There are three measures used to establish home affordability: home prices, mortgage rates, and wages. Let’s look closely at each of these components.
1. Home PricesThe most recent Home Price Insights report by CoreLogic shows home values have increased by 19.1% from last January to this January. That was one reason affordability declined over the past year.
2. Mortgage RatesWhile the current global uncertaintymakes it difficult to project mortgage rates, we do know current rates are almost one full percentage point higher than they were last year. According to Freddie Mac, the average monthly rate for last February was 2.81%. This February it was 3.76%. That increase in the mortgage rate also contributes to homes being less affordable than they were last year.
3. WagesThe one big, positive component in the affordability equation is an increase in American wages. In a recent article by RealtyTrac, Peter Miller addresses that point:
“Prices are up, but what about wages? ADP reports that job holder incomes increased 5.9% last year but rose 8.0% for those who switched employers. In effect, some of the higher cost to buy a home has been offset by more cash income.”The National Association of Realtors (NAR) also recently released information that looks at income and affordability. The NAR dataprovides a comparison of the current median family income versus the qualifying income for a median-priced home in each region of the country. Here’s a graph of their findings:
As the graph shows, the median family income (shown in blue on the graph) is greater than the qualifying income needed to buy a median-priced home (shown in green on the graph) in all four regions of the country. While those figures may vary in certain locations within each region, it’s important to note that, in most of the country, homes are still affordable.
So, when you think about affordability, remember that the picture includes more than just home pricesand mortgage rates. When prices rise and rates rise, it does impact affordability, and experts project both of those things will climb in the months ahead. That’s why it’s less affordable to buy a home than it was over the past two years when prices and rates were lower than they are today. But wages need to be factored into affordability as well. Because wages have been rising, they’re a big reason that, while less affordable, homes are not unaffordable today.
Bottom LineTo find out more about affordability in our local area, let’s discuss where home prices are locally, what’s happening with mortgage rates, and get you in contact with a lender so you can make an informed financial decision. Remember, while less affordable, homes are not unaffordable, which still gives you an opportunity to buy today.
This article is written courtesy of KCM. The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.
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