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Housing Affordability Hits a 39-Year Low: Are Prices Set to Fall?

The Intercontinental Exchange, or ICE, recently released a report that stated housing affordability had hit a 39-year low. Will this trend continue, or are there signs of a pullback in the real estate space?

The baby boomer generation was born and raised with the promise that a middle-class salary could and would provide citizens with enough money to own a house, a car, and save up for a comfortable retirement. Real estate prices have steadily climbed over the past half century, despite some sharp dips during difficult economic periods like the 2007-2008 financial crisis.

Real estate prices experienced a strong uptick in the beginning of the 2020s. Historically low interest rates and radical monetary and fiscal stimulus provided a boost in the face of a historic pandemic. Prices have eased up as the United States Federal Reserve has pursued the most aggressive interest rate tightening policy in 20 years. In doing so, the US Fed and other central banks in the developed world have managed to tamper down soaring inflation rates.

This environment of rising interest rates has also softened prices in the stock market, bond market, and for homes. Despite this softening, US citizens are having a much tougher time than they have in decades qualifying for a mortgage. Indeed, mortgage rates have now climbed to their highest levels in 23 years. The interest payment on a median-priced home rose to an all-time high in October 2023.

The increased pressure on borrowers has spurred some experts to call for a significant pullback in housing prices as some look to withdraw from the market rather than eat record high interest payments. Investors should watch developments in the housing market closely in the months ahead.