Over the past couple of years, many people have faced challenges in purchasing a home. While affordability remains tight, there are indications that the situation may gradually improve throughout the remainder of the year. According to Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), the housing market is showing signs of becoming more accessible.

““Housing affordability is improving ever so modestly, but it is moving in the right direction.”
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— Lawrence Yun, Chief Economist at the National Association of Realtors (NAR)

Here's a look at the latest data on the three biggest factors affecting home affordability: mortgage rates, home prices, and wages.

1. Mortgage Rates

Mortgage rates have been fluctuating significantly this year, ranging from the mid-6% to low 7% territory. However, there's a silver lining - data from Freddie Mac indicates that rates have been on a downward trend since May, as illustrated in the graph below.

Mortgage rates have seen some improvement recently, thanks in part to the latest economic, employment, and inflation data. However, experts anticipate a certain degree of rate volatility moving forward. If future economic data continues to indicate a cooling trend, mortgage rates could potentially decline further.

Even a small drop in mortgage rates can make a difference when you're trying to buy a home. When rates decline, it becomes a bit easier to afford the home you want because your monthly payment will be lower. Just don't expect rates to plummet all the way back down to 3% - those days are likely behind us for the foreseeable future.

2. Home Prices

Regarding home prices, the national trend is still one of appreciation, but the pace has slowed compared to a couple of years ago. The graph from Case-Shiller data illustrates this point.

If you’re considering buying a home, the slower price growth is definitely a positive sign. During the pandemic, home prices surged, which made it difficult for many people to enter the market. Now that prices are rising at a more gradual pace, buying a home might seem more achievable. As Odeta Kushi, Deputy Chief Economist at First American, points out:

““While housing affordability is low for potential first-time home buyers, slowing price appreciation and lower mortgage rates could help – so the dream of homeownership isn’t boarded up just yet.”
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— Odeta Kushi, Deputy Chief Economist at First American

3. Wages

Another reason affordability is improving is due to rising wages. The graph below illustrates how wages have grown over time, using data from the Bureau of Labor Statistics (BLS).

Take a look at the blue dotted line; it represents the typical increase in wages over a year. On the right side of the graph, you can see that wages are currently rising even faster than usual—that's represented by the green line.

If your income goes up, it makes buying a home more manageable. You won’t need to allocate as much of your paycheck toward your monthly mortgage payment.

Bottom Line

When you look at everything together, it's clear that mortgage rates are decreasing, home prices are increasing at a slower pace, and wages are growing quicker than normal. While affordability still poses challenges, these trends suggest that things might be starting to get better.