Signs of Improving Home Affordability

Over the past year or so, many have expressed the challenges of buying a home amidst tight affordability. However, there are signs indicating a gradual improvement, with potential for further enhancement throughout the year. Elijah de la Campa, Senior Economist at Redfin, shares an optimistic view:

“We’re slowly climbing our way out of an affordability hole, but we have a long way to go. Rates have come down from their peak and are expected to fall again by the end of the year, which should make homebuying a little more affordable and incentivize buyers to come off the sidelines.”

Now, let's delve into the latest data regarding the three primary factors influencing home affordability: mortgage rates, home prices, and wages.

Mortgage Rates

Throughout this year, mortgage rates have exhibited volatility, fluctuating in the upper 6% to low 7% range. While this remains higher than levels seen in previous years, there's a glimmer of hope.

Despite recent fluctuations, rates are lower than last fall's peak of nearly 8%. Additionally, experts anticipate a decline in rates over the course of the year. According to a recent article from Bright MLS:

“Expect rates to come down in the second half of 2024 but remain above 6% this year. Even a modest drop in rates will bring both more buyers and more sellers into the market.”

A reduction in rates can significantly impact affordability, making it easier for buyers to afford their desired homes due to lower monthly payments.

Home Prices

Another crucial aspect affecting affordability is home prices. While most experts predict continued price appreciation in 2024, the pace is expected to normalize. This is attributed to the increased inventory compared to previous years, although it remains insufficient to meet demand. Forecasts from seven different organizations support this trend, indicating a more sustainable price growth.

This projection offers a positive outlook for buyers, suggesting that prices are unlikely to skyrocket as witnessed during the pandemic. While not expected to decline, prices are anticipated to rise at a more moderate pace.

Wages

A contributing factor to improved affordability is the upward trend in wages. Data from the Federal Reserve demonstrates a significant increase in wage growth, surpassing the typical trajectory. This accelerated growth is advantageous for prospective homebuyers, as higher incomes translate to a lower percentage of monthly income allocated towards mortgage payments.

The convergence of these factors indicates a promising outlook for home affordability. With projected reductions in mortgage rates, moderate home price appreciation, and robust wage growth, the prospect of homeownership becomes more attainable for aspiring buyers.