Three Factors Affecting Housing Affordability Today
Much emphasis has been placed on rising mortgage rates and how they create affordability issues for today’s homebuyers. It is true that interest rates have risen dramatically from record lows caused by the pandemic. However, housing affordability is determined not only by mortgage rates, but by a combination of mortgage rates, home prices, and wages.
Considering how each of these factors are changing gives us a complete picture of housing affordability today. Here is the latest.
1. Mortgage Rates
While mortgage rates are higher than they were a year ago, they’ve hovered primarily between 6% and 7% for nearly eight months now (see graph below):
As the chart shows, mortgage rates have been subject to some volatility during this period. And even small changes in mortgage rates affect purchasing power. That’s why it’s so important that you can rely on the professional advice of our team of real estate experts to keep you up to date with what’s happening in the market. It’s difficult to predict how mortgage rates will behave in the future, but many experts agree they are likely to stay around 6% to 7% for the foreseeable future.
2. Home Prices
Property prices have surged in recent years as record mortgage rates seen during the pandemic led to increased buyer demand. With the supply of homes for sale at record lows and buyer demand rising, the imbalance put upward pressure on home prices. However, today’s rise in mortgage rates has slowed the rise in prices.
And the truth is, real estate price increases vary by market. Some regions are seeing a slight drop, while others are seeing price increases. CoreLogic Chief Economist Thelma Hepp explains:
“The divergence in home price changes across the U.S. reflects a tale of two housing markets. Declines in the West are due to the tech industry slowdown and a severe lack of affordability after decades of undersupply. The consistent gains in the Southeast and South reflect strong job markets, in-migration patterns and relative affordability due to new home construction.”
To find out what’s happening with prices in your local market, reach out to a trusted real estate agent.
The most positive factor in affordability right now is rising income. The graph below uses data from the Bureau of Labor Statistics (BLS) to show how wages have grown over time:
Higher wages improve affordability because they reduce the percentage of your income it takes to pay your mortgage since you don’t have to put as much of your paycheck toward your monthly housing cost.
Home affordability comes down to a combination of rates, prices, and wages. If you have questions or want to learn more, reach out to a real estate professional who can explain what’s happening locally and how these factors work together.