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Home Affordability: What Are the Top 3 Factors That Impact Your Ability to Buy a House?

Over the past year, the conversation around housing affordability has intensified, with many people feeling the pinch. But recently, there's been a shift. Mortgage rates, a critical component of affordability, have started to decrease from their peak in October:


Infographic displaying the average 30-year, fixed-rate mortgage trends with comparative percentages: Current rate as of January 11, 2024, at 6.78%, a slight increase from one year ago at 6.21%, with a note on the recent peak on October 19, 2023, at 8.03%, and the recent low on February 2, 2023, at 5.99%. The image includes stylized illustrations of houses with greenery and clouds, highlighting the dynamic nature of the housing market. Source: Mortgage News Daily.

However, there's more to home affordability than just mortgage rates.


To truly get a handle on what makes a home affordable, we need to consider three crucial factors: mortgage rates, home prices, and wages. Here's the latest news on each and why this is important for homebuyers today.


1. Mortgage Rates

Mortgage rates have seen a decrease in recent months, bringing some relief to potential homebuyers. Economists, like Jiayi Xu from Realtor.com, suggest that rates could continue to fall if economic conditions, such as inflation, keep improving...

“While there could be some fluctuations in the path forward … the general expectation is that mortgage rates will continue to trend downward, as long as the economy continues to see progress on inflation.”

This is good news for your buying power, as even a small drop in rates can significantly reduce your monthly mortgage payment, making that dream home more attainable.


2. Home Prices

Next up are home prices. After increasing at a steady pace last year, they're expected to continue their moderate rise in 2024. This is partly due to a projected slight growth in inventory, which, according to Lisa Sturtevant, Chief Economist at Bright MLS, might be balanced out by more buyers entering the market.

“More inventory will be generally offset by more buyers in the market. As a result, it is expected that, overall, the median home price in the U.S. will grow modestly . . .”

This suggests that waiting to buy could mean facing higher prices down the line. For those ready to purchase, acting sooner rather than later could be beneficial.


3. Wages

On the brighter side, we're seeing an increase in wages. The graph below, using data from the Federal Reserve, illustrates this trend:


Graph titled 'Wages Climbing at a Faster Pace' showing an upward trend in the Wages Index over time from 2006 to 2023 with a dotted trendline, indicating a significant rise in weekly wages for all workers in the private sector, as reported by The Fed. Image includes the Nick Barta Team logo and contact information, highlighting expertise in financial services and homebuying assistance.

Currently, wages are growing at a rate higher than the historical norm, which is a positive sign for affordability. Higher wages mean a smaller portion of your income goes towards your mortgage, easing the financial burden of homebuying.


What This Means for You

Understanding the dynamics of mortgage rates, home prices, and wages is crucial in today's market. These factors are key to determining how affordable a home can be for you.


Bottom Line

If you're considering buying a home, it's important to keep these factors in mind. As they improve, so does the opportunity for homeownership. Staying updated on these trends is vital, and connecting with the right experts can provide you with the latest insights and guidance you need to make informed decisions.

*No down payment loans: Closing costs and fees may still apply. First lien interest rates may be higher when using a DPA second. Opinions expressed are solely my own and do not express the views of my employer. Pre-approvals are given to clients who have met qualifying approval criteria, for specific loan requirements, and have been pre-approved by a PRMI underwriter. VA home loan purchases, have options for 0% down payment, No private mortgage Insurance requirements, competitive interest rates, with specific qualification requirements. VA Interest rate reduction loans (IRRRL) are only for Veterans who currently have a VA loan, current loan rate restrictions apply, and limits to recoupment of costs and fees apply. VA Cash-out Refinances are available for Veterans with or without current VA loans. Policies and guidelines may vary and are subject to the individual borrower(s) qualification. Program and Lender overlays apply.

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