Commentary Directory

Housing Affordability Erodes After the Pandemic

Jacob Hess
May 12, 2022

Home prices have been increasing consistently since the global financial crisis in 2008-2009. The number of homes sold on the lower end of the price spectrum has declined steadily since 2010 as the median home price increased. Low mortgage rates and a strong labor market supported homebuying in the 10 years that followed. Just before the pandemic began, the percentage of homes that were sold for less than $299,999 was 40%.


During the pandemic, rates dropped to zero, making mortgages even cheaper. Additionally, individuals received stimulus payments in 2020 and 2021 that they couldn’t spend due to COVID-19 restrictions, creating a savings glut. The extra money was used by many to move away from cities towards the suburbs. These trends boosted demand and forced an acceleration in home prices. In the two years following the onset of the pandemic, the percentage of homes that were sold for less than $299,999 was just 16%, a -24 ppt decline in that time period.

A hawkish Fed is about to make housing a lot less affordable as mortgage rates rise while cheap homes become even harder to find. The low supply of homes is unlikely to allow this trend to reverse with home prices still expected to grow this year, though at a slower pace than the blistering pace seen last year.