Homes Will Be Affordable Again – Just Not Anytime Soon

The worst of the housing affordability crisis is behind us. But the past two years have shown that housing isn’t a bubble that is likely to pop overnight, nor can prices be forced lower in the short term with government intervention. Rising incomes, falling mortgage rates, more construction and thoughtful policy will slowly chip away at the affordability problem. It will probably take five years or more to approach the kind of purchasing power homebuyers enjoyed before the pandemic.

The National Association of Realtors’ affordability index helpfully combines median incomes, median home values and the cost of conventional financing to offer a gauge of just how far we need to travel. It’s nice having a standardized index because the housing market hasn’t been normal for any sustained period for about 20 years. First came the subprime-fueled boom of the mid-2000s, then a bust that stretched into the mid-2010s, then the low-interest-rate frenzy of the pandemic and, finally, the generationally high mortgage rates of the past few years. A good benchmark of “normal” to strive toward is June 2018 — the most unaffordable month of the 2010s but similar to what conditions looked like between the mid-1990s through the early-2000s.