“It felt like we had missed our window in that moment,” Vaughan said. He has nearly given up waiting for interest rates to come down as it would do little good in the Los Angeles-area market, where the median home price now stands at $972,837. “It just seems really unattainable at this point.”
Recent research from Zillow underscores Vaughan’s challenge: Los Angeles is among the six US metro areas the housing site ranked “unaffordable” for would-be buyers earning the local median income, even if the mortgage came with zero interest. And while home prices in most of the country aren’t rising as rapidly as they were a few years ago — and are even falling in some places — the current US median home price of $410,800 is nearly $100,000 higher than that of 2019.
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The combination of higher prices and higher rates has put homeownership out of reach for millions of renters and taken a toll on the housing market. Even in communities where prices have cooled, owners may be reluctant to sell if they can’t get the best asking price or if it means trading in a cheap mortgage for a more expensive one.
On Wednesday, the Federal Reserve cut interest rates by a quarter-point and signaled at least two more cuts could be coming this year. President Donald Trump has put extraordinary pressure on the central bank to lower rates as a means of juicing the economy and putting some downward pressure on borrowing costs. Trump, whose first term ended with ultralow mortgage rates — the average 30-year loan was going for 2.7 percent in January 2021, according to Freddie Mac — is attempting to reshape the Fed. This week, a federal appeals court rejected his attempt to fire Fed governor Lisa Cook, and one of his top advisers, Stephen Miran, won Senate confirmation to the Fed board.
Mortgage rates stood at 6.35 percent last week, according to Freddie Mac, compared with 7 percent when Trump returned to office and are at their lowest level in more than a year. But economists don’t expect the Fed’s decision to cut its benchmark rate will do much to bring down mortgage rates. More importantly, even if the low interest rates of much of this century were to come back — which isn’t likely soon — home prices have become so expensive that many families still couldn’t afford houses anyway.
“Unaffordability is going to be here for a while,” said Chris Herbert, who runs the Joint Center for Housing Studies at Harvard. Even with a slight drop in mortgage rates, he said, “at the home price levels we’re at, it still means very few renters can afford to buy a home at that level.” The median home price has climbed to $1.6 million in the San Jose area, $737,436 in Boston and $587,158 in the D.C. area, according to data provided by Zillow to The Washington Post.
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The typical buyer needs to earn $126,700 a year to afford the US median home price, according to the Harvard center, which is a nearly 60 percent jump from the $79,300 in income required in 2021. The affordability measure assumes a 20 percent down payment and that the monthly mortgage payment won’t exceed 30 percent of their income.
Meanwhile, census data shows the average first-year mortgage payment swelled 20 percent — to $2,225 a month — from 2021 to 2024.
Not long ago, Herbert said, the housing affordability crunch was largely confined to a few cities. “For much of the country, homeownership was within reach for people with middle incomes. Now it’s not.”
On top of mortgage payments, the average homeowner’s insurance premiums have risen by 57 percent from 2019 to 2024, according to the Harvard report. And rising home values also spell higher property taxes. After falling for a decade, more homeowners — nearly 1 in 4 — are now spending more than the recommended 30 percent of their income on housing and utilities. The share of owners considered “cost-burdened” has risen in 93 out of the most populous 100 metro areas.
Zillow analyzed the nation’s 50 most populous metro areas to calculate the mortgage rate each market would require to make homes affordable with a 20 percent down payment and a monthly bill below 30 percent of income. In 11 cities, the current 6.35 percent rate qualified as affordable for families earning the area’s median income. In Pittsburgh, for example, the median home price of $229,722 is affordable relative to the local median income of $77,050 — and would qualify as such even if the buyer’s mortgage rate went as high as 8.91 percent. Under current rates, several cities in the South (Louisville, Birmingham, Memphis) and the Midwest (Chicago, Cleveland, Detroit) are affordable by Zillow’s estimates.
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But the opposite is true in many cities, especially coastal ones. By Zillow’s metric, mortgage rates would have to fall below 5 percent to make Virginia Beach, Charlotte, Philadelphia or D.C. affordable, and would theoretically have to drop below 1 percent in Boston or Seattle. Even if interest rates went to zero, New York, Miami and four California cities would be out of reach for those earning the local median income.
Mike Mullane wasn’t surprised to learn that a home in the Orlando market would need to come with a mortgage rate of about 3 percent to be affordable by Zillow’s measure. The marketing professional and his wife, a lawyer, hope to find a home in the city in the $300,000-to-$450,000 range. They’ve committed to going to at least one open house every weekend. But it’s been a disappointing search so far.
“We wanted to buy. …. We wanted to grow roots here and have a place that we could say it’s our own,” Mullane said. But he and his wife have learned that the costs of homeowner’s insurance and homeowner association fees are soaring in Florida, propelled by climate-change-driven hurricanes and costly repairs required to prevent coastal buildings from collapsing. The prevailing interest rates, too, have them reconsidering whether they should just keep renting instead of taking out a mortgage. “We have not really seen rates that make us want to jump into becoming homeowners.”
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The mortgage rate is important not just to people who are looking to buy a house, but to would-be sellers as well. In addition to an inadequate supply of newly built homes for purchase, economists say, one cause of the spike in home values is that current owners who locked in low mortgage rates are usually unwilling to sell.
“To unlock a lot of [sellers] who are sitting on the sides due to mortgages, you’re going to need bigger declines in the mortgage rates. And I’m skeptical even if the Federal Reserve cuts interest rates,” Boston University economist Adam Guren said. The central bank is “not talking about cutting rates dramatically enough to change the affordability” of homes.
Robert Dietz, chief economist for the National Association of Home Builders, said he welcomes a rate cut because lower interest rates will help developers take out loans to buy land and build new houses. “That’s a good thing in this market,” he said.
Some experts are advocating other federal policies that might prompt more home sales, such as increasing the amount of money someone can earn from selling their house without paying taxes on the sale, or incentives to spur home construction. Guren cautioned that would-be buyers shouldn’t expect the government to help reduce prices much anytime soon. “Ultimately, we are in this mess because of 20 years of underbuilding,” he said. “Any policy or economic change that’s going to get us out — to think it’s going to be quick ignores the reality. … We just can’t build that many houses immediately.”
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