One of the concerns that home buyers focus on in today's residential real estate market is affordability. While it is true that most homes today are less affordable than they were a couple of years ago, this does not mean that having one is unattainable.
More Than Just Home Prices
Home affordability is determined by various components. It is measured mostly by these factors: Mortgage Rates, Home Prices, and Wages. This is why we cannot base affordability by just looking at market prices.
Despite the fact that mortgage rates have become more challenging to predict due to ongoing global uncertainties, it can be inferred from historic tables that the current rates are almost a full percentage point higher than the rates last year. The average monthly rate for February 2022 was 3.76%, while it was only 2.81% last year, according to Freddie Mac.
Source: Freddie Mac 30-Year Fixed-Rate Historic Tables
Last year, home values have increased by 19.1%, based on the report by CoreLogic. The Home Price Insights forecast below shows a month-over-month increase by 0.2% from January 2022 to February 2022.
Source: The CoreLogic Home Price Insights Forecast
Source: National Association of Realtors Housing Affordability Index Published Feb. 14, 2022
One good thing that we can look at is the increase in American wages. Since income is one of the factors considered when qualifying, it is still possible to buy homes today. According to the Housing Affordability Index by NAR, the median family income (in blue) is greater than the qualifying income needed to purchase a median-priced home (in green) in all four regions. This means that there are still affordable homes in most parts of the country.
By knowing the key components that affect home affordability, it is clearer that living the dream of owning a home could be challenging, but not impossible. Simply said, homes may be less affordable today, yet not unaffordable as most people think. Whether you are looking to find homes locally or plan to relocate to a different place, there are surely options that will give you the opportunity to live the best life that you deserve.
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