since their peak in October. Yet, gauging the affordability of owning a home involves considering more than just mortgage rates.

A comprehensive assessment of home affordability necessitates the examination of three crucial elements: mortgage rates, home prices, and wages. Delving into the latest data for each factor allows us to discern the reasons behind the improving landscape of affordability.

1. Mortgage Rates

In the recent months, there has been a decrease in mortgage rates. Looking ahead, the consensus among experts is an anticipated further decline throughout the year. Even a modest shift in mortgage rates can wield significant influence on your purchasing power, potentially facilitating the affordability of your desired home by lowering your monthly mortgage payment.

2. Home Prices

The second crucial aspect is home prices. Following a relatively steady increase last year, they are anticipated to continue a moderate upward trend in 2024. This projection is attributed to the expectation that, despite a slight growth in inventory this year, the available homes for sale won't meet the demand from potential buyers. While this is advantageous in preventing a steep surge in prices, it also implies that waiting might lead to increased costs. Therefore, if you are prepared and eager to buy, seizing the opportunity before more buyers enter the market and prices climb further could be in your best interest.

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: 

Examining the blue dotted trendline reveals the usual pace at which wages tend to increase. However, on the graph's right side, wages currently surpass the trend line, signifying an accelerated growth rate.

Elevated wages play a crucial role in enhancing affordability by diminishing the proportion of your income allocated to mortgage payments. This occurs because a smaller portion of your earnings is required to cover your monthly housing expenses.

What This Means for You

Home affordability depends on three things: mortgage rates, home prices, and wages. The good news is, they’re moving in a positive direction for buyers overall.

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