3 Key Factors Affecting Home Affordability

Over the past year, a lot of people have been talking about housing affordability and how tight it’s gotten.

But just recently, there’s been a little bit of 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 really understand home affordability, you need to look at the combination of 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. And looking forward, most experts expect them to decline further over the course of 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.”

And even a small change in mortgage rates can have a big impact on your purchasing power, making it easier for you 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 all the people who want 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 it means 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 buy, and you can find the right home, purchasing before more buyers enter the market and prices rise further might be in your best interest.

3. Wages

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: 

If you look 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 because they reduce the percentage of your income it takes to pay your mortgage. That’s because you don’t have to put as much of your paycheck toward your monthly housing cost.

What This Means for You

Home affordability depends on three things: mortgage rates, home prices, and wages. The good news is, they’re moving in a positive direction for buyers overall.

Bottom Line

If you're thinking about buying a home, it's important to know the main factors impacting affordability are improving. To get the latest updates on each, connect with a trusted real estate agent.

Read more at KeepingCurrentMatters.com

Related Links

• Gen Z’s Homeownership Rate Stagnated in 2023, But Millennials and Gen Xers Saw Gains

• Signs Point to More Inventory this Spring

• Sorry, Marble: Home Buyers Still Prefer This Kitchen Countertop Material

If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

Search Homes in Colorado

Search Homes in North Carolina

Search Homes in Oklahoma

Search Homes in Oregon

Search homes in Minnesota

Oklahoma Among States with Most Affordable Housing

Median home sale prices in the United States nearly have doubled in the past decade to $422,000 in July 2023.

That’s up from $220,000 in July 2013. Although prices are trending higher nationwide, affordability is significantly different by state.

An analysis of recent data provided by Redfin, a national real estate brokerage firm, shows the Midwest and South have the lowest median house prices in the United States, making these regions the most affordable relative to income.

Because of rising real estate prices, housing on the West and East coasts is the least affordable, along with certain Rocky Mountain states and Hawaii. However, many states across the Midwest and South have housing prices below $350,000, with some counties seeing prices below $150,000.

Housing prices increasing

Homes everywhere are increasingly unaffordable relative to income because median sale prices climbed quickly during the COVID-19 pandemic. In March 2020, the national median home price was $304,000, and it continued to escalate because of low rates, demand and availability.

Before the lockdown, low mortgage rates made new and used homes more affordable for many people in America. A $500,000 house with a 20% down payment and a 30-year fixed rate mortgage of 4% has a monthly cost of $2,005. The same home bought with a 7% rate has a $2,794 monthly payment – a $789 difference.

Because rates were below 4% from early 2019 to mid-2022, Americans invested in real estate, causing prices to rise.

At the same time, housing inventory declined. After peaking in 2006, home construction was below average for many years, causing demand to outstrip supply, putting upward pressure on house prices.

Oklahoma among lowest-cost states

The Midwest and South contain the top five low-housing-cost states, which lead the country in affordability.

• Iowa has the lowest median sale price of $239,000 in 2022. The state is primarily rural but has smaller cities like Des Moines, Cedar Rapids and Iowa City. Additionally, the population is relatively small and growing at only 0.3% annually, keeping demand and, thus, housing prices low. According to the Federal Reserve, the state’s median income was $76,320, making housing relatively cheap for families.

• Ohio is the second most affordable state, with a median sale price of $249,000. The state is more industrialized than Iowa but still has a significant agricultural industry. In addition, Ohio has three large cities: Cincinnati, Cleveland and Columbus. Based on the state’s median income of $67,520, housing is less affordable than in other Midwestern states. Also, Ohio’s population is declining, suggesting home prices will gain little.

• Oklahoma has the third-lowest median sale price of $256,000. The state is largely rural, with two main cities: Oklahoma City and Tulsa. Oklahoma’s median household income is below Iowa’s and Ohio’s at $63,440. As a result, its residents pay a higher percentage of their income for housing costs. Oklahoma’s population is gaining 1.5% annually, so real estate prices should continue to rise.

On the other end of the scale, California was unsurprisingly the most expensive state to buy a home. In fact, the most expensive states are concentrated on the West Coast, Northeast and a few Rocky Mountain states, attracting people from other parts of the United States, like Utah and Colorado. The three least affordable states are California, Hawaii and Massachusetts.

