High Home Prices, Steep Interest Rates Lock Homeowners in Place
In early 2023, housing demand softened and a number of regional markets began cooling at a rapid pace as both the for-sale and rental sectors underwent major price corrections, but halfway through the year, housing costs remain high. In fact, since the beginning of 2020, asking rents are up by 24%, while home prices have risen an astounding 37.5%, Harvard’s Joint Center for Housing Studies reports.
As a result, first-time homebuying is plummeting, and a slowdown in single-family construction could continue to dampen sales and sustain elevated prices throughout the remainder of the year.
First-time homebuying plummeted over the last year in response to the increased cost of homeownership. Between March 2022 and March 2023, payments on the median-priced home shot up from $2,500 to $3,000 as the annual interest rate on 30-year fixed-rate mortgages jumped from 4.2 percent to 6.5 percent. The result was a 22 percent annual decline in the number of mortgages originated to first-time homebuyers in 2022, including a year-over-year drop in the fourth quarter of nearly 40 percent, as over 2.4 million potential homebuyers were priced out of homeownership.