Key Factors That Impact Affordability Today

You can’t read an article about residential real estate without the author mentioning the affordability challenges that today’s buyers face. There’s no doubt homes are less affordable today than they were over the last two years, but that doesn’t mean homes are now unaffordable. There are three measures used to establish home affordability. Let’s look closely at each of these components.

 

Home Prices

The 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.

Mortgage Rates

While the current global uncertainty makes it difficult to project mortgage rates, we do know current rates are almost one full percentage point higher than they were last year. That increase in the mortgage rate also contributes to homes being less affordable than they were last year.

Wages

The 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.” And according to NAR, the median family income is greater than the qualifying income needed to buy a median-priced home in all four regions of the country.

So, when you think about affordability, remember that the picture includes more than just home prices and mortgage rates. Because wages have been rising, while less affordable, homes are not unaffordable today.

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