Updated Feb 21, 2024 - Economy

America's housing affordability crisis makes a comeback

Illustration of a percent sign with a house and upside-down house within the zeroes, forming upward and downward pointing arrows.

Illustration: Shoshana Gordon/Axios

Spiking mortgage rates and high home prices — a dreadful combination that brought America's housing market to a standstill in recent years — is making a comeback after a brief respite.

Why it matters: Financial markets no longer see near-term interest rate cuts after a run of hotter-than-expected inflation data. Those dimmed expectations have consequences for would-be homebuyers waiting for cheaper borrowing costs.

What's new: The average rate for a 30-year mortgage spiked above 7% last week, the Mortgage Bankers Association said Wednesday morning. It was the biggest weekly jump — by almost 0.2% — since last fall.

  • The result is plummeting interest in applying for a new mortgage, with MBA's measure of new applications dropping more than 10% in a week.
  • "Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market," MBA chief economist Mike Fratantoni said in a statement.

Where it stands: Mortgage rates remain below their most recent peak of 8% seen in October. But they remain well above that seen before the Fed's aggressive rate-hiking cycle took off.

  • This same time in 2022, for instance, mortgage rates hovered around 3%.

The intrigue: America's housing affordability shock is a side effect of the Fed's tightening campaign. After all, higher mortgage rates are one of the most salient ways that Fed moves ripple through the economy.

  • The opposite is the case, too: Signals of possible Fed easing have been reflected in falling mortgage rates, which nudged some would-be homebuyers into the market.

What they're saying: "A lot of my customers are paying close attention to what the Federal Reserve says," Redfin real estate agent Hal Bennett said in a release.

  • "Buyers and sellers came off the sidelines in December when the Fed signaled it would lower interest rates three times in the next year, but now some are getting cold feet because the Fed indicated that rate cuts may come later than expected."

By the numbers: The lack of available supply, partly triggered by stay-in-place owners unwilling to give up low-rate mortgages, means home prices have remained high.

  • The median home sale price climbed 5% from the same time a year ago to $402,343, Redfin said — the biggest annual jump since 2022. (On a monthly basis, prices were little changed, though Redfin cautions that data is not adjusted for seasonality.)

What to watch: Executives at The Home Depot, which has a good pulse of the state of the homebuying market, expect the housing market to coast along this year — with no clear signs of further deterioration or a sharp rebound.

  • "We don't think there's incremental pressure, nor do we think that we're quite ready for a hockey stick recovery," Home Depot CEO Ted Decker told analysts yesterday.
  • One reason: Decker said executives as the retailer have been "talking for some time" about the "Fed's stance for higher for longer."
  • "I think we now we have an appreciation that 'longer' is going to go through the first half of this year," Decker said.
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