On Monday, the average 30-year fixed mortgage rate reached 7.48%, marking the highest level since the year 2000. Even prior to this recent surge in mortgage rates, housing affordability, as monitored by the Atlanta Fed, had already deteriorated beyond the levels seen at the housing bubble’s peak in 2006. Once this latest mortgage rate surge is factored in, August 2023 will become the worst month for housing affordability this century.
The journey to this predicament can be traced back to last year’s sharp rise in mortgage rates, which escalated from 3% to over 7%. That rate surge, coupled with the Pandemic Housing Boom pushing U.S. home prices up over 40% in just over two years, deteriorated housing affordability across the nation.
“The housing market is at a pivotal point as we head into fall. Mortgage rates are now at more than a two-decade high, and for some home shoppers, those higher rates are enough to cause them to step back from the market,” wrote Lisa Sturtevant, chief economist at Bright MLS, in a statement to Fortune. “It is likely to be a very slow fall [in the] housing market this year. Home prices, which had rebounded this summer, will dip in some markets as new listing activity increases at the same time a segment of the homebuying population sits the market out.”
While Sturtevant doesn’t expect “major [house] price corrections since supply is still at historically low levels and overall economic conditions remain healthy,” she does see risk in overheated housing markets. House prices in places like Austinand Boise have already started to fall again.
“The markets at greatest risk of price declines are those where affordability challenges are the worst, including some West Coast markets, as well as places where prices have run up quickly, including in parts of the Sunbelt,” Sturtevant says.