The housing market has been difficult for first-time home buyers to navigate in part because mortgage rates started climbing in 2022 and haven't really stabilized since. This is an especially thorny issue for renters: They aren't able to build equity through monthly payments, yet they can’t afford the current housing prices and inflated mortgage payments either.
The U.S. Census Bureau found that almost half of all renters are considered cost-burdened, meaning they spend more than 30% of their income on housing.
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However, a temperamental market makes it difficult for younger Americans to enter a thirty-year financial commitment, one that requires a sizable down payment and mortgage loan approval.
Rent is 20% higher now than it was during COVID-19 lockdowns, adding more financial strain for renters hoping to save up for a down payment.
Many experts have noted the need to address housing supply to increase affordability, reduce competition, and induce market activity. Still, increasing market inventory may not be an easy issue to solve.
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Baby Boomers selling their homes may not address housing affordability
Most economists have noted that consistently high mortgage rates and low housing inventory are keeping the housing market at a stalemate. Older homeowners with competitive mortgage rates aren’t willing to sell their homes to take on a substantially higher rate when they purchase a new home.
Both buyers and sellers are waiting for mortgage rates to drop, but it may take longer than expected for that to happen.
Increased housing supply would likely reduce competition and lead to pricing cuts, but the homes that will become available when Baby Boomers finally downsize won’t address inventory issues in key regions.
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The ‘Silver Tsunami,' or surge of new homes that will hit the market when older generations sell their homes, could be part of the solution to low inventory and affordability. Still, the wave is likely to hit mid-size cities where the housing market is already accessible. More affordable cities include Buffalo, Pittsburgh, Detroit, Cleveland and New Orleans.
There’s currently a supply of 12.8 million ‘empty nester’ homes owned by Baby Boomers that could be for sale soon, but these homes won’t add inventory in hot housing markets that need it now.
Millennial and Gen Z workers are flocking to more expensive job-hub cities, such as San Jose, Denver, Austin, and Seattle — all of which have low shares of empty-nester homes. While the Silver Tsunami may help increase inventory overall, it may not alleviate the housing pressures of larger cities.
Many prospective home buyers are looking to the Trump administration to increase the construction of new homes, but the logistics and feasibility of specific initiatives have yet to be resolved.
Housing affordability will change across different regions
National home prices have increased 3.4% between October 2023 and October 2024 and states in the northeast saw the most significant housing price increases. Prices in the south and southwest have grown minimally.
Related: Dave Ramsey explains how your mortgage is key to early retirement
However, according to an analysis from the National Association of Homebuilders, half of U.S. households cannot afford a $250,000 home, which is far less than the national average of $495,000 for a new home. Even more surprising, three-quarters (77%) of Americans can’t afford the average price of a new home at a 6.5% mortgage rate.
This is a staggering indication that many Americans struggle to keep up with current housing market prices.
While housing prices are improving in some areas, they’re rising in many others, especially on the East and West Coast.
Prices in New Jersey, Rhode Island, and New Hampshire have increased dramatically, seeing increases of between 6 and 8% year over year. Washington, D.C., Idaho, and Montana have seen the sharpest housing price decreases.
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