San Francisco Real Estate: Signs of Improving Affordability
Over the past couple of years, buying a home in San Francisco has been a significant challenge for many. With the city’s high demand and steep prices, affordability has been a tight squeeze. However, recent trends suggest that things might be improving, offering a glimmer of hope for prospective homebuyers. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), recently stated:
"Housing affordability is improving ever so modestly, but it is moving in the right direction."
Here’s a closer look at the three biggest factors currently impacting home affordability in San Francisco: mortgage rates, home prices, and wages.
1. Mortgage Rates
Mortgage rates have been notably volatile this year, fluctuating between the mid-6% to low 7% range. However, the good news is that there’s been an overall downward trend since May, according to data from Freddie Mac.
The recent dip in mortgage rates can be attributed to a mix of economic, employment, and inflation data. As we move forward, some rate volatility is expected, but if future economic indicators continue to show signs of cooling, experts predict that mortgage rates could continue to decline.
Even a small drop in rates can make a big difference in affordability. Lower rates mean lower monthly payments, making it easier to manage the cost of your new home. While we shouldn’t expect a return to the ultra-low rates of 3%, every little bit helps in making homeownership more attainable.
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2. Home Prices
The second major factor to consider is home prices. While home prices are still rising nationally, the pace of that growth has slowed compared to the rapid increases seen during the pandemic. According to data from the Case-Shiller Home Price Index, prices are still up this year but not as sharply as in previous years.
For those considering buying a home, this slowdown in price growth is welcome news. The rapid price hikes of the past few years made homeownership feel out of reach for many, but with prices rising more slowly, the dream of owning a home in San Francisco might be becoming more realistic. As Odeta Kushi, Deputy Chief Economist at First American, puts it:
"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."
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3. Wages
Rising wages are another key factor in improving affordability. The Bureau of Labor Statistics (BLS) reports that wages have been increasing faster than usual in recent months. The graph below shows how wages typically grow (blue dotted line) and how they’re currently rising more quickly (green line).
Higher wages can make it easier to afford a home, as a larger income means you won’t need to allocate as much of your paycheck to your monthly mortgage payment. This increase in income could be the difference between staying on the rental market and becoming a homeowner.
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When you combine these factors—declining mortgage rates, slower home price growth, and rising wages—it’s clear that while affordability remains a challenge in San Francisco, there are signs that it’s beginning to improve. If you’re in the market to buy a home, these trends suggest that now might be a good time to start exploring your options.
As the year progresses, keeping an eye on these factors will be crucial. They could signal even more favorable conditions for homebuyers in the near future. For more information on navigating the San Francisco real estate market, check out the resources linked above.
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