Will Housing Ever Become Affordable Again?

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Will Housing Ever Become Affordable Again?

Will Housing Ever Become Affordable Again?

The American real estate market has experienced significant challenges in recent years, including high inflation levels, rising interest rates, and supply chain disruptions. These factors have contributed to a tumultuous housing market. However, economists are cautiously optimistic that 2023 could mark a turning point, with the housing market gradually reverting to pre-pandemic trends. In this article, we will explore the predictions and research from various sources to understand the factors influencing housing affordability and whether there is hope for a more affordable future.

The Impact of Interest Rates and Mortgage Rates

One of the key factors affecting housing affordability is interest rates. According to Morningstar, interest and mortgage rates are expected to peak in 2023 before gradually declining in the following years. Their report predicts that 30-year mortgage rates will average 6.25% by the end of 2023, with further reductions to 5% and 4% in 2024 and 2025, respectively. This anticipated decline in mortgage rates is expected to improve housing affordability in the short term.

The Federal Reserve plays a crucial role in managing interest rates to combat inflation. While the Fed has increased rates to address high inflation, Morningstar's report suggests that they will eventually ease monetary policy, leading to lower interest rates. The report indicates that the Federal funds rate could decrease from the current 5% to below 2% by 2025. This potential easing of rates could stimulate the U.S. economy and contribute to a more affordable housing market.

Remote Work and Housing Demand

The COVID-19 pandemic has brought about significant changes in the way people work, with remote work becoming more prevalent. The ability to work remotely has influenced housing demand and affordability. Research from the Federal Reserve Bank of San Francisco highlights that more than 60% of the housing market gains during the pandemic can be attributed to the shift to remote work. This shift has allowed individuals to explore housing options in different locations, leading to increased demand in various markets.

The newfound flexibility to work from anywhere has opened up new housing markets and made homeownership more accessible for remote workers. As people move away from higher cost-of-living areas to places with lower housing costs, one would expect housing prices to decrease in big cities. However, as Adam Ozimek and Eric Carlson's research suggests, household formation has counteracted this trend. The decision of individuals to rent their own place or millennials moving out of their parents' basements has contributed to the stability of housing prices in major cities.

Demographic Factors and Household Formation

Demographics play a crucial role in shaping the housing market. The demographic wave of millennials entering their household formation years has had a significant impact on housing demand and prices. Millennials, as the largest demographic group in the United States, have been a driving force behind the increase in household formation. Even before the pandemic, millennials were already shaping the housing market due to their age and life stage. However, the pandemic amplified this trend as individuals repaired their balance sheets, saved money, and decided to buy or rent their own homes.

Despite the potential affordability challenges posed by rising mortgage rates and housing prices, the demographic wave of household formation has acted as a stabilizing force. The demand from millennials, coupled with limited housing supply, has created a situation where supply struggles to meet demand, preventing significant decreases in housing prices. This demographic factor presents a challenge for those hoping for more affordable housing options.

The Current State of the Housing Market

As we assess the current state of the housing market, several key observations emerge. Firstly, housing prices have become increasingly unaffordable from a monthly payment perspective. The combination of high prices and rising mortgage rates has made it difficult for many individuals to afford homeownership. Additionally, housing supply remains constrained due to homeowners' reluctance to move from low mortgage rate environments to higher-rate mortgages or buy into a new high-rate mortgage. This limited supply, combined with strong demand from millennials, further exacerbates affordability challenges.

While there are areas where housing prices have declined, stubborn resilience is observed in much of the country. According to Lance Lambert's analysis, 55% of the 400 biggest housing markets in the U.S. have either reached new all-time high price points or are close to doing so. This suggests that despite potential downward pressure on prices, they continue to hold steady or even rise in many areas.

The Challenges of Housing Affordability

The question of whether housing will ever become affordable again is a complex one. The combination of rising mortgage rates, limited housing supply, and strong demand from millennials presents significant challenges. Affordability calculations based on monthly payments highlight the strain on individuals' budgets. However, the demographic factors driving household formation and the willingness of individuals to pay higher prices to secure homeownership have acted as a counterforce.

The housing market is influenced by various interrelated factors, and it's essential to consider the broader economic context and long-term trends. While some areas may experience price corrections, the overall picture suggests that housing affordability will continue to be a challenge in the near future.

The Hope for a More Affordable Future

While the current housing market presents affordability challenges, it is important to remember that market conditions are not static. Over time, factors such as changing interest rates, shifts in demographics, and adjustments in housing supply can shape the affordability landscape.

It is possible that as interest rates stabilize or decline, housing affordability could improve. Additionally, as millennials progress through different life stages and their housing preferences evolve, the demand dynamics may change. This could lead to shifts in housing supply and potentially more affordable options.

Government policies and initiatives aimed at addressing housing affordability can also play a crucial role. By implementing measures to increase housing supply, provide financial assistance to first-time homebuyers, and promote affordable rental options, policymakers can help alleviate some of the affordability challenges.


The question of whether housing will ever become affordable again is a complex one with no simple answer. The interplay of factors such as interest rates, household formation, and demographics influences housing affordability. While the current market presents challenges, there is hope for a more affordable future.

As we navigate the changing landscape of the housing market, it is important to consider the broader economic context, long-term trends, and potential policy interventions. By understanding the complexities of the housing market and addressing affordability concerns, we can work towards ensuring access to safe and affordable housing for all.