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Over the past year, a lot of people have been talking about housing affordability and how tight it’s gotten. But just recently, there’s been a little bit of relief on that front. Mortgage rates have gone down since their most recent peak in October. But there’s more to being able to afford a home than just mortgage rates.
To really understand home affordability, you need to look at the combination of three important factors: mortgage rates, home prices, and wages. Let’s dive into the latest data on each one to see why affordability is improving.
Mortgage rates have come down in recent months. And looking forward, most experts expect them to decline further over the course of the year. Jiayi Xu, an economist at Realtor.com, explains:
“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.”
And even a small change in mortgage rates can have a big impact on your purchasing power, making it easier for you to afford the home you want by reducing your monthly mortgage payment.
The second important factor is home prices. After going up at a relatively normal pace last year, they’re expected to continue rising moderately in 2024. That’s because even with inventory projected to grow slightly this year, there still aren’t enough homes for sale for all the people who want to buy them. According to Lisa Sturtevant, Chief Economist at Bright MLS:
“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 . . .”
That’s great news for you because it means prices aren’t likely to skyrocket like they did during the pandemic. But it also means it’ll probably cost you more to wait. So, if you’re ready, willing, and able to buy, and you can find the right home, purchasing before more buyers enter the market and prices rise further might be in your best interest.
Another positive factor in affordability right now is rising income. The graph below uses data from the Federal Reserve to show how wages have grown over time:
If you look at the blue dotted trendline, you can see the rate at which wages typically rise. But on the right side of the graph, wages are above the trend line today, meaning they’re going up at a higher rate than normal.
Higher wages improve affordability because they reduce the percentage of your income it takes to pay your mortgage. That’s because you don’t have to put as much of your paycheck toward your monthly housing cost.
Home affordability depends on three things: mortgage rates, home prices, and wages. The good news is, they’re moving in a positive direction for buyers overall.
If you’re thinking about buying a home, it’s important to know the main factors impacting affordability are improving. To get the latest updates on each, connect with a trusted real estate agent.
If you’ve been holding off on selling your house to make a move because you felt mortgage rates were too high, their recent downward trend is exciting news for you. Mortgage rates have descended since last October when they hit 7.79%. In fact, they’ve been below 7% for over a month now (see graph below):
And while they’re not going back to the 3% we saw during the ‘unicorn’ years, they are expected to continue to go down from where they are now in the near future. As Dean Baker, Senior Economist at the Center for Economic Research, explains:
“It also appears that mortgage rates are now falling again. They will almost certainly not fall to pandemic lows, although we may soon see rates under 6.0 percent, which would be low by pre-Great Recession standards.”
Here are two reasons why this recent trend, and the expectation it’ll continue, is such good news for you.
With mortgage rates already significantly lower than they were just a few months ago, you may feel less locked-in to the current mortgage rate you have on your house. When mortgage rates were higher, moving to a new home meant possibly trading in a low rate for one up near 8%.
However, with rates dropping, the difference between your current mortgage rate and the new rate you’d be taking on isn’t as big as it was. That makes moving more affordable than it was just a few months ago. As Lance Lambert, Founder of ResiClub, explains:
“We might be at peak “lock-in effect.” Some move-up or lifestyle sellers might be coming to terms with the fact 3% and 4% mortgage rates aren’t returning anytime soon.”
According to data from Bright MLS, the top reason buyers have been waiting to take the plunge into homeownership is high mortgage rates (see graph below):
Lower mortgage rates mean buyers can potentially save money on their home loans, making the prospect of purchasing a home more attractive and affordable. Now that rates are easing, more buyers are likely to feel they’re ready to jump back into the market and make their move. And more buyers mean more demand for your house.
If you’ve been waiting to sell because you didn’t want to take on a larger mortgage rate or you thought buyers weren’t out there, the recent decline in mortgage rates may be your sign it’s time to make your move. When you’re ready, connect with a local real estate agent.
Are you putting off your plans to sell because you’re worried you won’t be able to find a home you like when you move? If so, it may be time to consider a newly built home and the benefits that come with one. Here’s why.
