Potential homebuyers stop by a property for sale during an open house on September 3, 2023, in the Clarksburg, Maryland, residential neighborhood.
Robert Schmidt | AFP | Getty Images
It’s no secret that the housing market looks very different than it did just a few years ago.
High mortgage rates and home prices have robbed consumers of purchasing power, while limited supply has left the market competitive, resulting in dramatically less affordable housing than it was at the start of the pandemic.
The six charts below will help explain what this special moment is like and what it means to you.
30-year mortgage rates are a popular choice for homebuyers taking out a loan, and they’re key to understanding the market. This rate is essentially the borrowing cost of taking out a loan to buy a home. In reality, the higher the interest rate, the more interest you’ll pay on your mortgage.
For the past few months, that rate has hovered around 7%, down from reaching 8% late last year but still well above the sub-3% rates consumers were able to secure during the first few years of the pandemic.
Home prices are also central to how much or whether ordinary Americans can afford to spend: The Case-Shiller National Home Price Index, calculated by S&P Dow Jones Indices, hit a record high this year.
Rising prices can evoke different emotions for different groups. For would-be home buyers, it could be a warning signal that they’re planning on buying at the wrong time. But for current owners, there’s reason to rejoice, as it likely means the value of their property has gone up.
With mortgages and home prices rising, it’s no wonder home affordability is lower than it was at the start of the pandemic.
Several different surveys on home affordability paint a similar picture: A National Association of Realtors survey found that home affordability fell by more than 33% between 2021 and 2023 alone.
The economic feasibility of homeownership has plummeted more than 36% between the peak of the pandemic in summer 2020 and April, according to an index from the Federal Reserve Bank of Atlanta.
Another way the Atlanta Fed tracks this is the percentage of income the average American needs to buy the average home. Nationwide, 43% of salary was needed to buy the most recent home, well above the 30% threshold for affordability. As of mid-2021, anything above 30% is considered unaffordable.
The Atlanta Fed also sheds light on the current challenges in home affordability: While strong wage increases in recent years have helped boost home prices, the study found that the negative effects of rising interest rates and rising list prices outweigh the benefits of higher wages.
Current mortgage rates are high, but a team from the Federal Housing Finance Agency found that very few borrowers are actually locked in at these high rates.
Nearly 98% of mortgages were paying below average interest rates in the fourth quarter of last year, according to the FHFA survey. Nearly 69% of mortgages had interest rates that were 3 percentage points lower than average.
There are two main reasons why so few people are paying today’s interest rates: The most obvious reason is that the housing market was booming when interest rates were low, but has cooled significantly in this period of rising borrowing costs.
Another answer is that a refinancing race arose early in the pandemic when interest rates were below or close to 3%, allowing people who already owned homes to take advantage of these relatively low levels.
