You’ve probably heard about rising affordability issues if you’ve been following the housing sector over the past couple of years. Experts predict that the key factors that affect housing affordability will improve this year. Selma Hepp shares: . . The housing market could be resilient in 2023, thanks to an improving affordability and a more optimistic outlook on the economy than previously believed.
Home prices, mortgage rates, as well as wages, are the three main measures that determine home affordability. Let’s take a closer look at each.
1. Rates for Mortgages
Many buyers had to stop their plans after mortgage rates soared to more than 7% last year. However, rates are beginning to fall and things are changing. George Ratiu is a Senior Economist at realtor.com.
“Let’s celebrate some positive news. . . . Mortgage rates are falling. Inflation is showing a tangible slowdown. I expect mortgage rates will follow suit in the coming months.”
Even a slight change in rates can have a significant impact on your purchasing power. This is Nadia Evangelou (Director of Forecasting, National Association of Realtors):
Buyers pay $2,700 less annually on their mortgage if they have a 6% rate as opposed to 7%. This makes it affordable for about 1.4 million more renters, and 4.3 million homeowners to own a home.
This could be the chance to get back into the game if 7% rates put an end to your homebuying plans for last year. You should work with experts who are up-to-date on the market and can offer you the best advice.
2. Prices for Homes
The second factor is home prices. The pandemic caused a dramatic rise in home prices, which has made them headlines for the past few years. Lawrence Yun, Chief economist at NAR, discusses home prices in 2023.
“After the two-year boom, there will be virtually no change in the national landscape. . . Half of the country could see small price increases, while the other half might experience slight price drops.”
While prices are likely to remain flat in some markets this year, others may see slight increases or decreases. It all depends on where you live. Reach out to a trusted realty professional for insight into the market and how prices affect affordability.
Wages are the final component of the affordability equation. To show how wages have changed over time, the graph below uses data from Bureau of Labor Statistics (BLS).
When thinking about affordability, keep in mind that affordability is more than just the mortgage rates and prices. Also, wages must be considered. Many buyers are seeing a renewed opportunity on the market because wages have been rising.
Although affordability issues are not going away completely this year, current trends and projections suggest that 2023 will bring some relief to homebuyers who have been facing increasing challenges. Mike Fratantoni (Chief Economist, Mortgage Bankers Association) says:
“Rates are expected lower for the year and home price growth will cool, both of these factors will help with affordability challenges.”
Bottom Line: If you have any questions, talk to a trusted realty professional to discuss your options. You might be closer to owning your home than you realize.
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