The 3 Factors That Affect Home Affordability
If you’ve been following the housing market over the last couple of years, you’ve likely heard about growing affordability challenges. But according to experts, the key factors that determine housing affordability are projected to improve this year. Selma Hepp, Executive, Deputy Chief Economist at CoreLogic, shares:“. . . with slowly improving affordability and a more optimistic economic outlook than previously believed, the housing market could show resilience in 2023.”The three measures used to establish home affordability are home prices, mortgage rates, and wages. Here’s a closer look at each one.1. Mortgage RatesMortgage rates shot up to over 7% last year, causing many buyers to put their plans on hold. But things are looking different today as rates are starting to come down. George Ratiu, Senior Economist at realtor.com, explains:“Let’s celebrate some good news. . . . mortgage rates are down. With inflation showing a tangible slowdown, I do expect mortgage rates to follow suit in the months ahead.”Even a small change in rates can impact your purchasing power. Nadia Evangelou, Director of Forecasting for the National Association of Realtors (NAR), gives this context:“With a 6% rate instead of 7%, buyers pay about $2,700 less every year on their mortgage. As a result, owning a home becomes affordable to about 1.4 million more renters and 4.3 million more homeowners.”If 7% rates paused your homebuying plans last year, this could be the opportunity you need to get back in the game. Be sure to work with a team of experts who know the latest on mortgage rates and can give you the best advice for the current market.2. Home PricesThe second factor at play is home prices. Home prices have made headlines over the past few years because they skyrocketed during the pandemic. When discussing home prices in 2023, Lawrence Yun, Chief Economist at NAR, says:“After a big boom over the past two years, there will essentially be no change nationally . . . Half of the country may experience small price gains, while the other half may see slight price declines.”So, while prices will likely be flat this year in some markets, others could see small gains or slight declines. It all depends on your local area. For insight into what’s happening in your market and how prices are impacting affordability, reach out to a trusted real estate professional.3. WagesThe final component in the affordability equation is wages. The graph below uses data from the Bureau of Labor Statistics (BLS) to show how wages have increased over time:When you think about affordability, remember the full picture includes more than just mortgage rates and prices. Wages need to be factored in as well. Because wages have been rising, many buyers have renewed opportunity in the market.While affordability hurdles are not completely going away this year, based on current trends and projections, 2023 should bring some sense of relief to homebuyers who have faced growing challenges. As Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA), says:“Rates are expected to move lower for the year, and home price growth is expected to cool, both of which will help affordability challenges.”Bottom LineIf you have questions, let’s connect. You’ll also want to make sure you have a trusted lender so you can explore your financing options. You may be closer to owning a home than you think.
Want To Sell Your House? Price It Right.
Last year, the housing market slowed down in response to higher mortgage rates, and that had an impact on home prices. If you’re thinking of selling your house soon, that means you’ll want to adjust your expectations accordingly. As realtor.com explains:“. . . some of the more prominent pandemic trends have changed, so sellers might wish to adjust accordingly to get the best deal possible.”In a more moderate market, how you price your house will make a big difference to not only your bottom line, but to how quickly your house could sell. And the reality is, homes priced right are still selling in today’s market.Why Pricing Your House Appropriately MattersEspecially today, your asking price sends a message to potential buyers. If it’s priced too low, you may leave money on the table or discourage buyers who may see a lower-than-expected price tag and wonder if that means something is wrong with the home.If it’s priced too high, you run the risk of deterring buyers. When that happens, you may have to lower the price to try to reignite interest in your house when it sits on the market for a while. But be aware that a price drop can be seen as a red flag by some buyers who will wonder what that means about the home.To avoid either headache, price it right from the start. A real estate professional knows how to determine that ideal asking price. They balance the value of homes in your neighborhood, current market trends, buyer demand, the condition of your house, and more to find the right price. This helps lead to stronger offers and a greater likelihood your house will sell quickly.The visual below helps summarize the impact your asking price can have:Bottom LineHomes that are priced at current market value are still selling. To make sure you price your house appropriately, maximize your sales potential, and minimize your hassle, let’s connect.
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