Many have recently struggled with buying a home due to affordability challenges. However, there are promising signs that the situation is improving, and conditions might continue to get better throughout the year. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), notes:

“Housing affordability is improving ever so modestly, but it is moving in the right direction.”

Let’s break down the latest data on the three major factors affecting home affordability: mortgage rates, home prices, and wages.

1. Mortgage Rates

Mortgage rates have seen significant fluctuations this year, ranging from the mid-6% to low 7% range. Fortunately, recent data from Freddie Mac indicates a downward trend in mortgage rates since May (see graph below).

Why this matters: Recent economic, employment, and inflation data have contributed to this decrease. While some volatility is expected, if future economic indicators continue to show a cooling trend, mortgage rates might keep falling. Even a modest decrease can make homeownership more affordable by lowering your monthly payments. However, don’t expect rates to drop back to the 3% range we saw in the past.

2. Home Prices

Home prices continue to rise nationally, but the pace has slowed compared to previous years. Data from Case-Shiller shows a more gradual increase in prices (see graph below).

Why this matters: Slower price growth is good news for potential buyers. After significant increases during the pandemic, rising prices made homeownership more challenging for many. With the current slower growth rate, buying a home may seem more attainable. As Odeta Kushi, Deputy Chief Economist at First American, states:

“While housing affordability is low for potential first-time home buyers, slowing price appreciation and lower mortgage rates could help – so the dream of homeownership isn’t boarded up just yet.”

3. Wages

Rising wages are another positive factor for home affordability. Data from the Bureau of Labor Statistics (BLS) shows that wages have been increasing at a faster rate recently (see graph below).

Why this matters: Higher wages mean you’ll spend a smaller portion of your income on your mortgage, making homeownership more feasible.

Bottom Line

When you combine these factors – decreasing mortgage rates, slower home price growth, and rising wages – there are early signs of improvement in home affordability. While challenges remain, these trends suggest that the situation might be starting to get better.

For more insights and updates on real estate trends, stay tuned to our blog!