Key Factors That Can Impact Affordability Today

It’s hard to read about residential real estate and not read the affordability challenges that many of today’s buyers face. It’s no surprise that homes today are less affordable today than they have been over the last two years. However, this does not mean homes are now unaffordable.

There are three factors used to determine home affordability: home prices, mortgage rates, and wages. We’re here to take a closer look at each of these components.

Home Prices:

CoreLogic recently conducted a Home Price Insights report that showed home values increased by 19.1% from last January to this January. That was one reason affordability declined over the past year.

Mortgage Rates:

While global uncertainty makes it hard to predict mortgage rates today, we know current rates are almost one full percentage point higher than they were last year. According to Freddie Mac, the average monthly rate for last February was 2.81%. This February it was 3.76%. This increase in the mortgage rate also contributes to homes being less affordable than they were last year.

Wages:

One positive factor that contributes to the affordability equation, is an increase in American wages. In a recent article by RealtyTrac, Peter Miller talks on the topic:

“Prices are up, but what about wages? ADP reports that job holder incomes increased 5.9% last year but rose 8.0% for those who switched employers. In effect, some of the higher cost to buy a home has been offset by more cash income.”

In addition, The National Association of Realtors (NAR) recently released information that looks at income and affordability. The data provides a comparison of the current median family income versus the qualifying income for a median-priced home in each region of the country. Here’s a graph of their findings from Keeping Current Matters:

The median family income (shown in blue) is greater than the qualifying income needed to buy a median-priced home (shown in green on the graph). While those figures may vary in certain locations within each region, it’s important to note that homes are still affordable in a majority of the country.

When you consider affordability, remember that the bigger picture includes more than just home prices and mortgage rates. When prices rise and rates rise, it impacts affordability, and experts project both of those things will climb in the months ahead.

To learn more about affordability in your area, reach out to an experienced real estate professional here at Corken + Company. We can help you understand what local home prices look like and what’s going on with mortgage rates. We can also connect you with a lender to help you make an informed financial decision. Remember, even though homes are less affordable, they are not unaffordable. This still gives you a perfect opportunity to buy today.