Home prices are at the crux of the housing affordability crisis in the U.S.
- Housing affordability in the U.S. remains at crisis levels due to a combination of stubbornly high mortgage rates and home prices. Even if mortgage rates dropped substantially, the core problem is persistently high prices, particularly in major metro areas. Affordable inventory remains tight as current homeowners hold onto low-rate mortgages.
There are several factors affecting housing affordability in the U.S.āand stubbornly high mortgage rates are something felt across the country.Ā
During the pandemic, buyers enjoyed sub-3% mortgage rates, which ushered in a wave of first-time homeowners. But by late 2023, mortgage rates had peaked at 8%, and today still remain near 6.5% to 7%. Thatāin combination with home prices that are more than 50% higher than 2020āhas locked out new home buyers from entering the market and current homeowners from selling.Ā
Zillow reported this week it would take mortgage rates dropping to about 4.43% to make an average home affordable for a typical buyer. But Zillow economic analyst Anushna Prakash said this was āunrealisticā considering the massive dip required to get there.Ā
But even if mortgage rates dropped to 0%, Prakash said, an average home would remain unaffordable in some major metro areas, according to Zillow.Ā
Those include:Ā
- New York
- Los Angeles
- Miami
- San Francisco
- San Diego
- San Jose
Thatās because high home prices āare the bigger hurdle,ā Michelle Griffith, a luxury real-estate broker with Douglas Elliman based in New York City, told Fortune.
āThe reality is that buying into the market especially in Manhattan or prime Brooklyn still requires a significant amount of cash upfront,ā Griffith said. āInventory is tight and competition is high, so the cost of the property itself is what keeps most buyers on the sidelines.ā
Between May 2020 and May 2025, the Case-Shiller Home Price Index, which is widely used to measure U.S. residential real estate prices, jumped more than 51%.Ā
While mortgage rates certainly make monthly payments more expensive, Griffith said, affordability āis more about the overall price tag.āĀ
āBuyers care about rates, of course, but what really matters is having enough for the down payment and closing costs,ā she added. āA small shift in rates doesnāt suddenly make that million-dollar apartment feel attainable.ā
Another issue contributing to the housing crisis is a lack of lower-priced inventory. Salim Chraibi, founder and CEO of homebuilding company Bluenest Development, told Fortune he sees pre-approved and motivated buyers in Miami, but there just arenāt enough homes available in their price range. Chraibiās company focuses on building homes for lower- and middle-income families.
āFor sellers, many are holding onto homes because they donāt want to lose the lower interest rates they locked in years ago, which keeps inventory tight and the cycle going,ā he said. āThe biggest issue is inventory of the types of homes that are considered affordable for middle-income families.ā
Dealing with sticker shock
When it comes to the U.S. market, tipping one scale doesnāt necessarily fix the housing affordability problem.
Even buyers who pay in all cash have to ācontend with sticker shock,ā Alexander Kalla, a realtor with Keller Williams Bay Area Estates in California, told Fortune.Ā
The median home price in San Jose has hovered consistently above $1.6 million, he said, which significantly strains most households before mortgage financing costs are even considered. So even if mortgage rates dropped to 0%, a median-priced home in San Francisco, San Jose, or anywhere else in the Bay Area would still require an extremely high down payment and monthly payments, he explained.Ā
While āmany buyers here are extremely rate-sensitive, running numbers at every shift in the market,ā Kalla said, āthe main barrier is that house prices have massively outpaced local incomes since before rates rose.ā
Rents and home prices have been rising faster than incomes across most regions of the U.S., according to a 2024 report from the U.S. Department of the Treasury. Americans now need to make more than six figures to afford a median-priced home, according to Realtor.com, but the average U.S. salary is only slightly more than half of that.
āUntil we tackle prices, supply, and local wage growth, affordability will remain a challenge, no matter what happens with rates,ā Kalla said.Ā
This story was originally featured on Fortune.com
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