The US Housing Market Has Become an Impossible Mess

It sometimes feels as if the US housing market is in a never-ending affordability crisis, with prices continually rising and inventory shrinking. The reasons have ranged from anemic construction to student loan debt to investors buying up starter homes. But even as the pandemic pushed values up faster than ever, cheap mortgages kept buyers in the game. Now a whole new affordability crisis is beginning. And this time, there’s no obvious way out.

The Federal Reserve bank’s aggressive tightening since last year has driven the interest rate on a 30-year mortgage close to 8%, the highest point in almost a quarter century, adding some $1,100 to the monthly payment on a $400,000 loan. That might be manageable if higher rates led to lower prices. But the impact on supply is even more drastic because of the so-called lock-in effect: Homeowners are unwilling to let go of cheap mortgages they got when rates were scraping bottom. This has resulted in the least affordable housing market since the 1980s, with sales approaching record lows.