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Mortgage Rates Soar, Crushing Home Affordability Nationwide
30 Jul
Summary
- Mortgage rates peaked at 8% in late 2023, now remain near 7%
- Home prices up over 53% since pandemic onset, halving first-time buyers
- Typical home unaffordable even with 0% interest rates in major cities
The COVID-19 pandemic brought with it a housing affordability crisis in the United States. During the early stages of the pandemic, from spring 2020 through 2021, mortgage rates were around or even below 3%. However, these rates steadily crept up during 2022 and 2023, peaking at 8% in late 2023.
Economists had warned home buyers to get used to high mortgage rates, and today, rates are still nearly 7%. This, coupled with a historic 53% increase in home prices since the onset of the pandemic, has made homeownership a distant dream for many Americans. As a result, the number of first-time homebuyers is now half the historical norm.
According to Zillow, for a typical home to be affordable to a buyer, mortgage rates would need to drop to 4.43%. However, analysts say "that kind of a rate decline is currently unrealistic." In fact, even a 0% interest rate would not make a typical home affordable in major cities like New York, Los Angeles, Miami, San Francisco, San Diego, or San Jose.
The housing affordability crisis is a complex issue, with factors like inventory shortages, wage stagnation, and rising insurance and tax costs all contributing to the problem. Experts advise homebuyers to be more flexible in their search and consider options like renovating a less expensive home or exploring alternative mortgage products to get a foot in the door.
