Today’s housing market is significantly different from that of just a few years ago. High mortgage rates and rising home prices have reduced consumer purchasing power, while limited housing supply maintains fierce competition. As a result, housing affordability has declined significantly since the pandemic began.
Here are six charts that illustrate the current state of the real estate market and its implications:
1. Mortgage rates:
The 30-year mortgage rate, a popular choice among homebuyers, is key to understanding the market. This rate determines the cost of borrowing to buy a home. The rate has recently hovered around 7%, down from a peak of 8% last year but still much higher than the sub-3% rates available at the start of the pandemic.
2. House prices:
The Case-Shiller national home price index, maintained by S&P Dow Jones Indices, has reached unprecedented levels this year. While high prices may discourage potential buyers who fear entering the market at the wrong time, current homeowners may rejoice as their property values rise.
3. Decline in affordability:
With mortgage rates and home prices rising, housing affordability has declined significantly since the pandemic began. The National Association of Realtors reports a 33% decline in affordability from 2021 to 2023. Similarly, the Atlanta Federal Reserve reports a 36% decline in affordability since the peak of the pandemic in April 2020.
4. Income and convenience:
The Atlanta Federal Reserve also measures the share of income the average American needs to afford a median-priced home. This recently required 43% of their salary, well above the 30% affordability threshold. Housing has been considered unaffordable, exceeding 30%, since mid-2021.
5. Wage increases vs. housing costs:
While wage increases in recent years have provided some financial relief, the benefits have been overshadowed by higher mortgage rates and home prices. The Atlanta Federal Reserve notes that the negative impact of these factors has significantly undermined the affordability gains that came from higher wages.
6. Refinancing Trends:
Despite today’s high mortgage rates, most borrowers are not affected. The Federal Housing Finance Agency (FHFA) found that nearly 98% of mortgages were below the average rate in the last quarter of the previous year. This is due to the market booming when rates were low and the rush to refinance at rates below 3% at the start of the pandemic.
These charts collectively show how the real estate landscape has evolved, highlighting the challenges and decisions facing both prospective buyers and current homeowners.