Housing in California is costly. Prices continue to rise because of demand, insufficient construction, and labor costs. In 2022, the median house price was $799,000 – more than three times the price of Iowa. Median household incomes are higher at $85,300, but are generally not enough to account for the sale price differences. After years of growth, California’s population has declined in the past couple of years, but not enough to affect affordability.

Hawaii is next on the list, with a median home price of $713,000. The state has strict permitting requirements, and as a result, construction cannot meet demand. Therefore, housing prices have risen. Besides expensive housing, Hawaii also has the highest cost of living, making it challenging to make a simple 50/30/20 budget strategy work and purchase a home, too. Household incomes are high, too, at $91,010, but the extraordinary cost of living expenses reduces buying power. One advantage, though, is the state has the lowest property tax rate in the country.

Massachusetts is third, with a median house price of $640,000. The state is building more luxury, high-end residences and not enough affordable housing. Demand is also high because the population grows in most years, drawn by high-paying jobs in health care, information technology, and education. In fact, the median household income of $93,550 is among the highest in the country. The combination of forces driving prices higher is unlikely to subside.

The bottom line about affordability

Real estate prices have risen faster than incomes. Consequently, already expensive markets are now pricier than ever. Based on median home prices, the Midwest and South lead the country in affordability, especially after considering household incomes.

That said, rising mortgage rates mean it may be prudent to wait until they change direction. High mortgage rates hinder selling and buying.

Arnie Nicola of Pregnancy and Motherhood says, “We had planned to buy a house and the high interest rates pushed up monthly payments and brought down our home value below our expected selling price, so ultimately we decided to just hold.”

Learn more at Journalrecord.com

Related Links

• 10 Things Most Homebuyers Get Wrong About Getting a Mortgage Today

• 3 Major Changes You Need To Make Before Putting Your Home on the Market

• Growing Your Net Worth with Homeownership

If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

Search Homes in Colorado

Search Homes in North Carolina

Search Homes in Oklahoma

Search Homes in Oregon

Search homes in Minnesota

How Building Bans and Affordable Housing Have Curtailed Construction

While the coronavirus pandemic has severely curtailed many industries and left millions unemployed, there is still plenty of construction going on in America's largest cities.

Some even say there’s too much construction happening, particularly in lower-income neighborhoods that are drawing new attention, thanks to massive public projects and renewed interest from young professionals.

Seeking to curtail gentrification and displacement, Atlanta and Chicago put construction and demolition moratoriums in place early this year. In Atlanta, construction permits were banned until Dec. 4 to slow investor activity near the western portions of the Beltline, a trail system under construction that is laid over old railroad tracks and driving up the value of real estate everywhere it winds.

Chicago made a similar move, prohibiting until February 2021 demolition of old two- and four-flats, which were being torn down in favor of large single-family houses, in the western portions of the 606 trail. Similar to Atlanta’s Beltline, the 606 is laid out over old rail tracks, in this case elevated ones, providing an urban greenway through several northwest Chicago neighborhoods. In both cases, public investment in the popular trails led to a jump in the value of privately owned real estate.

LaTonya Gates-Johnston is an Atlanta resident and founder of PAWKids, a nonprofit providing food and enrichment for kids on the city’s west side. (Lynsey Weatherspoon/for The Washington Post)

For that reason, Atlanta City Council Member Andre Dickens said his city is obligated to protect its long-term residents who may not be able to afford higher rent or taxes.

“When you invest major public dollars in an area, plus infrastructure, inevitably you get a lot of redevelopment,” Dickens said. “The challenge comes when that public investment leads to people who have lived there for a generation or more not being able to benefit from it. We don’t want vultures to come in and buy up the limited amount of owner-occupied properties in the area.”

Similar proposals are under discussion in New York, where a major expansion of Harlem’s Lenox Terrace housing complex has led to moratorium calls, and Gainesville, Fla., where student housing at the University of Florida may threaten historically Black neighborhoods.

The long-term goal of these proposals is to hit the pause button on development to find permanent solutions. And aiding the effort since March are construction moratoriums put in place since the pandemic spread. While these are aimed at protecting workers rather than homeowners or tenants, affordable housing projects are often exempted, helping to put more houses and apartments within reach of people with modest incomes.

For more information and the full article, visit The Washington Post.

Related Links

• Factors to Consider If You're Thinking About Relocating

• U.S. mortgage rates fall to all-time lows this week

• Spike in lumber prices boosts construction costs