3 Factors Affecting Home Affordability

There’s been a lot of focus on higher mortgage rates and how they create affordability challenges for today’s homebuyers. Indeed, rates rates climbed dramatically since the record-low we saw during the pandemic. But home affordability is based on more than just mortgage rates – it's a combination of mortgage rates, home prices, and wages that determines it.

1. Mortgage Rates
While mortgage rates are higher than a year ago, they’ve hovered primarily between 6% and 7% for nearly eight months. From September 2022-today, 30-year fixed-rate mortgages have experienced some volatility. And even a small change in mortgage rates impacts your purchasing power. That’s why it’s so important to lean on your team of us and your lender for expert advice to stay up to date on what’s happening in the market. While it’s hard to project where mortgage rates will go from here, many experts agree they’ll likely continue to remain around 6%-7% in the immediate future.

2. Home Prices
Over the past few years, home prices appreciated rapidly as the record-low mortgage rates we saw during the pandemic led to a surge in buyer demand. The heightened buyer demand happened while the supply of homes for sale was at record lows, and that imbalance put upward pressure on home prices. However, today’s higher mortgage rates have slowed down price appreciation in certain price bands in the St. Louis metro area, and in certain parts of the country.

And the truth is home price appreciation varies by market (can be determined by commute, school district, etc). Some areas are seeing slight declines, while others have prices that are climbing. We can answer specific questions about the location you are interested in or currently own property in.

3. Wages

The most positive factor in affordability right now is rising income. The graph below uses data from the Bureau of Labor Statistics (BLS) to show how wages have grown over time:

Higher wages improve affordability by reducing the percentage of your income to pay your mortgage since you don’t have to put as much of your paycheck toward your monthly housing cost.

Home affordability comes down to rates, prices, and wages. If you have questions or want to learn more, contact us so we can explain what’s happening locally and how these factors work together.  Not in the local St. Louis area?  We can help you find a trusted Realtor in your area.

Bottom Line
If you plan to buy a home, knowing the key factors that impact affordability is important so you can make an informed decision. To stay current on the latest on each, let’s connect today.