U.S. Housing Affordability Hits a Four-Decade Low as Mortgage Rates and Prices Refuse to Break

American housing affordability remains in a historically deep hole. The National Association of Realtors' affordability index hovered near its weakest reading since the mid-1980s in September, the product of a punishing combination: 30-year mortgage rates still above 6.5%, national home prices up modestly year over year, and wage growth — though cooling — not yet fast enough to close the gap.

Freddie Mac's latest survey put the average 30-year conforming rate near 6.62%, down only slightly from the autumn peak but still double the levels that prevailed through much of the 2010s. Existing-home sales have run at an annualised pace near 3.9 million units, close to the post-pandemic trough and well below the 5.5-6.0 million range that defined the pre-2020 norm.

The inventory story is the constraint. Years of rate lock-in have kept existing homeowners in place, and while listings have risen from their 2023 nadir, they remain below historical averages. New-home builders have filled part of the gap, but rising construction costs — energy, materials and labour — have kept entry-level supply tight in most major metros.

"The market is not crashing. It is frozen," said Denise Alvarez, chief economist at Harborlight Housing Analytics. "Sellers do not want to trade a 3% mortgage for a 6.6% one. Buyers cannot make the numbers work. Until one of those two facts changes, transaction volumes stay low and prices stay sticky — which is itself an inflation problem for shelter CPI."

Shelter inflation has begun to decelerate in the consumer-price data as rent growth cools on new supply, but owners' equivalent rent remains the slowest-moving component of the core basket. That lag is one reason the Federal Reserve's preferred inflation gauge is still well above target even as goods prices deflate.

Friday's softer jobs report cuts both ways for housing. Lower wage growth eases the inflation pressure that keeps mortgage rates high, and the drop in two-year Treasury yields may pull the 30-year rate back toward 6.4% if sustained. But a weaker labour market also cools demand. For first-time buyers, the affordability arithmetic has barely improved.