There is more than Mortgage Rates when Understanding Home Affordability

Many times when there is a new article or video about the current real estate market, the question about buyer's affordability pops up. Right now the question is on many people's radar because mortgage rates have been increasing throughout the year. Although mortgage rates have increased and it does affect affordability, it is only one part of the equation of affordability. 

The real estate affordability equation for homebuyers factors in home prices, mortgage rates, and wages. I will take a closer look at each one.

The first factor in homebuyers' affordability is home prices. Home prices were the talk of the town for the past 18 months because they grew at a fast pace. In my 33 years of real estate, it was common for a homebuyer to lose money when selling their recent home purchase within one year because home values rose slightly each year. That was not the case during the past 18 months. Home values increased dramatically.

Lately, though, the higher mortgage rates are slowing down the multiple offers that previously drove prices insanely up. Home prices have started to decline. Many homebuyers are finding that they would rather buy a home now, than during this past spring when they had to pay substantially above list price, waive inspections, pay an appraisal waiver, and give up the naming rights are their firstborn.

The second factor in homebuyers' affordability is mortgage rates. It seems that the increase in mortgage rates of around 4% has been dominating the real estate news. 

As Len Kiefer, Deputy Chief Economist at Freddie Max, explains:

"U.S. 30-year fixed mortgage rates have increased 3.83 percentage points since the end of last year. That's the biggest year-to-date increase in rates in over 50 years."

The increase in mortgage rates is having a greater effect on higher-priced homes. Experts agree that rates will keep increasing as long as inflation stays high.

The third factor in homebuyers'  affordability is wages and this is a positive factor. Wages in the U.S. have increased in the past 10 years as the Bureau of Labor Statistics has reported:

"Median weekly earnings of the nation's 120.2 million full-time wage and salary workers were $1,070 in the the third quarter of 2022 (not seasonally adjusted), the U.S. Bureau of Labor Statistics reported . . . this was 6.9 percent higher than a year earlier . . ."

When you are looking at affordability, all three factors mortgage rates, home prices, and wages need to be considered. Because wages have been so strong, many homebuyers have become homeowners this year. 

As Leslie Rouda Smith, from the National Association of Realtors says, "Buying a home involves a series of requirements and variables, and it's important to have someone in your corner from start to finish to make the process as smooth as possible . . . and objectivity to deliver trusted expertise to consumers in every U.S. Zip code."

If you have questions or would like to learn more, let's get together and discuss your situation.