The 3 Factors That Affect Home Affordability
Growing affordability issues have probably come up if you've been following the home market over the past few years. Yet, experts anticipate an improvement in the main determinants of house affordability this year. At CoreLogic, Executive Deputy Chief Economist Selma Hepp shares:
“. . . with slowly improving affordability and a more optimistic economic outlook than previously believed, the housing market could show resilience in 2023.”
Home prices, mortgage rates, and earnings are the three criteria used to determine if a property is affordable. Here is a closer examination of each.
1. Mortgage Rates
Last year, mortgage rates skyrocketed to above 7%, leading many purchasers to postpone their plans. But now that interest rates are beginning to decline, things appear to be different. Senior Economist of realtor.com, George Ratiu, explains:
“Let’s celebrate some good news. . . . mortgage rates are down. With inflation showing a tangible slowdown, I do expect mortgage rates to follow suit in the months ahead.”
Your ability to buy can be impacted by even a modest shift in prices. Nadia Evangelou, Director of Forecasting for the National Association of Realtors (NAR), gives this context:
“With a 6% rate instead of 7%, buyers pay about $2,700 less every year on their mortgage. As a result, owning a home becomes affordable to about 1.4 million more renters and 4.3 million more homeowners.”
If last year's 7% interest rates put a stop to your home-buying aspirations, now might be your chance to get back in the game. Work with a group of professionals who can provide you with the best guidance for the present market and are up to date on mortgage rates.
2. Home Prices
Home prices are the second issue at play. Property prices surged during the pandemic, which has garnered media attention over the past few years. Lawrence Yun, the chief economist at NAR, comments on home prices in 2023 as follows:
“After a big boom over the past two years, there will essentially be no change nationally . . . Half of the country may experience small price gains, while the other half may see slight price declines.”
As a result, while prices are anticipated to remain constant this year in some markets, they may slightly increase or decrease in others. Everything is based on where you live. Contact a reputable real estate expert for knowledge about what's occurring in your area and how prices are affecting affordability.
Wages are the last element in the affordability equation. The graph below illustrates how salaries have grown over time using information from the Bureau of Labor Statistics (BLS):
Keep in mind that the complete picture of affordability encompasses more than simply mortgage rates and costs. Moreover, wages need to be considered. Due to increased earnings, there are more opportunities for buyers in the market.
Affordability barriers won't totally disappear this year, but according to trends and estimates, 2023 should offer some solace to homeowners who have been dealing with mounting difficulties. As Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), says:
“Rates are expected to move lower for the year, and home price growth is expected to cool, both of which will help affordability challenges.”
To sum up
Call me if you have any questions. Also, you should find a reliable lender so you can investigate your financing choices. You might be nearer to home ownership than you realize.