Is the Affordability of Home Purchases Improving?

In recent months, there has been widespread discussion about the challenges of purchasing a home. While it's undeniable that affordability remains a significant concern, there are indications of a slight improvement, with the potential for further enhancement in the coming months. According to Elijah de la Campa, Senior Economist at Redfin:

"We're gradually emerging from the affordability challenges, but there's still a considerable distance to cover. Interest rates have decreased from their highest points and are anticipated to decline further by year-end. This downward trend should contribute to increased affordability in homebuying and encourage hesitant buyers to take action."

Here's an overview of the most recent data concerning the three primary factors influencing home affordability: mortgage rates, housing prices, and wages.

1. Mortgage Rates

This year has witnessed significant fluctuations in mortgage rates, ranging from the upper 6% to the low 7% range. While notably higher than levels observed a couple of years ago, there is a sliver of positivity in this situation.

Despite the recent fluctuations, current rates remain below the levels observed last fall, when they approached nearly 8%. Additionally, most experts anticipate a further decrease over the course of the year. A recent article from Bright MLS provides further insight:

“Anticipate a decline in rates during the latter part of 2024, although they are projected to remain above 6% for this year. Even a slight decrease in rates is expected to attract additional buyers and sellers to the market.”

A reduction in rates can significantly impact your situation. With lower rates, purchasing the home you desire becomes more feasible as your monthly payments decrease, making it easier to afford.

2. Home Prices

The second significant aspect to consider is home prices. Most experts predict they will continue to rise throughout the year, albeit at a more moderate pace. This is due to the increased inventory of homes on the market compared to previous years, although it still fails to meet the demand from potential buyers. The graph below depicts the latest 2024 home price forecasts from seven distinct organizations:

These forecasts bring positive implications for you, indicating that prices are unlikely to skyrocket as they did during the pandemic. This doesn't imply a decline; rather, it suggests that prices will increase at a more gradual rate.

3. Wages

Currently, one factor contributing to affordability is the upward trend in wages. The graph below, utilizing data from the Federal Reserve, illustrates the growth of wages over time:

Currently, one factor contributing to affordability is the upward trend in wages. The graph below, utilizing data from the Federal Reserve, illustrates the growth of wages over time:

Here's how this benefits you: With a rise in your income, purchasing a home becomes more manageable since you won't need to allocate as large a portion of your paycheck towards your monthly mortgage payment.

Bottom Line

Considering these factors collectively, it's evident that mortgage rates are expected to decrease slightly later in the year, home prices are rising at a more moderate rate, and wages are experiencing faster-than-average growth. These trends bode well for your ability to afford a home.