Housing Market Remains Unattainable Amid Soaring Prices And Mortgage Rates

The American dream of homeownership is slipping away for the middle class as the housing market becomes increasingly unaffordable.

Fortune reports that the American dream of homeownership is slipping away for some in the middle class as the housing market becomes increasingly unaffordable, with mortgage rates hitting a two-decade high in late 2023. According to Ali Wolf, chief economist of building consultancy Zonda, “In the past, if you were middle class, it was almost assumed you would become a homeowner.” While the aspiration to own a home remains, it is now significantly more challenging, requiring wealth or luck.

The Pew Research Center reveals that while household incomes have increased considerably over the past five decades, the rise has not kept pace with those in upper-income households. A middle-class household income is $90,000 on average, and a middle-class American with a median household income of $74,580 would struggle to afford a median-priced home of $410,000, according to Realtor.com.

Tate Kelly, a broker with Coldwell Banker Warburg, notes that finding an affordable home is nearly impossible for many Americans, with “affordable” housing requiring 35%-40% of household income. Buyers are advised not to spend more than 30% of their income on housing, and for the middle class, this means affording a $270,000 home if they put 10% down and have minimal debt.

Per Inman, Christopher M. Naghibi, executive vice president at First Foundation Bank, says the historical middle-class path of buying a starter home and progressing to larger homes has shifted. Homeownership used to be central to the middle-class lifestyle. Today’s housing affordability crisis, on the other hand, is being compared to the turbulent 1980s and the aftermath of the 2008 housing bubble.

Naghibi says that the current housing market is the least affordable in history, with mortgage rates approaching 7%, hindering new buyers and depriving them of crucial equity-building years. Despite forecasts predicting a drop in mortgage rates and home prices for 2024, adjustments are being made, with Zillow now projecting a 3.7% increase in home prices, according to Inman.

In Fortune, Tate Kelly emphasized that while a drop in mortgage rates might help, “To many Americans, finding a home that is considered ‘affordable’ is nearly impossible.” The limited options available to buyers only exacerbates the crisis. With housing market experts expressing such pessimism, it appears that the struggle for middle-class Americans to achieve homeownership will persist this year.