Why the housing market is so stuck, in 4 charts
The US is in the middle of the typical peak homebuying season, but all signs suggest that the market remains sluggish.
Housing contract activity slipped sharply in April, even though buyers had more inventory to choose from. Meanwhile, buyers and sellers are locked in something of a standoff: More sellers are listing their properties, but prices haven't fallen much, and buyers are being picky.
Mortgage rates aren't helping. They've held remarkably stable this year, hovering between 6.8% and 7%. Rate stability can be a good thing because buyers know what to expect when financing. But stability at relatively high levels prices many potential buyers out of the market altogether. Many would-be buyers find they're able to rent a much larger home than they could afford to buy.
'There was a little bit of a failure to launch feeling" this spring, said Hannah Jones, senior economic research analyst at Realtor.com. 'High home prices persisted. High mortgage rates persisted. Economic uncertainty picked up. All of that we see reflected in the housing data.'
What it will take to bring life back to the market isn't clear. Lower rates would certainly help, but there's little reason to think they'll return to 3% or 4% anytime soon, barring a deep recession. Recessions come with their own housing market tradeoffs, like higher unemployment that reduces demand and elevated mortgage delinquencies.
Yahoo Finance compiled charts that illustrate how quickly the housing market shifted in the last five years, and why it's at a standstill now.
Home price growth has outpaced wage inflation
For decades, home price appreciation has been outstripping earnings growth. In the last 25 years, home values have more than tripled. The steepest climb came between 2020 and 2022, when pandemic moves and ultra-low mortgage rates spurred a buying frenzy across the country.
Meanwhile, median incomes from 2000 to 2023 did not quite double.
People with 3% mortgages are hanging onto them
In recent years, the housing market has been stalled by what's known as the rate 'lock-in effect.' Anyone lucky enough to have a sub-4% mortgage rate at a time when prevailing mortgage rates are closer to 7% is reluctant to give up that cheap rate in a move. That effect has kept for-sale inventory depressed.
As the days of 3% and 4% mortgages become more distant, the hope is that the lock-in effect will ease. Those who bought after mid-2022 usually have higher rates they're less wedded to hanging onto. And some people with ultra-low mortgage rates find themselves needing to move anyway, perhaps for a new job or if they're expecting a baby. But as of the end of 2024, more than half of homeowners are still hanging on to rates below 4%.
'By and large, sellers are still feeling that pressure of their low mortgage rate,' Jones said.
Supply is up, but list prices aren't falling
For-sale inventory has been rapidly increasing in recent years, giving prospective buyers more homes to choose from. While inventory hasn't quite returned to pre-pandemic levels nationwide, it exceeds that in certain regions, especially states in the South and the West. There, home price appreciation is slowing, and in some cases prices are falling outright.
But in many parts of the country, prices are still rising. Median list prices remain near all-time highs. Coupled with higher mortgage rates, that leaves many buyers priced out.
Some economists expect home prices to fall on a national level this year by 1% to 2%, a small help in an environment where prices are up about 38% from pre-pandemic levels.
High mortgage rates have dramatically reduced buying power
'It is all about mortgage rates,' National Association of Realtors Chief Economist Lawrence Yun said after home contract activity had its worst April since 2009. 'Lower mortgage rates are essential to bring homebuyers back into the housing market.'
A family making the median US income of around $80,000 could comfortably afford to spend around $2,400 a month on housing, using conventional affordability guidelines. If they put 15% down on their home purchase — roughly the average-sized down payment — they could afford to buy a home costing up to $543,000 with a 3% mortgage rate.
But if their mortgage rate is 7%, their buying power goes down to $356,000. That's less than where the median home is listed today. At current mortgage rates, the median earner can't afford to buy the median home.
Buying has rarely been so much more expensive than renting
What's a priced-out buyer to do? In many cases, the answer is to rent. Buying a home has historically cost more than renting one, after factoring in maintenance, insurance, and other so-called 'hidden costs' of ownership. But the premium for ownership began rising rapidly alongside prices and mortgage rates in the aftermath of the pandemic.
Historically, buying a starter home cost an average of $233 more per month than renting a comparable unit. In late 2024, that premium was over $1,000 a month, according to John Burns Research & Consulting. For homeownership costs to return to the historical average premium, mortgage rates would need to fall to 3.75%.
In comments on Wednesday, Federal Reserve Chairman Jay Powell acknowledged the market's challenges.
'We have a longer-run shortage of housing, and we also have high rates right now,' Powell said. 'I think the best thing we can do for the housing market is to restore price stability in a sustainable way and create a strong labor market.'
Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Bloomberg
26 minutes ago
- Bloomberg
Darden Weighs Sale of Bahama Breeze Restaurant Chain
Darden Restaurants Inc. is considering 'strategic alternatives' for its Bahama Breeze chain, Chief Executive Officer Rick Cardenas said. Potential plans for the chain include selling the brand or converting the restaurants to other Darden brands, Cardenas said on an earnings call Friday.
Wall Street Journal
26 minutes ago
- Wall Street Journal
Fed's Waller Suggests Central Bank Could Cut Rates in July
Federal Reserve governor Christopher Waller said the central bank could be positioned to cut interest rates at its July meeting, notwithstanding potential inflation pressures from tariffs. 'I think we've got room to bring it down, and then we can kind of see what happens with inflation,' Waller told CNBC, saying the Fed should "look through" one-time price rises fueled by levies. 🔎 Read more:
Yahoo
30 minutes ago
- Yahoo
ETF Strategies to Follow If US Joins Israel's Attack
Financial markets could face a sudden selloff if the U.S. military initiates an attack on Iran. Economists caution that a sharp spike in oil prices could further strain a global economy already challenged by U.S. tariffs under President Donald Trump. According to data from prediction market Polymarket, the likelihood of U.S. military action against Iran before July was 63%, down from 82% earlier in the week but still markedly higher than the 35% probability before the recent escalation, as quoted on Yahoo Finance. Middle East tensions add to investor worries already heightened by Trump's trade policies. The World Bank recently cut its global growth forecast for 2025 by 0.4 percentage points to 2.3%, indicating tariffs as major headwinds for nearly all economies. Franklin International Core Dividend Tilt Index ETF DIVI, which yields 3.81% annually, may offer a safer exposure, in this case. The fund is up 18% so far this year. With major U.S. stock indices hovering near record levels, some investors worry that equities may be especially sensitive to further geopolitical turmoil. Chuck Carlson, CEO of Horizon Investment Services, noted that an initial market dip is likely if the United States becomes more deeply involved in the conflict, as quoted on Yahoo Finance. However, he also suggested that a faster escalation could result in the conflict's faster resolution. Seeking exposure to quality ETFs like iShares MSCI USA Quality Factor ETF QUAL makes sense. Growing fears of a broader war in Iran led investors to seek safe havens, causing U.S. Treasury yields to drop. The U.S. dollar strengthened against both the Japanese yen and Swiss franc — traditional safe-haven currencies. Invesco DB US Dollar Index Bullish Fund UUP added about 1.3% over the past five days (as of June 18, 2025). SPDR Gold Shares GLD is another safe haven bet, while dividend-growth ETFs like SPDR S&P Dividend ETF SDY also offer safer exposure. Barclays analysts warned that if Iranian oil exports were cut in half, crude could climb to $85 per barrel. In a worst-case scenario involving a broader war, prices might soar to $100. Brent crude was recently trading around $76, as quoted on yahoo finance. United States Oil Fund LP USO jumped 11.2% over the past five days. Citigroup economists also flagged the risk of a negative supply shock, warning that higher oil prices would dampen global growth and boost inflation — adding pressure on central banks already grappling with trade-related economic stress, as quoted on yahoo finance. As President Donald Trump considers whether to support Israel in its ongoing strikes against Iran's nuclear facilities, a key concern remains: how might Iran retaliate? The central question lies in the narrow but critical waterway — the Strait of Hormuz. The Strait of Hormuz is a vital maritime chokepoint linking the Persian Gulf to the Arabian Sea and international waters. It lies between Iran to the north and Oman to the south, and is only 35 to 60 miles wide at its narrowest points. Despite its size, it is the world's most crucial passage for fossil fuel exports. Roughly 20% of global oil and seaborne natural gas shipments pass through the strait, making it indispensable for global energy markets. As such, any disruption in the area can cause considerable economic downside. Defense stocks have also seen gains amid rising conflict. The S&P 500 Aerospace and Defense Index reached record highs last week, capping a 30% rebound following losses triggered by Trump's April 2 "Liberation Day" tariff announcement. One can keep an eye on iShares U.S. Aerospace & Defense ETF the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report SPDR Gold Shares (GLD): ETF Research Reports Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports United States Oil ETF (USO): ETF Research Reports SPDR S&P Dividend ETF (SDY): ETF Research Reports iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports Franklin International Core Dividend Tilt Index ETF (DIVI): ETF Research Reports This article originally published on Zacks Investment Research ( Zacks Investment Research Sign in to access your portfolio
