In recent years, many people have struggled to buy a home due to affordability challenges. While it’s still a tight market, there are promising signs of improvement that could continue throughout the year. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), notes:

“Housing affordability is improving ever so modestly, but it is moving in the right direction.”

Here’s a closer look at the three key factors influencing home affordability: mortgage rates, home prices, and wages.

1. Mortgage Rates

Mortgage rates have been fluctuating between the mid-6% and low 7% range this year, but there’s positive news. According to Freddie Mac, rates have been trending downward since May.

Mortgage rates have improved recently due to positive trends in economic, employment, and inflation data. While some rate fluctuations are expected, experts believe rates could continue to decline if the economy continues to cool.

Even a slight drop in rates can make a difference by lowering your monthly mortgage payments, making it easier to afford the home you want. However, don’t expect rates to return to the historic lows of 3%.

2. Home Prices

Home prices are another key factor. While they’re still rising nationally, the pace has slowed compared to the rapid increases of the past few years. The graph below, using data from Case-Shiller, shows this trend.

If you’re considering buying a home, the slower growth in home prices is great news. Prices surged during the pandemic, making it difficult for many to buy, but with prices now increasing at a slower pace, homeownership may feel more attainable. As Odeta Kushi, Deputy Chief Economist at First American, explains:

“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.”

3. Wages

Rising wages are also improving affordability. The graph below, using data from the Bureau of Labor Statistics (BLS), highlights how wages have steadily increased over time.

Take a look at the blue dotted line—it shows how wages typically rise each year. Now, notice the green line on the right, which indicates wages are increasing even faster than usual right now.

This benefits you because as your income grows, it becomes easier to afford a home, meaning a smaller portion of your paycheck will go toward your mortgage payment.

Bottom Line

When you combine these factors—mortgage rates trending down, slower home price increases, and faster wage growth—it’s clear that while affordability remains a challenge, these trends suggest things may be starting to improve.