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Every time there’s a news segment about the housing market, we hear about the affordability challenges buyers are facing today. Headlines are focused on how much mortgage rates have climbed this year. Rates have risen dramatically.  But it’s important to remember they aren’t the only factor in the affordability equation.

Here are three measures used to establish home affordability: home pricesmortgage rates, and wages.

1. Mortgage Rates

This is the factor most people are focused on when they talk about homebuying conditions today. Current rates are almost four full percentage points higher than they were at the beginning of the year.

That increase in mortgage rates is impacting how much it costs to finance a home purchase. This creates a challenge for many buyers and pricing some buyers out of the market. Current global uncertainty makes it difficult to project where mortgage rates will go in the future. Experts say that rates will likely remain high as long as inflation does.

2. Home Prices

Home prices have made headlines over the past few years because they skyrocketed during the pandemic. The most recent Home Price Index from S&P Case-Shiller shows home values continued to decelerate for a fifth consecutive month (shown in green in the graph below):

Key Factors Affecting Home Affordability Today | MyKCM

This deceleration is happening because higher mortgage rates are moderating demand.  As a result, this eases the buyer competition and bidding wars that previously drove up prices.

Home prices still higher than they were before the pandemic.  We have a long way to go to get to more normal levels of home price appreciation (historically closer to 4%). When both mortgage rates and home prices are high, affordability and your purchasing power become a greater challenge.

Prices are still elevated in many markets, while some areas are seeing slight declines. It all depends on your local market. For insight into what’s happening in our area, contact the Realtors with the Diane McConaghy Team from RE/MAX Select Realty.

3. Wages

The one big, positive component in the affordability equation is the increase in American wages. The graph below uses data from the Bureau of Labor Statistics (BLS) to show how wages have grown over time. This year is no exception.

Key Factors Affecting Home Affordability Today | MyKCM

As the Bureau of Labor Statistics (BLS) reports:

Median weekly earnings of the nation’s 120.2 million full-time wage and salary workers were $1,070 in 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 think about affordability, remember the full picture includes more than just mortgage rates. Home prices and wages need to be factored in as well. Because wages have been rising, they’re a big reason why serious buyers are still purchasing homes this year.

Bottom Line

If you have questions or want to learn more, reach out to a full-time Realtor from the Diane McConaghy Team.  They can explain how all of these variables work together and what’s happening in your area.  Whether you are purchasing or selling a home, you must consider a series of variables and requirements.  Having someone in your corner from start to finish will make the process as smooth as possible.


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