The Math for Buying a Home No Longer Works. These Charts Show You Why.
What does it take to buy a home in the U.S.? A lot more than it did before the Federal Reserve raised interest rates
Homeownership has become a pipe dream for more Americans, even those who could afford to buy just a few years ago.
Many would-be buyers were already feeling stretched thin by home prices that shot quickly higher in the pandemic, but at least mortgage rates were low. Now that they are high, many people are just giving up.
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It is now less affordable than any time in recent history to buy a home, and the math isn’t changing any time soon. Home prices aren’t expected to go back to prepandemic levels. The Federal Reserve, which started raising rates aggressively early last year to curb inflation, hasn’t shown much interest in cutting them. Mortgage rates slipped to about 7% last week, the lowest in several months, but they are still more than double what they were two years ago.
Typically, high mortgage rates slow down home sales, and home prices should soften as a result. Not this time. Home sales are certainly falling, but prices are still rising—there just aren’t enough homes to go around. The national median existing-home price rose to about $392,000 in October, the highest ever for that month in data that goes back to 1999.
Average rate on a 30-year fixed mortgage, monthly
Median sales price on existing U.S. single-family homes
$400 thousand
20%
300
15
200
10
100
5
0
0
1975
’80
’85
’90
’95
2000
’05
’10
’15
’20
1975
’80
’85
’90
’95
2000
’05
’10
’15
’20
Average rate on a 30-year fixed mortgage, monthly
Median sales price on existing U.S. single-family homes
$400 thousand
20%
300
15
200
10
100
5
0
0
1980
’90
2000
’10
’20
1980
’90
2000
’10
’20
Average rate on a 30-year fixed mortgage, monthly
Median sales price on existing U.S. single-family homes
$400 thousand
20%
300
15
200
10
100
5
0
0
1980
’90
2000
’10
’20
1980
’90
2000
’10
’20
Average rate on a 30-year fixed mortgage, monthly
20%
15
10
5
0
1975
’80
’85
’90
’95
2000
’05
’10
’15
’20
Median sales price on existing U.S. single-family homes
$400 thousand
300
200
100
0
1975
’80
’85
’90
’95
2000
’05
’10
’15
’20
Average rate on a 30-year fixed mortgage, monthly
20%
15
10
5
0
1975
’80
’85
’90
’95
2000
’05
’10
’15
’20
Median sales price of existing U.S. single-family homes
$400 thousand
300
200
100
0
1975
’80
’85
’90
’95
2000
’05
’10
’15
’20
In mortgages, higher rates add up fast. An increase of just a few percentage points can mean hundreds of thousands of dollars more in interest over the life of a standard 30-year loan.
That means buyers get a lot less home for their dollar. Before the Fed started raising rates, a person with a monthly housing budget of $2,000 could have bought a home valued at more than $400,000. Today, that same buyer would need to find a home valued at $295,000 or less.
First-time and young buyers are still stuck on the sidelines. About one-third of buyers this year were first-time home buyers, below the historical average of 38%, according to the National Association of Realtors. The median first-time buyer was 35 years old. That was the second-highest on record, behind only 2022’s peak of 36 years old.
Rents are on the rise, but the cost of buying a home has risen by a lot more. The average monthly new mortgage payment is 52% higher in the U.S. than the average apartment rent, according to an analysis by CBRE. The premium is even sharper in many major metro areas—including 175% or more in Seattle and Austin, Texas, and several cities in California.
Some people, as a result, are just abandoning the idea of saving for a down payment.
The usual tricks aren’t working. For example, when interest rates rise, buyers sometimes turn to a type of mortgage that offers a lower rate for the first few years. But the costs of these adjustable-rate mortgages have also risen sharply this year. They are still a little cheaper than fixed-rate mortgages, just not by as much.
Alana Pipe contributed to this article.
Write to Gina Heeb at gina.heeb@wsj.com
