Home Buying Gets More Affordable in a Surprising Way

Americans keeping their jobs and seeing their wages increase may put them in a stronger home buying position even amid elevated mortgage rates, some economists say.

On Friday, the U.S. Bureau of Labor Statistics (BLS) said employers added 353,000 jobs in January, a signal that Americans can find a job if they want one. Earnings also went up for the month, jumping by 0.6 percent for average hourly wages, and for the year they increased by 4.5 percent, government data showed.

Analysts suggest that Americans being able to find and retain jobs means that their home purchasing powers are enhanced—a positive signal for the housing market—even as mortgage rates may stay high.

"The strong job market is good news for the spring buying season as higher household incomes are a necessary component, but it also means that mortgage rates are not likely to drop much further at this point," Mike Fratantoni, Mortgage Bankers Association's (MBA) chief economist, said in a statement that was shared with Newsweek.

The better than forecasted jobs numbers has experts thinking that it may be a little while before the Federal Reserve cuts rates. Policymakers hiked rates beginning in March 2022 to battle soaring inflation, with the expectation that the policy move will slow down the economy as borrowing costs jump, including for home loans.

Inflation has slowed, but it has yet to come down to The Fed's 2 percent target. On Wednesday, the central bank held rates at their two-decade high range of 5.25 to 5.5 percent for the fourth time in a row.

The Fed chair Jerome Powell suggested that while inflation was progressing down it was still elevated, which was why it was unlikely that policymakers would cut rates in the immediate future but may do so sometime in 2024.

"We expect that the balance of incoming data will keep the Federal Reserve from cutting rates in March, and still anticipate that they will wait until the May meeting for a first cut," Fratantoni said.

This means that it will also keep mortgage rates elevated. However, as hiring continues and wages improve, it could help prospective buyers withstand high mortgage rates. As of February, the 30-year fixed rate mortgage costs 6.63 percent interest, according to Freddie Mac.

Danielle Hale, chief economist at realtor.com, said earnings could grow from January's 4.5 percent jump, suggesting that employees are getting wages that are trending above inflation which in December came in at 3.4 percent.

"This means that workers have seen real growth in their spending power over the last year," Hale said in a note.

The question going forward will be whether prices plus the cost of a mortgage will be affordable for buyers. Hale pointed out that the cost of buying a home rose by 5.4 percent in January, slightly above wage growth. One silver lining is that those costs are increasing at a slower pace than the previous two months, with prices also growing less quickly than in the past.

"[We anticipate] that affordability could further improve as inflation drops and the Fed can begin to normalize monetary policy," Hale said.