If you’re trying to buy a home, chances are you’re running into some challenges. Home prices are high, bidding wars frequently occur, inventory is limited, and sellers have the upper hand. Buying a home today is an entirely different experience than it was four years ago. Understanding the housing market crisis and its effects on homebuyers can help you to prepare for the challenges you’ll face.
Free Home Insurance Comparison - Save up to 30%
No junk mail. No spam calls. Free quotes.
No Signup required
Several factors contributed to today’s hot housing market. The rise of remote work during the pandemic gave renters and homeowners the freedom to move elsewhere. Supply chain issues resulted in a shortage of materials, delaying the construction of new homes. Demand for sale homes grew, bolstered by record-low interest rates, and inventory was limited. Those conditions caused home prices to climb.
According to the Federal Reserve Bank of St. Louis, the median sales price of a United States home was $327,100 in quarter 4 of 2019. By quarter 4 of 2020, that median price had risen to $358,700. It climbed to $423,600 by quarter 4 of 2021 and reached $479,500 by quarter 4 of 2022. Median home sale prices increased by $152,400 over the course of three years.
Growing interest rates and housing prices continue to affect today’s housing market. The National Association of Realtors Quarterly Housing Affordability Index compares median home prices, mortgage rates, monthly mortgage payments, and median family incomes. The index reports that mortgage interest rates grew from 3.17% in 2020 to 5.40% in 2022. Rates reached 6.41% in quarter 1 of 2023.
While home sale prices have climbed, income hasn’t kept pace, making it more difficult for many buyers to afford a home. According to the index, in 2020, monthly principal and interest payments equaled 14.7% of a median family income. By 2021, that increased to 16.8%. But in 2022, the payment equaled 24.1% of a median family income. Buyers who purchased homes in 2022 were likely to spend nearly 25% of their income on their mortgage, nearly double what they would have paid if they bought a home in 2020. Those higher home purchase prices also impact other expenses, like home insurance and property taxes.
When 33-year-old homebuyer Haley C. purchased her new construction townhome in Nashville, Tennessee, she quickly found that she would have to increase her budget. “I originally thought I’d be able to find what I was looking for in the $350,000-$400,000 range, and ended up signing a contract for $449,000 (with closing and builder incentives not included in that price),” she explains. Haley had originally compared three lenders, but after learning about incentives with new construction, she decided to re-apply for a mortgage through the builder’s lenders.
Todd S. of New York noted that while he wasn’t a first-time homebuyer when purchasing his most recent home, he felt like one because of the market. “I had to increase my budget more than I expected this time around,” he says. “I also found myself feeling pressured to make much faster decisions about whether or not a particular home was a potential match, which made the process more frustrating. Ultimately, I love the house I ended up in, but the process of getting here was a lot more negative than my first home buying experience.”
Chuck Vanderstelt, a licensed real estate broker in Indiana and owner of the real estate website Quadwalls, notes that affordability is a major challenge for home buyers. “Affordability is really holding a lot of people in place or preventing first-time homebuyers from making a purchase,” he says. “Home prices have not come down much, despite higher home mortgage interest rates.”
Vanderstelt notes that his clients have been waiving fewer contingencies in 2023 compared to 2020 through 2022, when mortgage interest rates were low. “I am even seeing more sellers providing a closing cost credit to buyers and being more open to FHA, VA, and USDA mortgage homebuyers,” he says. “A noticeable change is that more buyers are unwilling to stray from their intended budget compared to the previous several years. Instead, homebuyers are waiting until a home meets both their criteria and budget to come on the market.”
Free Home Insurance Comparison - Save up to 30%
No junk mail. No spam calls. Free quotes.
No Signup required
With housing inventory still limited, it’s unlikely that the housing market is about to crash. Instead, challenges will continue for buyers, but it’s likely the market will gradually start to cool with interest rates high and buyers approaching shopping for homes with less urgency.
“In my local area, I am seeing less urgency from homebuyers,” says Vanderstelt. “Many homebuyers are delaying or passing on a home that is even slightly higher than their budget.”
Vanderstelt encourages buyers who are encountering affordability issues to try changing the home criteria they are searching with. Instead, focus on the features that affect home values the most. “In order, those are location, finished square feet, and overall quality of the home,” he says.
“Try not to be too risk-averse,” says Vanderstelt. “I have seen many buyers pass on homes with good structure that just need some cleaning up and a little work put into them. Taking on a little more risk by buying a home needing some work or updating can open a lot more possibilities.”
Navigating today’s housing market as a buyer can be difficult, but ConsumerCoverage is here to help you through the process. Be sure to review our series of articles on buying a home, including our tips for buying a home in a hot housing market and mistakes to avoid when buying a home in a hot market. With persistence and patience, you can find your new home, even in a competitive market.
Paige Cerulli Paige Cerulli is a freelance content writer and journalist who specializes in personal finance topics. She graduated from Westfield State University and brings more than a decade of professional writing experience to the ConsumerCoverage team. Paige’s work has appeared in outlets including USA Today, Business Insider, and more.
