Home Prices Are Up. Here’s How You Can Afford To Buy A House
You can't read a residential real estate story without the author addressing the affordability issues that today's purchasers confront. There's no doubt that homes are less inexpensive now than they were two years ago, but that doesn't imply they're suddenly unaffordable.
Housing affordability is determined by three factors: home prices, mortgage rates, and salaries. Let's take a closer look at each of these components.
1. Home Prices
Home values jumped 19.1 percent from last January to this January, according to CoreLogic's latest Home Price Insights study. One of the reasons for the drop in affordability over the last year was because of this.
2. Mortgage Rates
While the present state of global uncertainty makes forecasting mortgage rates challenging, we do know that current rates are about a full percentage point higher than last year. The average monthly rate in February of last year was 2.81 percent, according to Freddie Mac. It was 3.76 percent in February this year. As a result of the rising mortgage rate, homes are becoming less affordable than they were a year ago.
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.”
The National Association of Realtors (NAR) also recently released information that looks at income and affordability. The NAR data provides 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 prices and 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.
To 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.