Home Affordability Is Improving. So Why Doesn’t It Feel Like It?

There’s an interesting disconnect happening in the housing market right now. By some measures, buying a home has actually become slightly more affordable than it was a year ago. But if you’re a buyer looking at home prices, mortgage rates and what your monthly payment would actually be, it probably doesn’t feel that way.

That disconnect explains a lot about why so many buyers are still sitting on the sidelines.

According to Redfin, a household now needs to earn about $109,800 a year to afford the typical home in the U.S. That’s still a significant number, but it has come down slightly from the record high we saw a year ago. At the same time, household incomes have increased, which means the gap between what the typical household earns and what it needs to afford a home has narrowed.

Technically, that’s progress. But “more affordable than last year” and “affordable” are two very different things.

The Monthly Payment Is Still the Problem

For most buyers, affordability comes down to one thing: what is this house actually going to cost me every month?

Mortgage rates continue to make that calculation difficult. As of August 20, the average 30-year fixed mortgage rate was 6.65%. Home prices also remain high in many markets, so even buyers who are earning more than they were a few years ago can still be looking at a monthly payment that feels uncomfortable.

That’s why I think the current market makes more sense when you look beyond the headline numbers. There are plenty of people who *could* buy a home right now. They have the income, the down payment and the credit to qualify. They just aren't convinced that now is the right time to do it.

And usually, the thought behind that hesitation is pretty simple: What if I wait?

Maybe mortgage rates will come down. Maybe home prices will fall. Or maybe, if they wait long enough, they'll get both.

Waiting Doesn't Always Work the Way You Think

The problem is that mortgage rates and home prices don't necessarily move in the direction buyers want at the same time.

If mortgage rates fall significantly, it will certainly help with monthly payments. But lower rates could also bring more buyers back into the market. People who have spent the last year or two waiting may suddenly decide it's time to start looking again.

When demand increases, competition for good homes tends to increase with it. That can mean more multiple-offer situations, less negotiating power and, depending on the market, upward pressure on home prices.

So yes, you could wait and get a lower mortgage rate. But you could also find yourself paying more for the house or competing against several other buyers to get it.

That's what makes trying to perfectly time the housing market so difficult.

Today's Buyers Do Have an Advantage

There is another side to the current market that doesn't get talked about nearly as much. Buyers have something today that was almost nonexistent during the craziness of a few years ago: breathing room.

Inventory has improved in many areas, homes are generally taking longer to sell and sellers may be more willing to negotiate. Depending on the property, buyers may have an opportunity to negotiate on price, ask for help with closing costs or complete inspections without feeling like they have to waive every protection just to get an offer accepted.

That doesn't make today's higher monthly payments disappear. But it does change the buying experience considerably.

Think back to the market when rates were historically low. Buyers loved the interest rates, but actually getting a house could be brutal. Multiple offers were common, homes moved incredibly fast and buyers routinely had to make aggressive decisions just to compete.

Today's market presents a different tradeoff. Borrowing money is more expensive, but buyers may have considerably more leverage when negotiating the actual purchase.

Stop Waiting for the "Perfect" Market

None of this means everyone should buy a house right now. There are absolutely situations where waiting makes sense.

But if you're waiting specifically for the perfect combination of lower mortgage rates, lower home prices and less competition, you could be waiting for something that never happens.

Instead, I think buyers should bring the decision back to their own situation. Can you comfortably afford the monthly payment? Do you have enough money left after your down payment and closing costs? Are you planning to stay in the home long enough for buying to make sense? And can you find a property that actually works for you?

If those pieces line up, buying in an imperfect market can still be a very good decision.

And remember, the mortgage you get today doesn't necessarily have to be the mortgage you keep forever. If rates eventually fall enough to make refinancing worthwhile, you can look at that option down the road.

What you can't do is go back and buy the house you passed on at today's price.

The goal shouldn't be to perfectly time the housing market. It should be to make a smart move when the timing, the house and the numbers make sense for you.