Is It Getting More Affordable To Buy a Home?

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Over the last year or so, many people have discussed how difficult it is to buy a home. While affordability remains tight, there are signs that it is improving and may improve even further this year. Elijah de la Campa, Senior Economist at Redfin, states:

We’re slowly climbing our way out of an affordability hole, but we have a long way to go. Rates have come down from their peak and are expected to fall again by the end of the year, which should make homebuying a little more affordable and incentivize buyers to come off the sidelines.”

Here's a look at the most recent data on the three biggest factors influencing home affordability: mortgage rates, home prices, and wages.

1. Mortgage Rates

Mortgage rates have been volatile this year, fluctuating between the upper 6% and low 7% range. That's still significantly higher than where they were a couple of years ago. But there is some good news.

Despite recent volatility, rates remain lower than they were last fall, when they reached nearly 8%. Furthermore, most experts believe they will fall gradually throughout the year. Bright MLS recently published an article that explains:

Expect rates to come down in the second half of 2024 but remain above 6% this year. Even a modest drop in rates will bring both more buyers and more sellers into the market.” 

Any rate reduction can make a difference for you. When interest rates fall, you will be able to afford the home of your dreams because your monthly payment will be lower.

2. Home Prices:

The second major factor to consider is home prices. Most experts predict that they will continue to rise this year, albeit at a slower rate. This is due to the fact that there are more homes on the market this year, but not enough to accommodate everyone who wants to buy one. The graph below displays the most recent 2024 home price forecasts from seven different organizations:

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These forecasts are actually good news for you because they indicate that prices are unlikely to skyrocket as they did during the pandemic. That doesn't mean they'll fall; they'll simply rise at a slower rate.

3. Wages

Wages are rising, which is helping to improve affordability right now. The graph below uses data from the Federal Reserve to show how wages have increased over time:

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Check out the blue dotted line. That demonstrates how wages typically increase. If you look at the right side of the graph, you will notice that wages are rising even faster than usual right now.

Here's how this benefits you. If your income has increased, it becomes easier to afford a home because you no longer have to spend a large portion of your paycheck on your monthly mortgage payment.

Bottom line.

If you combine these factors, you'll notice that mortgage rates are still expected to fall later this year, home prices are rising at a more moderate rate, and wages are rising faster than usual. These trends bode well for your ability to afford a home.

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