Over the past year, many people have talked about housing affordability and how tight it’s gotten. But recently, there’s been a little relief on that front. Mortgage rates have gone down since their most recent peak in October. But there’s more to being able to afford a home than just mortgage rates.
To understand home affordability, you must consider three important factors: mortgage rates, home prices, and wages. Let’s dive into the latest data on each one to see why affordability is improving.
1. Mortgage Rates
Mortgage rates have come down in recent months. Looking forward, most experts expect them to decline further over the year.
Jiayi Xu, an economist at Realtor.com, explains:
“While there could be some fluctuations in the path forward … the general expectation is that mortgage rates will continue to trend downward, as long as the economy continues to see progress on inflation.”
Even a small change in mortgage rates can greatly impact your purchasing power, making it easier to afford the home you want by reducing your monthly mortgage payment.
2. Home Prices
The second important factor is home prices. After going up at a relatively normal pace last year, they’re expected to continue rising moderately in 2024. That’s because even with inventory projected to grow slightly this year, there still aren’t enough homes for sale for everyone who wants to buy them.
According to Lisa Sturtevant, Chief Economist at Bright MLS:
“More inventory will be generally offset by more buyers in the market. As a result, it is expected that, overall, the median home price in the U.S. will grow modestly.”
That’s great news for you because prices aren’t likely to skyrocket like they did during the pandemic. But it also means it’ll probably cost you more to wait.
So, if you’re ready, willing, and able to find and buy the right home in Chicago, Illinois, purchasing before more buyers enter the market and prices rise further might be in your best interest.
Another positive factor in affordability right now is rising income. The graph below uses data from the Federal Reserve to show how wages have grown over time:
Looking at the blue-dotted trendline, you can see the rate at which wages typically rise. But on the right side of the graph, wages are above the trend line today, meaning they’re going up at a higher rate than normal.
Higher wages improve affordability by reducing the percentage of your income to pay your mortgage. That’s because you don’t have to spend as much of your paycheck on your monthly housing cost.
What This Means for You
Home affordability depends on mortgage rates, home prices, and wages. The good news is that they’re moving positively for buyers overall.
If you’re considering buying a home, it’s important to know that the main factors impacting affordability are improving. Let’s connect with real estate agents in Chicago, Illinois, at KM Realty Group LLC to get the latest updates.