A Golden Era of Home Affordability Just Ended. Here’s What That Means for Buyers & Sellers

With mortgage rates at historic highs, and no sign of change on the horizon, the U.S. housing market is facing volatility and uncertainty. Here, Zillow Senior Economist Jeff Tucker shares four key takeaways on the state of the market — including his forecast for where things will go in 2023.

A two-decade era of increasingly affordable mortgages came to an end this fall. Don’t underestimate what a change this is for buyers.

Key stats: In September, mortgage rates hit a 20-year high, effectively ending a two-decade run of broadly more affordable mortgages. Last year, the monthly principal and interest payment on the average U.S. home (per the Zillow Home Value Index and assuming 20% down) was just under $1,000. With rates at current levels, that typical monthly payment is now over $1,800 — up 75%.

“This is an astounding change in the cost of homeownership for buyers today,” Tucker says. “It’s no longer the same financial slam dunk to own a home as it was even just a year ago.”

Renting is now cheaper: “A lot of buyers are comparing the cost of ownership with the cost of renting,” Tucker says. “Until the beginning of 2022, in most of the country, it was more affordable to pay principal and interest on a mortgage (plus taxes and insurance) than to pay rent.”

Takeaway: In the past, buying was only generally more expensive than renting in places like California and Seattle. Now, that’s true in most major metro areas.

Remaining buyers are in the driver’s seat for the first time in years, as data shows sellers losing the upper hand.

Key stats: Homes are staying on the market longer. It took less than a week for the typical home to get a pending sale this past spring. In October, it took 19 days.

More sellers are cutting listing prices. In mid-October, 10.7% of homes for sale had received a price cut, compared to just 5% last spring.

“These are measures of how much sellers are feeling the pain,” Tucker says. “They’re feeling a little worried that they’re not getting any bites at the list price that they set, and it shows that there’s still some room for them to meet the new market realities where they are.”

The share of homes selling below their last listed price is rising, reaching 39.8% in early September. This past spring and summer, this figure hovered in the mid-20% range. (In September of 2019, before the pandemic, it stood at 57.8%.)

Takeaway: Expect a move to 2019 levels, when about half of homes sold below list price.

Rising mortgage rates also affect the incentives of existing homeowners, many of whom may want to buy.

Key stat: Three-fifths of current homeowners have a mortgage rate below 4%. More than 90% have one below 6%.

“Homeowners are facing a pretty substantial increase in the interest cost if they sell their current home and buy a similarly priced one,” Tucker says. “That’s a huge disincentive to sell your current home and buy another.”

Takeaway: Even if people are relocating for work or retiring, a significant financial hurdle has been raised.

Zillow’s forecast: Modest price declines across the country over the next few months, with price stability potentially returning next summer.

Takeaway: “The market is still very volatile, and it really depends on mortgage rates, which are very hard to forecast,” Tucker says. “We’re watching the Fed to see if they’re going to pivot on monetary policy, but they’ve expressed determination to keep their foot on the brakes until inflation cools down.”

Wondering how your local market is trending? Check out this public data dashboard built for agents from Zillow data. Select your region from the drop-down menu to see local data on median sales price, home sales volumes, days on market, and more.