Over the past year, a lot of people have been talking about housing affordability and how tight it’s gotten. But just recently, there’s been a little bit of relief on that front. Mortgage rates have gone down since their most recent peak in October. But there’s more to being able to afford a home than just mortgage rates.
To really understand home affordability, you need to look at the combination of three important factors: mortgage rates, home prices, and wages. Let’s dive into the latest data on each one to see why affordability is improving.
Mortgage rates have come down in recent months. And looking forward, most experts expect them to decline further over the course of the year. Jiayi Xu, an economist at Realtor.com, explains:
“While there could be some fluctuations in the path forward … the general expectation is that mortgage rates will continue to trend downward, as long as the economy continues to see progress on inflation.”
And even a small change in mortgage rates can have a big impact on your purchasing power, making it easier for you to afford the home you want by reducing your monthly mortgage payment.
The second important factor is home prices. After going up at a relatively normal pace last year, they’re expected to continue rising moderately in 2024. That’s because even with inventory projected to grow slightly this year, there still aren’t enough homes for sale for all the people who want to buy them. According to Lisa Sturtevant, Chief Economist at Bright MLS:
“More inventory will be generally offset by more buyers in the market. As a result, it is expected that, overall, the median home price in the U.S. will grow modestly . . .”
That’s great news for you because it means prices aren’t likely to skyrocket like they did during the pandemic. But it also means it’ll probably cost you more to wait. So, if you’re ready, willing, and able to buy, and you can find the right home, purchasing before more buyers enter the market and prices rise further might be in your best interest.
Another positive factor in affordability right now is rising income. The graph below uses data from the Federal Reserve to show how wages have grown over time:
If you look at the blue dotted trendline, you can see the rate at which wages typically rise. But on the right side of the graph, wages are above the trend line today, meaning they’re going up at a higher rate than normal.
Higher wages improve affordability because they reduce the percentage of your income it takes to pay your mortgage. That’s because you don’t have to put as much of your paycheck toward your monthly housing cost.
Home affordability depends on three things: mortgage rates, home prices, and wages. The good news is, they’re moving in a positive direction for buyers overall.
If you’re thinking about buying a home, it’s important to know the main factors impacting affordability are improving. To get the latest updates on each, let’s connect.
Buying a home is a powerful decision, and it remains at the heart of the American Dream. Unlike renting, owning a home means more than just having a place to live – it offers a sense of belonging, stability, and freedom. According to Nicole Bachaud, Senior Economist at Zillow:
“The American Dream is still owning a home. There’s a lot of pent-up demand for ownership; that isn’t going to go away.”
Let’s explore just a few of the reasons why so many Americans continue to value homeownership.
One possible reason homeownership is viewed so highly is because owning a home is a significant wealth-building tool. That may be why Jessica Lautz, Deputy Chief and VP of Research at the National Association of Realtors (NAR), says:
“Homeownership is the number one way to build wealth in America.”
Over time, owning a home not only helps boost your own net worth, but it also sets future generations up for success as you pass that wealth down. Habitat for Humanity explains:
“Overall, homeownership promotes wealth building by acting as a forced savings mechanism and through home value appreciation. Homeowners make monthly payments that increase their equity in their homes by paying down the principal balance of their mortgage. . . . In addition, owning a home promotes intergenerational homeownership and wealth building. Children of homeowners transition to homeownership earlier — lengthening the period over which they can accumulate wealth . . .”
It can also provide meaningful financial stability compared to renting. When you buy with a fixed-rate mortgage, you can lock in your monthly housing payments for the length of your home loan.
But, owning a home offers more than just financial benefits—it benefits you socially and emotionally too. Your home provides feelings of achievement, responsibility, and more. In a recent survey, Fannie Mae outlines just a few of these more emotionally-driven benefits, including:
“The top three were having control over what you do with your living space (94%) to having a sense of privacy and security (91%) and having a good place for your family or to raise your children (90%) . . .”
If your idea of the American Dream involves greater freedom, security, and prosperity, homeownership could be a key player in bringing that dream to life. And with mortgage rates now on a downward trend, it might be a good time for you to consider making a move.
If you’re ready and able to buy, know that there are incredible benefits waiting at the end of your journey. You’ll gain more than just a home – it’s a place to grow your wealth and call your very own. Like Ksenia Potapov, Economist at First American says:
“…homeownership remains an important driver of wealth accumulation and the largest source of total wealth among most households.”
Buying a home is a powerful decision and the cornerstone of the American Dream. If finding a place to call your own is part of your dream for this year, let’s connect to start the process today.
What are your goals for 2024? Let’s connect and find a home that has enough room for you to reach your goals this year.
Recent data shows grandparents want to move closer to their grandchildren. Let’s connect if you want to move to be closer to your loved ones.
If you’re looking for a little intel for home prices for the remaining part of 2023, check out this video and let’s connect to get you MOVING!