Homeownership Will Be More Affordable in the Coming Year: Key Factors Explained

Good news on the horizon for people who feared they were priced out of the purchase market and losing hope of ever owning a home. Market trends indicate a few factors that will contribute to increasing affordability for buyers. Scroll for more information.

What is Affordability?

The extent to which something is affordable, as measured by its cost relative to the amount that the purchaser is able to pay, or the state of being cheap enough for people to be able to buy.

Lower interest rates mean lower monthly mortgage payments

Lower interest rates increase buying power. Now that the 30-year mortgage rate has fallen from nearly 8% to below 7%, home buyers with a monthly housing budget of $3,000 can afford a house that costs nearly $40,000 more, real-estate brokerage Redfin RDFN, +7.43% said in a report on Monday.

October 2023 when rates were at 7.8%, a home buyer with a monthly housing budget of $3,000 could have afforded a $416,000 home. Assuming a down payment of 20%, a property-tax rate of 1.25% and a homeowners-insurance rate of 0.5%.

With mortgage rates at 6.7% in January 2024, a home buyer with the same budget could afford a $453,000 home — a gain of $37,000.

Home buyers' budgets will be boosted even further with the rates anticipated to fall to 6% or below in 2024.

Despite a recent survey from Fannie Mae which found that 24% of people think home prices will actually decline over the next 12 months, trends predict home prices will continue to rise, albeit at a much slower pace.

What does this mean for you?

Experts are saying home prices will go up this year, and that’s good news if you’re thinking about buying a home. When you become a homeowner, you want the value of your house to go up. That appreciation is what builds equity and makes homeownership such a good investment over time.

Beyond that, expected home price appreciation also means if you’re ready, willing, and able to buy, waiting just means it will cost more later. 

Bottom line, you should buy now if you can afford to with the current interest rates. As the interest rates go down, the increasing demand for homes will drive home prices higher. If you find a home you would like to purchase and can afford it, buy it now, you can always refinance later when the interest rates go down further.

Highlights

• Home affordability depends on three factors: mortgage rates, home prices, and wages.

• Mortgage rates are down from their recent peak, home prices are expected to rise at a slower pace, and wages are increasing faster than usual.

• That’s good news if you want to buy a home because it means affordability is getting better.

Sources: Freddie Mac, Zillow, Realtor.com, Goldman Sachs, MBA, NAR, Pulsenomics, Fannie Mae, Marketwatch.com, Keeping Current Matters, The Fed

Contact us to analyze your buying power and see what you can afford.