LK Marketing and Real Estate

Experts predict that key factors affecting housing affordability, which has been a growing concern in recent years, will 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 Rates

Last year, mortgage rates skyrocketed to above 7%, leading many prospective buyers to delay their plans. However, the situation has changed as rates are now starting to decrease. 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 high 7% mortgage rates caused you to hold back on your home buying plans last year, this could be the chance to re-enter the market. Ensure that you work with a team of experts who are informed about the current mortgage rates and can provide the most valuable guidance for the current market conditions.

2. Home Prices

The second influencing factor is the cost of homes. Home prices have been in the news recently due to their rapid increase 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.”

As a result, while some markets may experience stable prices this year, others may witness minor increases or decreases. This varies by location. To get an understanding of the situation in your area and how prices are affecting affordability, contact a reliable real estate expert.

3. Wages

The 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:

Keep in mind that affordability encompasses more than just mortgage rates and prices. Wages must also be considered. As wages have increased, many buyers have been presented with renewed opportunities in the market.

Although affordability challenges will not fully disappear this year, current trends and predictions indicate that 2023 should offer some comfort to homebuyers who have been facing increasing difficulties, based on the current trends and projections. 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 Line

If you have questions, reach out to a trusted real estate professional to explore your options. You may be closer to owning a home than you think.