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The Triad of Home Affordability: Rates, Prices, and Wages Explained

The Triad of Home Affordability: Rates, Prices, and Wages Explained

Mortgage rates have certainly been a hot topic of conversation recently, especially with the noted increase in their figures since the low points during the pandemic. This rise has led to concerns about housing affordability, but remember, home affordability isn't solely dependent on mortgage rates. It's an amalgamation of various factors - mortgage rates, property prices, and personal income.

Let's delve into the current landscape of each element and see how they influence home affordability.

1. Mortgage Rates

There's no denying that mortgage rates have surged compared to the previous year. However, for the better part of the last eight months, these rates have more or less stayed within the 6% to 7% range (as seen in the graph below):

The graph depicts how mortgage rates have fluctuated over time. It's crucial to note that even a slight alteration in mortgage rates can affect your buying power, which is why it's beneficial to rely on a team of real estate professionals who can provide expert advice and keep you informed about the ongoing market trends. Although it's challenging to predict the future trajectory of mortgage rates, many industry experts believe that the rates are likely to hover around 6%-7% in the immediate future.

2. Property Prices

In the past few years, property prices saw a sharp appreciation, driven by record-low mortgage rates during the pandemic, which fuelled a surge in buyer demand. This rise in demand, paired with a historic shortage of properties for sale, exerted an upward pressure on prices. However, the current higher mortgage rates have put a brake on this rapid price appreciation.

What's more, home price appreciation is not uniform across all markets. While some areas are witnessing slight dips in prices, others are seeing steady growth. According to Selma Hepp, Chief Economist at CoreLogic:

“The variances in home price changes across the U.S. are indicative of the dual nature of housing markets. The depreciation in the West is due to the tech industry slowdown coupled with a critical lack of affordability following decades of undersupply. The South and Southeast's sustained gains are due to robust job markets, migration trends, and relative affordability because of new home construction." For insights about property prices in your local market, it's best to consult with a trusted real estate agent.

3. Personal Income

Perhaps the most optimistic aspect of home affordability at present is the increase in personal income. The following graph, using data from the Bureau of Labor Statistics (BLS), demonstrates the growth in wages over time:

With an upswing in income, affordability is enhanced, as a smaller portion of your earnings is required to meet your mortgage payments. This results in a lower monthly housing cost relative to your paycheck.

The affordability of a home is determined by a combination of rates, prices, and wages. Should you have any queries or wish to learn more, get in touch with a real estate professional who can explain the local trends and how these factors intertwine.

In Conclusion

When you're planning to purchase a home, understanding the key elements that influence affordability is crucial. It helps make an informed decision. To stay in the loop with the most recent updates on these factors, let's connect today.