Over the past couple of years, many people have had a hard time buying a home. And while affordability is still tight, there are signs it's getting a little better and might keep improving throughout the rest of the year. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:
“Housing affordability is improving ever so modestly, but it is moving in the right direction.”
Here’s the latest data on the three biggest factors affecting home affordability: mortgage rates, home prices, and wages.
1. Mortgage Rates
Mortgage rates have been volatile this year, bouncing around from the mid-6% to low 7% range. But there's some good news. Data from Freddie Mac shows rates have been trending down overall since May (see graph below):
Recent economic, employment, and inflation data have partly improved mortgage rates. Moving forward, some rate volatility is to be expected. However, if future economic data continues to show signs of cooling, experts say mortgage rates could keep going down.
Even a tiny drop can help you out. When rates decline, it's easier to afford the home you want because your monthly payment will be lower. Just don’t expect them to go back down to 3%.
2. Home Prices
The second big thing to think about is home prices. Nationally, they’re still going up this year, but not as fast as they did a few years ago. The graph below uses home price data from Case-Shiller to illustrate that point:
If you're considering buying a home, slower price growth is good news. Home prices increased significantly during the pandemic, making buying hard for many people. With prices rising more slowly, buying a home may feel less out of reach. As Odeta Kushi, Deputy Chief Economist at First American, says:
“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
Another factor helping with affordability is rising wages. The graph below uses data from the Bureau of Labor Statistics (BLS) to show how wages have increased over time:
Look at the blue dotted line. It shows how wages usually go up in a typical year. On the right side of the graph, wages are rising even faster than average right now – that's the green line.
This helps because if your income increases, it's easier to afford a home. You won't have to spend as much of your paycheck on your monthly mortgage payment.
Bottom Line
When you combine all these factors, you see mortgage rates trending down, home prices rising more slowly, and wages rising faster than usual. Though affordability is still a challenge, these trends are early signs that things might be starting to improve.
