Key Factors That Influence Home Affordability

Nowadays you can’t discuss residential real estate without commenting on the affordability challenges that buyers are up against today. There’s no question that homes are pricier today than they were over the last two years, but that doesn’t mean homes are now truly unaffordable. There are three measures used to establish home affordability which include home prices, mortgage rates, and wages and here is a closer look at each of them.

Home Prices

The most recent Home Price Insights report issued by CoreLogic indicates that home values have risen by 19.1% from last January of 2021 to January this year. That was one reason affordability had diminished over the past year.

Home Loan Rates

While the current global uncertainty makes it tough to project home loan rates, we do know current rates are almost one full percentage point higher than they were at this time last year. Per Freddie Mac, the average monthly rate for last February was 2.81% where this February it was 3.76%. That increase in the mortgage rates also makes homes less affordable than they were last year.


The one large yet positive component in the affordability equation is an increase in American wages. In a recent article by RealtyTrac, Peter Miller addresses that point:

“Prices are up, but what about wages? ADP reports that job holder incomes increased 5.9% last year but rose 8.0% for those who switched employers. In effect, some of the higher cost to buy a home has been offset by more cash income.”

The National Association of Realtors (NAR) also recently shared some data that examines income and affordability. The NAR report gives a comparison of the current median family income versus the qualifying income for a median-priced home in each region of the country. 

While the figures may vary in certain locations within each region, it’s important to note that it was found that in the majority of the country, homes are still affordable.

Ultimately when you think about affordability you must remember that the picture includes more than just home prices and mortgage rates. While they do have a significant influence, wages need to be factored in as well. Because wages have been rising, they’re a significant reason that, while less affordable to say two years ago, homes are not unaffordable today.