The National Association of Realtors (NAR) recently released Existing Home Sales data for February, and in the accompanying press release, there was a story on affordability that captured media headlines.

NAR’s chief economist, Lawrence Yun, noted, “Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases.” He added that, “Monthly payments have risen by 28% from one year ago – which interestingly is not a part of the consumer price index – and the market remains swift with multiple offers still being recorded on most properties.”

While this 28% increase certainly sounds concerning at first glance, it’s important to take everything into account, including incomes. Let’s look at an example:

The above example shows a median priced home in 2021 with 20% down and a 3.375% rate. Notice how the P&I ratio is 20%. The example also shows the numbers if we were to fast forward to today.

Comparing the payments of both loans, the difference of $298 is a 28% increase from last year. But you cannot just look at the payment on its own!

Incomes have increased by 6% since last year, but that’s all wage growth. Private sector wages have gone up by almost 10%, which is likely more indicative of the homebuyer crop. But using 6%, and factoring in the increase in monthly payment, the change in P&I ratio is only 3%. The payment has increased and affordability has gone down slightly, but the impact on homebuyers is much less than the media headlines would lead you to believe.