Prospective home buyers leave a property for sale during an Open House in a neighborhood in Clarksburg, Maryland on September 3, 2023.
Roberto Schmidt AFP | Getty Images
It’s no secret that the housing market is very different than it was a few years ago.
While rising mortgage rates and home prices have taken away consumer purchasing power, low supply has kept the market competitive. As a result, affordability has dropped dramatically since the early days of the pandemic.
These six charts explain what that unique moment looks like — and what it means to you:
The 30-year mortgage rate, a popular option for homebuyers using financing, is key to understanding the market. This interest rate is essentially the cost of borrowing associated with purchasing a home with financing. A higher interest rate, in effect, results in more interest on a mortgage.
In recent months, this percentage has fluctuated around the level of 7%. While it has cooled since touching 8% late last year, it is still much higher than the sub-3% rates consumers could lock in during the early years of the pandemic.
Home prices are also central to the equation for Americans’ daily decision about how much, or whether, they can afford to spend. The Case-Shiller National Home Price Index, which is calculated by the S&P Dow Jones Indices, has record highs were set This year.
High prices can evoke different emotions by group. For hopeful homeowners, it can raise red flags that they’re looking to buy at the wrong time. But current owners can see reason to celebrate, as it likely means their property has increased in value.
With both mortgages and prices rising, it’s no surprise that affordability is down compared to the early years of the pandemic.
There are a few different readings on affordability that paint a similar picture. One from the National Association of Realtors affordability was found to decrease by more than 33% between 2021 and 2023 alone.
The Federal Reserve Bank of Atlanta meter showed that the financial feasibility of home ownership plunged more than 36% compared to April with the pandemic high seen in the summer of 2020.
Another way the Atlanta Fed tracks this is through the share of income the typical American needs to afford the average home. Nationally, it recently took 43% of their pay, well above the 30% mark that is considered the affordability threshold. As of mid-2021 it is considered unaffordable, or over 30%.
The Atlanta Fed also breaks down what’s causing the current lack of affordability. While significant pay rises in recent years have helped balance wallets, the bank found that the negative impact of higher interest rates and list prices have outweighed the benefits of a higher salary.
While current mortgage rates are high, a group at Federal Housing Finance Agency it was found that a very small percentage of borrowers are actually locked into these high levels.
Just 98% of mortgages were below the average rate seen in the fourth quarter of last year, the FHFA found. Almost 69% had a rate that was 3 percentage points below this average.
There are two main reasons why such a small share is paying current prices. The most obvious is that the housing market heated up when interest rates were low, but they have fallen significantly in the current period of higher borrowing costs.
The other answer is the scramble to refinance when interest rates were below or near 3% at the start of the pandemic. This allowed people who were already homeowners to take advantage of these relatively low levels.
