The sharp interest rate hikes over the past year continue to impact housing markets and affordability for both homeowners and renters across the US, according to The State of the Nation’s Housing 2023, says a new report from the Harvard Joint Center for Housing Studies.
Mortgage rates keep homeownership out of reach for many millennials
Rising mortgage costs have pushed homeownership out of reach for millions of renters at a time when large numbers of millennial households are at prime homebuying ages and when homeownership disparities between white households and those of color are near historic highs. Higher interest rates have also sparked a slowdown in the construction of new single-family homes, even as a nationwide housing shortage contributes to high housing costs.
Markets Cool but Housing Costs Remain High
By early 2023, in both the for-sale and rental markets, housing demand softened and markets cooled across the country. “Rent growth slowed over the past year and home prices declined in a number of areas,” says Daniel McCue, a senior research associate at the Center. “Nonetheless, housing costs remain well above pre-pandemic levels thanks to the substantial increases over the last few years.”
Since the beginning of 2020, asking rents in the professionally managed sector are up by 24 percent while home prices are up by an astounding 37.5 percent.
Increase Costs Push down First-time homebuying
First-time homebuying plummeted over the last year in response to the increased cost of homeownership. Between March 2022 and March 2023, payments on the median-priced home shot up from $2,500 to $3,000 as the annual interest rate on 30-year fixed-rate mortgages jumped from 4.2 percent to 6.5 percent.
The result was a 22 percent annual decline in the number of mortgages originated to first-time homebuyers in 2022, including a year-over-year drop in the fourth quarter of nearly 40 percent, as over 2.4 million potential homebuyers were priced out of homeownership.
- Rising costs disproportionately affected potential homebuyers of color who were already much less likely to own homes than white households;
- Black and Hispanic homeownership rates were 28.6 and 25.8 percentage points below white homeownership rates in 2022.
Single-Family Construction Slows, While Multifamily Construction Thrives
Single-family housing starts dropped 10.8% last year, raising concerns about the nation’s large and ongoing housing shortfall. Similarly, in the existing home market, just 970,000 homes were available for purchase in March 2023, 42% less than in 2019.
“On the other hand, multifamily construction continued to rise in 2022 even as rental demand softened,” says Alexander Hermann, a research associate at the Center. “Indeed, nearly 1 million multifamily units were under construction in early 2023, the highest rate in almost 50 years.” However, rising vacancy rates, along with higher interest rates and tighter lending standards, suggest a forthcoming slowdown in multifamily construction.
