Is The Affordability Crisis Improving?

Over the past few years, buying a home has been tough for a lot of people because of the affordability issue. While it’s still not easy, there are signs that things are getting a bit better and might continue to improve as the year goes on. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), puts it simply:

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

Let’s break down the three main factors that are affecting home affordability right now: mortgage rates, home prices, and wages.

1. Mortgage Rates

Mortgage rates have been all over the place this year, fluctuating between the mid-6% to low 7% range. The good news? Rates have been generally trending downward since May, thanks to recent data on the economy, jobs, and inflation. While we can still expect some ups and downs, if the economy continues to cool, experts believe mortgage rates could keep dropping.

Even a small decrease in rates can make a big difference. Lower rates mean lower monthly payments, making it easier to afford the home you want. Just keep in mind, we’re unlikely to see those 3% rates again anytime soon.

2. Home Prices

Next up is home prices. On a national level, prices are still going up, but not as quickly as they were a couple of years ago. For buyers, this slower price growth is a positive sign. During the pandemic, home prices shot up, putting homeownership out of reach for many. Now, with prices rising more slowly, buying a home might start to feel more achievable. As Odeta Kushi, Deputy Chief Economist at First American, says:

“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

The last piece of the puzzle is wages. The good news here is that wages have been increasing. This helps because as your income goes up, it becomes easier to afford a home. You’ll need to spend less of your paycheck on your mortgage, which can make homeownership more manageable.

When you look at these factors together—mortgage rates trending down, home prices rising more slowly, and wages going up—it’s clear that while affordability is still a challenge, there are some early signs that things might be starting to improve. Keep an eye on these trends as you plan your next steps in the housing market. And if you’re ready to dive into the home buying process, let’s connect!