Newly built homes are becoming an increasingly significant part of today’s housing inventory. According to the most recent report from the National Association of Home Builders (NAHB):
“Newly built homes available for sale accounted for 31% of total homes available for sale in November, compared to an approximate 12% historical average.”
That means the percentage of the total homes available to buy that are newly built is well over two times higher than the norm. And even more new homes are on the way.
Recent data from the Census shows there’s been an uptick in both housing starts (where builders break ground on more new homes) and housing completions (homes where construction just wrapped).
And while some people may worry builders are building too many homes, that isn’t a concern – if anything, the recent increase is really good news. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains:
“Even more home building will be needed with the housing shortage persisting in most markets . . . Another 30% rise in home construction can easily be absorbed in the marketplace . . .”
Since the supply of existing homes for sale is still low right now, the increase of new-home construction can be a game changer because it gives you more options for your search.
Picture yourself in a home that’s new from the ground up: new appliances, fresh paint, fewer maintenance needs because everything is new, and so much more. Doesn’t that sound nice?
And it may be more within reach than you ever imagined. In addition, some builders are offering things like mortgage rate buy-downs for homebuyers right now. This can help offset today’s affordability challenges while also getting you into your dream home. In a recent article, Patrick Duffy, Senior Real Estate Economist at U.S. News, explains:
“Builders have been using mortgage interest rate buydowns for many years as a sales incentive whenever interest rates are relatively high, . . .Today more builders are offering rate buydowns for the entirety of the loan, allowing buyers to finance more home for the same payment amount.”
Just remember, the process of buying from a builder is different from buying from a home seller, so it’s important to partner with a trusted real estate agent who knows the local market. They’ll be your go-to resource for coordinating with the builder, reviewing contracts, and more.
If you’re trying to sell so you can make a move but you’re having a hard time finding a home you like, connect with a local real estate agent to explore all of your options, including the newly built homes in our area.
Buying a home is a powerful decision, and it remains at the heart of the American Dream. Unlike renting, owning a home means more than just having a place to live – it offers a sense of belonging, stability, and freedom. According to Nicole Bachaud, Senior Economist at Zillow:
“The American Dream is still owning a home. There’s a lot of pent-up demand for ownership; that isn’t going to go away.”
Let’s explore just a few of the reasons why so many Americans continue to value homeownership.
One possible reason homeownership is viewed so highly is because owning a home is a significant wealth-building tool. That may be why Jessica Lautz, Deputy Chief and VP of Research at the National Association of Realtors (NAR), says:
“Homeownership is the number one way to build wealth in America.”
Over time, owning a home not only helps boost your own net worth, but it also sets future generations up for success as you pass that wealth down. Habitat for Humanity explains:
“Overall, homeownership promotes wealth building by acting as a forced savings mechanism and through home value appreciation. Homeowners make monthly payments that increase their equity in their homes by paying down the principal balance of their mortgage. . . . In addition, owning a home promotes intergenerational homeownership and wealth building. Children of homeowners transition to homeownership earlier — lengthening the period over which they can accumulate wealth . . .”
It can also provide meaningful financial stability compared to renting. When you buy with a fixed-rate mortgage, you can lock in your monthly housing payments for the length of your home loan.
But, owning a home offers more than just financial benefits—it benefits you socially and emotionally too. Your home provides feelings of achievement, responsibility, and more. In a recent survey, Fannie Mae outlines just a few of these more emotionally-driven benefits, including:
“The top three were having control over what you do with your living space (94%) to having a sense of privacy and security (91%) and having a good place for your family or to raise your children (90%) . . .”
If your idea of the American Dream involves greater freedom, security, and prosperity, homeownership could be a key player in bringing that dream to life. And with mortgage rates now on a downward trend, it might be a good time for you to consider making a move.
If you’re ready and able to buy, know that there are incredible benefits waiting at the end of your journey. You’ll gain more than just a home – it’s a place to grow your wealth and call your very own. Like Ksenia Potapov, Economist at First American says:
“…homeownership remains an important driver of wealth accumulation and the largest source of total wealth among most households.”
Buying a home is a powerful decision and the cornerstone of the American Dream. If finding a place to call your own is part of your dream for this year, connect with a local real estate advisor to start the process today.
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