Every time there’s a news segment about the housing market,
we hear about the affordability challenges buyers are facing today. Those
headlines are focused on how much mortgage rates have climbed this year. And
while it’s true rates have risen dramatically, it’s important to remember they
aren’t the only factor in the affordability equation.
Here are three measures used to establish home
affordability: home prices, mortgage rates, and wages. Let’s look closely at
each one.
1. Mortgage Rates
This is the factor most people are focused on when they talk
about homebuying conditions today. So far, current rates are almost four full
percentage points higher than they were at the beginning of the year. As Len
Kiefer, Deputy Chief Economist at Freddie Mac, explains:
“U.S. 30-year fixed mortgage rates have increased 3.83
percentage points since the end of last year. That’s the biggest year-to-date
increase in rates in over 50 years.”
That increase in mortgage rates is impacting how much it
costs to finance a home purchase, creating a challenge for many buyers that’s
pricing some out of the market. While the current global uncertainty makes it
difficult to project where mortgage rates will go in the future, experts do say
that rates will likely remain high as long as inflation does.
2. Home Prices
The second factor at play is home prices. Home prices have
made headlines over the past few years because they skyrocketed during the
pandemic. Now, the most recent Home Price Index from S&P Case-Shiller shows
home values continued to decelerate for a fifth consecutive month (shown in
green in the graph below):
This deceleration is happening because higher mortgage rates
are moderating demand, and as a result, easing the buyer competition and
bidding wars that previously drove prices up.
What’s worth noting though, is how much higher home prices
still are than they were before the pandemic (shown in blue in the graph
above). Even now, we have a long way to go to get to more normal levels of home
price appreciation, which is historically closer to 4%. When both mortgage
rates and home prices are high, affordability and your purchasing power become
a greater challenge.
But while prices are still elevated in many markets, some
areas are seeing slight declines. It all depends on your local market. For
insight into what’s happening in your area, reach out to a trusted real estate
professional.
3. Wages
The one big, positive component in the affordability equation
is the increase in American wages. The graph below uses data from the Bureau of
Labor Statistics (BLS) to show how wages have grown over time. This year is no
exception.
As the Bureau of Labor Statistics (BLS) reports:
“Median weekly earnings of the nation’s 120.2 million
full-time wage and salary workers were $1,070 in the third quarter of 2022 (not
seasonally adjusted), the U.S. Bureau of Labor Statistics reported…This was 6.9
percent higher than a year earlier…”
So, when you think about affordability, remember the full
picture includes more than just mortgage rates. Home prices and wages need to
be factored in as well. Because wages have been rising, they’re a big reason
why serious buyers are still purchasing homes this year.
If you have questions or want to learn more, reach out to a
trusted advisor who can explain how all of these variables work together and
what’s happening in your area. As Leslie Rouda Smith, President of the National
Association of Realtors (NAR), says:
“Buying or selling a home involves a series of
requirements and variables, and it’s important to have someone in your corner
from start to finish to make the process as smooth as possible… and objectivity
to deliver trusted expertise to consumers in every U.S. ZIP code.”
Bottom Line
To learn more, let’s connect today and make sure you have a
trusted lender so you’re able to make an informed decision if you’re planning
to buy or sell a home right now.
Source: Real Estate with Keeping Current Matters
