House prices have doubled in the past decade and increased by almost 50% in the past five years alone. And the cost of owning a home is the highest it’s ever been. This means many people wouldn’t be able to afford their current home if they had to buy it today, according to a study commissioned by Redfin.
Homeowners were asked, “If you wanted to buy a house, do you think you could afford a house like yours in your neighborhood today?” And almost 40% of respondents said they “probably” or “definitely” couldn’t. Most homeowners who responded to the survey (about 80%) have lived in their home for at least five to 10 years. “That means the majority of respondents have seen home prices increase in their neighborhood since they bought their home,” the analysis said.
“Broadened down by generation, baby boomers are the least likely to be able to afford their current home if they were to buy it today,” the study found. Nearly half, or 45%, of baby boomers say they can’t afford a home in their neighborhood today. And while they may not like to hear it, everyone loves to talk about how baby boomers bought their homes for what seemed like next to nothing and how they increased in value. In their defense, boomers had to deal with much higher mortgage rates, and they didn’t mind housing prices at the time.
In any case, home prices were already high before the pandemic and the associated housing boom, but that’s when prices really skyrocketed. Since then they have not fallen in significance. Although there’s more to the story: Mortgage rates were lower than ever before during the pandemic (which is part of the reason we had a housing boom), but they skyrocketed when the Federal Reserve raised rates to control inflation to curb. Now the average 30-year fixed mortgage rate is 7.43% and the average sales price for homes nationwide is $417,700. That’s a lot more than people are used to, and on the mortgage interest side, this has created the lock-in effect: why would you sell your house with an interest rate of less than 3% for a house that is more than 7%?
“The fact that buying a bigger, better home – or even a comparable home – is financially out of reach for so many Americans is the driving force behind the lock-in effect on mortgage rates,” the analysis said. “Nearly all homeowners have mortgage rates below current levels, contributing to a shortage of homes for sale.”
But the housing world is complicated. It is never enough to simply say that high house prices are bad, because who are they bad for? Well, anyone who wants to buy a house. But high house prices are not bad for people who already own a house. Additionally, people have stopped selling their homes because of higher mortgage rates, but keeping people in their homes is far better than forcing them to sell (an artifact of 30-year mortgages, as Redfin CEO Glenn Kelman recently said in an interview). of Fortune).
“Rising home prices are a double-edged sword,” said Elijah de la Campa, Redfin senior economist. “On the one hand, Americans who already own homes benefit from rising values and are fortunate to have entered the housing market while they could still afford it.”
He continued: “On the other hand, the price increase is making the prospect of buying a new home difficult or even impossible for many people looking to move. Prices have risen so high that a comparable home in the same location would be much more expensive than a home someone already owns, even taking inflation into account. Add to that higher mortgage rates, and moving to a bigger, better home is even more expensive and perhaps out of reach.”
Not being able to afford your current house if you had to buy it today is better than not being able to afford a house at all. Yet it shows how unaffordable housing has become.