The focus on higher mortgage rates and their impact on home affordability for today’s homebuyers has been a popular topic. Although rates have increased significantly since the record lows seen during the pandemic, home affordability is determined by more than just mortgage rates. It’s a combination of mortgage rates, home prices, and wages that come together to determine the overall affordability of buying a home.
Let’s take a closer look at how each of these factors is currently impacting home affordability.
- Mortgage Rates While mortgage rates have increased compared to a year ago, they have remained relatively stable for the past eight months, hovering primarily between 6% and 7%. As shown in the graph below, there has been some volatility, and even a small change in mortgage rates can significantly impact purchasing power. That’s why it’s essential to work with a team of real estate professionals who can provide expert advice on the current market conditions. While it’s difficult to predict future mortgage rates, many experts agree that they are likely to remain around 6%-7% for the immediate future.
2. Home Prices Home prices have seen significant appreciation over the past few years due to record-low mortgage rates that led to a surge in buyer demand. This heightened demand occurred while the supply of homes for sale was at a record low, creating an imbalance that drove home prices upward. However, today’s higher mortgage rates have slowed down this price appreciation. It’s important to note that home price appreciation varies by market, with some areas experiencing slight declines and others still seeing rising prices. To stay informed about prices in your local market, it’s best to consult a trusted real estate agent.
3.Wages One of the most positive factors impacting affordability right now is rising income. As shown in the graph below, wages have continued to grow over time, according to data from the Bureau of Labor Statistics (BLS). Higher wages can improve affordability because they reduce the percentage of income required to pay your mortgage, meaning you don’t have to put as much of your paycheck toward your monthly housing cost.
In conclusion, home affordability is influenced by a combination of rates, prices, and wages. If you’re planning to buy a home, it’s essential to understand these factors and how they interact with each other. Consulting a real estate professional who can explain the current market conditions in your local area can help you make an informed decision.