As home affordability becomes a key concern, many potential buyers are on the sidelines. We will review if home affordability is still tight in Metro Detroit.

Understanding Home Affordability: What to Expect

Recently, buying a home in Metro Detroit has been challenging, with “Home Affordability still tight” on everyone’s mind. When it comes to the current housing market, there are some myths circling right now. Yet, there’s a glimmer of hope as the situation improves, potentially easing further as the year progresses. Elijah de la Campa, a Senior Economist at Redfin, shares insights on the evolving market:

“We’re slowly climbing our way out of a Home affordability hole, but we have a long way to go. Rates have come down from their peak and are expected to fall again by the end of the year, which should make homebuying a little more affordable and incentivize buyers to come off the sidelines.”

Key Influencers on Home Affordability

Here’s what’s shaping the affordability landscape: mortgage rates, home prices, and wages.

1. Mortgage Rates

This year, mortgage rates have seen quite the rollercoaster, hovering between the upper 6% and low 7% range in Q1. Unfortunately, that trend didn’t last; mortgage rates were above 7% – 7.4% in April. However, there’s positive news: rates have settled lower than last fall’s near-8% peak. Most experts predict a further decline throughout the year. According to Bright MLS, “Expect rates to lower in the second half of 2024 but stay above 6%. Even a modest rate drop can draw more buyers and sellers into the market.” Lower rates mean lower monthly payments, making your dream home more accessible.

How to Track and Predict Where Mortgage Rates Are Heading

First, did you know the Federal Reserve doesn’t set mortgage rates? They set policies affecting mortgage rates, like the 10-year Treasury Yield and mortgage-backed Securities. Mortgage rates are determined by the daily 10-year Treasury Yield + Mortgage-Backed Securities Gap #, and adding them together equals the Mortgage Rate. I recommend the following blog post to help you understand mortgage rates. Once you know the trends, it will make it easier to negotiate with a lender. They won’t be able to spoof you.

2. Home Prices

Home prices in Metro Detroit are another vital factor to watch. While they are expected to continue rising, the increase should occur at a steadier, more manageable pace compared to the rapid spikes during the “Unicorn Years.” Here is the rub: once the Fed starts lowering interest rates, that will affect the 10-year Treasury Yield, and the MBS gap and mortgage rates will drop. We also know we have pent-up demand from buyers wanting to purchase a home but sat on the sidelines waiting for rates to drop. We could see a rapid spike in home prices in Metro Detroit and could see bidding wars again. I recommend starting with the blog post “Do You Know Your Home Purchasing Power.” I have several graphs to help you calculate whether buying a home now is better when mortgage rates are high, home prices are lower, and refinance later. OR pay more for the house than it’s worth so you can purchase it at a lower mortgage rate? Also, you can track Home Prices and Real Estate Trends by City. All the information is on the website to help you on your journey. 🤩

3. Wages

On the wage front, there’s encouraging news. According to data from the Federal Reserve, wages are rising, with current trends showing even faster growth than usual. Higher incomes mean you can distribute a smaller proportion of your paycheck to mortgage payments, enhancing overall affordability.

Bottom Line: Positive Trends Towards Your Home Purchasing Power

When you piece these factors together—declining mortgage rates, moderately rising home prices, and quickly growing wages—you can see why there’s renewed optimism about home affordability in Metro Detroit. These trends suggest a better outlook for both home buyers and sellers, making now a promising time to consider entering the housing market. If you have any questions or need help crunching the numbers, just give me a call at 248-343-2459🤩🆘