Prospective home buyers leave a property for sale during an open house in a Clarksburg, Maryland neighborhood on September 3, 2023.
Roberto Schmidt | AFP | Getty Images
It's no secret that the housing market looks a lot different than it did a few years ago.
While high mortgage rates and home prices have sapped consumers’ purchasing power, low supply has kept the market competitive. As a result, affordability has declined dramatically since the early days of the pandemic.
These six charts help you clarify what this unique moment looks like—and what it means to you:
The 30-year mortgage rate, a popular choice for homebuyers using financing, is key to understanding the market. This rate is essentially the borrowing costs associated with buying a home with financing. In effect, a higher rate means more interest on your home loan.
Over the past few months, that rate has hovered around 7%, and while it has slowed from a high of 8% late last year, it’s still well above the sub-3% rates that consumers were able to sustain during the early years of the pandemic.
Home prices are also a key element in how ordinary Americans decide how much they can afford to spend, or whether they can afford to. The Case-Shiller National Home Price Index, compiled by S&P Dow Jones Indices, has hit record highs this year.
High prices can trigger different emotions depending on the group. For optimistic homeowners, prices may raise red flags that they are planning to buy at the wrong time. But current owners may see reason to celebrate, because it likely means their property has appreciated in value.
With mortgage rates rising, it's no surprise that affordability is lower than it was early in the pandemic.
There are several different readings of affordability that paint a similar picture. One reading from the National Association of Realtors found that affordability declined by more than 33% between 2021 and 2023 alone.
The Atlanta Fed's measure showed that the economic viability of homeownership fell by more than 36% when comparing April to the pandemic high seen in the summer of 2020.
Another way the Atlanta Fed tracks this is by the share of income the average American needs to buy an average home. Nationally, that last required 43% of a person’s wages, well above the 30% threshold considered the minimum affordability threshold. That threshold has been considered unaffordable, or above 30%, since mid-2021.
The Atlanta Fed also explains why the current lack of affordability has led to a decline in housing affordability. While large wage increases in recent years have helped fill the pockets of the wealthy, the bank found that the negative impact of higher interest rates and posted prices has outweighed the benefits of higher wages.
While current mortgage rates are high, a team from the Federal Housing Finance Agency found that a very small percentage of borrowers are actually locked into these high levels.
The Federal Housing Finance Agency found that nearly 98% of mortgages had a rate below the median in the fourth quarter of last year, and nearly 69% of mortgages had a rate that was less than 3 percentage points below that average.
There are two main reasons why such a small percentage of these borrowers are paying current interest rates. The most obvious reason is that the housing market was active when interest rates were low, but has slowed dramatically in the current period of high borrowing costs.
Another answer is the rush to refinance when rates were below or near 3% early in the pandemic, which allowed people who were already homeowners to take advantage of these relatively low levels.
