Is Home Affordability on the Mend?
In recent years, buying a home has been a significant challenge for many. While affordability remains a hurdle, there's a glimmer of improvement on the horizon. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), notes:
“Housing affordability is improving ever so modestly, but it is moving in the right direction.”
Let’s break down the latest data on the three main factors influencing home affordability: mortgage rates, home prices, and wages.
1. Mortgage Rates
Mortgage rates have been fluctuating this year, ranging from the mid-6% to low 7% mark. However, there’s some positive news. According to Freddie Mac, rates have generally been on a downward trend since May (see graph below):
Recent economic, employment, and inflation data have contributed to this trend. While some rate volatility is likely, experts suggest that if the cooling trend in economic data continues, mortgage rates could keep decreasing.
Even a slight drop in rates can make a significant difference. Lower rates can make your monthly payments more manageable. Just don’t expect rates to revert to the 3% range.
2. Home Prices
Home prices have continued to climb this year, but the pace of growth has slowed compared to the pandemic highs. The graph below, using data from Case-Shiller, highlights this deceleration:
For potential homebuyers, this slower increase in prices is encouraging. The rapid price hikes of the past few years made homeownership seem distant for many. With more gradual price increases, purchasing a home might feel more attainable. As Odeta Kushi, Deputy Chief Economist at First American, observes:
“While housing affordability remains tight fo
r many first-time buyers, slower price appreciation combined with lower mortgage rates could make the dream of homeownership more reachable.”
3. Wages
Wages have been on the rise, as depicted in the graph below using Bureau of Labor Statistics (BLS) data:
The graph shows the typical annual wage growth (blue dotted line) and the current accelerated growth (green line). Higher wages mean you have more income to allocate towards your mortgage, easing the burden of homeownership.
Bottom Line
When you consider all these factors together—trending lower mortgage rates, slower home price growth, and rising wages—the signs are encouraging. While affordability is still a challenge, these trends suggest that things may be starting to improve.
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