By most projections, buying a home is going to get less affordable this year. But does it matter?

If you're thinking about buying a home, then yes, rising prices and interest rates are definitely a concern for you. But it's a lot less certain whether those will be a significant drag on the housing market itself, or whether it will actually make it more difficult to buy a home.

While some economists are warning of a "shock" to housing affordability in 2014 brought on by higher prices and rates, that notion is dismissed by Mark Fleming, senior economist for the real estate data firm CoreLogic. Although agreeing that those trends, along with stagnant incomes, will depress affordability this year, he maintains that housing will remain extremely affordable by traditional measures.

"As I often point out with most housing statistics today, it is less important to focus on the fact that housing affordability is declining, but rather where it stands relative to historically normal levels," Fleming wrote in the most recent issue of MarketPulse, the company's monthly newsletter.

Still far more affordable than in 2000

Fleming notes that by most measures of housing affordability, which take into account a blend of home prices, mortgage rates and household incomes, housing remains far more affordable than it was in 2000, which was shortly before the housing bubble began to take off in earnest. Pointing out that 30-year mortgage rates were around 8 percent that year, he says housing is still 35 percent more affordable now than it was right after the turn of the new century.

He argues that the current relative decline in affordability will hurt prospective first-time homeowners much worse than existing homeowners, however. Because existing homeowners tend to have equity they can use to fund their next home purchase (Fleming doesn't address the issue of those who are still underwater or have yet to regain equity lost in the crash), Fleming projects that they will see relatively little decline in affordability, while first-time borrowers will see a modest decline.

Looking back to the average of the early 2000s, he sees affordability for existing homeowners has doubled, while still up a very healthy 35 percent for first-time homeowners.

Signs that credit is easing

Of course, affordability doesn't matter if you can't get mortgage credit. But on that score, the American Enterprise Institute (AEI) finds that mortgage credit continues to loosen, despite new regulations designed to promote responsible lending.

The AEI's monthly National Mortgage Risk Index continued to climb in January, driven in large part by an increase in mortgages approved with credit scores below 660, as lenders are increasingly willing to take on more risk.

So it could be that consumers could actually find it easier to buy a home in 2014 despite a decline in traditional measures of affordability.

Given that home sales have remained sluggish the past five years despite record-low rates and depressed home prices, the fact that lenders are finally showing signs of loosening their purse strings could be the crucial factor for the housing market in 2014.

Published on February 18, 2010