Friday, November 11, 2022 / by Laura Larson
The increases in mortgage rates we have seen over the course of this year are making people wonder if they can afford to buy or sell a home. And while it's true that rates have increased significantly, it's important to keep in mind that mortgage rates aren't the only factor to determine if you can afford to buy or sell real estate.
Mortgage rates, property prices, and income are the three criteria used to determine if a home is affordable. Let’s look closely at each one.
1. Mortgage rates
Current rates have risen by over four full percentage points since the year's start. As Deputy Chief Economist at Freddie Mac Len Kiefer explains: “U.S. 30-year fixed mortgage rates have increased 3.83 percentage points since the end of last year. That’s the biggest year-to-date increase in rates in over 50 years.”
The cost of financing a house purchase is being affected by the rise in mortgage rates, making it difficult for many purchasers to obtain credit or find an affordably priced home, and in some cases driving some buyers out of the market. Although it is difficult to predict where mortgage rates will go in the future due to present global unrest, experts agree that they will likely stay high for as long as inflation does.
2. Property prices
Home prices are the second factor to consider. Home prices surged during the pandemic, which garnered media attention over the past couple of years. Now, the most recent S&P Case-Shiller Home Price Index reveals that home prices are declining for a fifth straight month. Higher mortgage rates are reducing demand, which in turn lessens buyer competition and the ensuing bidding wars that drove prices up. As a result, prices have started to go down.
The fact that housing values are still significantly higher than they were prior to the epidemic is noteworthy. However, even while prices are still high in several marketplaces, certain regions are experiencing price drops.
The rise in American wages is a plus in the home affordability equation. As the Bureau of Labor Statistics (BLS) reports: “Median weekly earnings of the nation’s 120.2 million full-time wage and salary workers were... 6.9 percent higher than a year earlier…”
According to National Association of Realtors (NAR) President Leslie Rouda Smith: “Buying or selling a home involves a series of requirements and variables, and it’s important to have someone in your corner from start to finish to make the process as smooth as possible…” Therefore, knowing if you can purchase a home encompasses more than just mortgage rates. Falling home prices and increases in income must be considered. Contact a dependable Realtor who can explain how all of these factors interact and what's going on in your area if you have any questions or want to learn more.