home prices, interest rates, & wages

Brent discusses how mortgage rates, home prices, and wages are affecting affordability in today's housing market.

More of a reader? Catch the video transcript below.

Hey guys, Brent here.

Today, we’re going to be talking all about home affordability.

We’re seeing in the headlines that the home affordability index is the lowest it’s been in a long time. When the home affordability index is high, that means a lot of people can afford to buy houses. When it’s low, that obviously means fewer people can afford to buy.

The 3 Metrics That Determine Home Affordability

1. Interest Rates

Interest rates are up around 4% in the last 12 months — that’s the biggest increase we’ve seen in 50 years.

2. Home Prices

The second piece of the puzzle? Home prices. So, the more expensive the home is, the more money buyers need to borrow.

Since the pandemic hit, we’ve seen a huge spike in home pricing. After the pandemic, they tried to cool off the market by cooling down demand. To do that, they increased interest rates.

When interest rates and home prices go up at the same time, that’s a double whammy.

3. Wages

Wages have consistently gone up since the pandemic as well. For a while, home prices were going up and wages were going up, but interest rates were still low; therefore, more people could afford to buy homes.

But, when you have home prices and interest rates spiking, that creates the perfect cocktail for a low home affordability index (even if wages are on the rise).

So, what are my options for buying a home in this market?

If you’re in the market to buy a home, there are a few things you can consider in this environment.

You could consider increasing your income with a new job or a raise. You could also try and negotiate a lower price for the home you’re looking to buy. You can also see if there’s something you can do to lower your interest rate — look into a different loan product, do a rate buydown, or see if the seller will give you any credits.

Yes, homes are less affordable today than they have been in the past — but now you know that if rates and prices start to come down and wages continue to go up, things can change pretty quickly.

That’s all for me today! See you in my next video 👋🏼