The average 30-year fixed mortgage rate has climbed to 7.2%, its highest level in a year and a half, leaving younger Americans priced out of homeownership while a record number of adults under 35 move back in with their parents.
A 33-year-old Georgetown University biology teacher and her husband want to buy their first home in the Washington, D.C., area. They cannot bring themselves to pull the trigger. Alexandra DeCandia and Edward Schrom, both 33, have watched mortgage rates surge more than a full percentage point since late February, when the 30-year fixed average sat at 5.99%. That jump, combined with near-record home prices nationwide, has turned their house hunt into an exercise in anxiety.
The numbers tell a bleak story for anyone trying to break into the market. The national average home price reached $429,100 as of August, according to the National Association of Realtors. Pending home sales fell 4.7% over the past year, per Realtor.com. And the median age of a first-time homebuyer has hit 40, an all-time high, as NBC News reported this week.
Mortgage rates track the yield on the 10-year Treasury bond. Those yields began climbing after the U.S. and Israel attacked Iran on Feb. 28, which sent oil prices higher and drove up the cost of goods across the economy. Rates had been at 5.99% in late February. By mid-September they had jumped to 7.2%.
The Federal Reserve added fuel to the fire. The central bank hiked its key interest rate during the week of September 18 in an effort to curb inflation, and signaled it may raise rates again before the end of the year. For prospective buyers already stretched thin by grocery bills and gas prices, the Fed's move was one more cost piled onto an already unaffordable market.
Kerry Adams, a realtor with Compass Real Estate in the Washington area, said she sees the pressure firsthand.
"They're saying: 'I'm already feeling it at the gas pump, at the grocery store, and now I'm feeling it in mortgage rates. Maybe I'll sit on the sidelines a little while longer.'"
Adams put it plainly: "It's definitely impacting the psyche of the buyer."
Ian Sohan is 26. He and his fiancée, Eden Law, want to buy a house in Virginia, something with enough room for future children and possibly their mothers. In Northern Virginia, homes that fit their needs start around $600,000. In Arlington, their preferred neighborhood, prices run closer to $1 million.
Sohan said he has not been completely priced out. But the math is getting harder to justify.
"It's just making it a lot more intimidating to even go for the purchase and have the confidence that the economy will be enough to be able to afford that house five, 10 years from now, let alone 30 years."
He acknowledged he may have to accept trade-offs, getting pushed out of the neighborhoods he wants or taking on a longer commute than he had planned. "It's discouraging," Sohan said. "I'd like to one day own my own home."
One bright spot, at least on paper: housing inventory is rising. The NAR counted 1.62 million unsold homes on the market in August, equal to 4.9 months' supply, the highest level in more than a decade. In a normal market, more supply would ease prices. But when mortgage rates sit above 7%, even a growing inventory cannot close the gap for buyers who simply cannot afford the monthly payment.
DeCandia captured the bind facing young couples who want to start families and buy homes at the same time.
"We don't want to buy this big, beautiful house only to just sit in it, staring at each other, stressing about a mortgage payment every month."
She called the decision one that "will impact us, as well as our future family," adding: "It's very stressful to try to figure that out in this shifting landscape."
The consequences of sustained unaffordability are showing up in household formation data. A record 25.2 million adults under 35 lived with their parents last year, according to Realtor.com. That figure captures a generation that watched home prices climb throughout their twenties and now faces borrowing costs their parents never dealt with at the same age.
The first-time buyer share of the market has fallen to historic lows. When the typical first-time purchaser is 40 years old, the traditional path, buy a starter home in your late twenties, build equity, trade up, is functionally broken for millions of Americans.
Rising inventory offers a theoretical opening. But inventory without affordability is just a longer list of houses people cannot buy. Until borrowing costs come down or incomes catch up, the sidelines will stay crowded, and the American Dream of homeownership will keep getting pushed further out of reach for the people who can least afford to wait.