US Housing Market Stalls as Mortgage Rates and Affordability Pressures Mount
America’s housing market is experiencing stagnation, as buyers retreat and builders exhibit increasing pessimism in anticipation of the midterm elections. Adding to the strain, mortgage rates have surged back above 7% in recent weeks, reaching a three-year high of 7.4% last month. The average 30-year fixed rate experienced a modest decline, settling at 7.24% last week, as reported by Freddie Mac. America’s housing challenges are profound. Homebuilding has lagged behind demand since the 2008 financial crisis severely impacted the nation’s housing sector. Elevated mortgage rates have resulted in increased monthly payments for buyers, coinciding with a continuous rise in home prices, which are reaching record-high levels each month. As of the third quarter, the average household must earn $115,600 in income to afford the typical cost of housing – that’s 75% higher than the $66,200 required five years ago, according to reports. The number of homes trading hands has remained near 30-year lows for the past three years.
President Donald Trump secured victory in the 2024 election, reflecting increasing discontent regarding the rising cost of living. Two years later, affordability continues to be a critical concern as the midterm elections approach, with Americans still facing elevated costs for housing, groceries, petrol and other essential goods. While the White House has implemented certain measures targeting housing affordability during Trump’s second term, primarily through executive orders, this issue has received comparatively limited attention in the administration’s public communications over the past two years. Trump, a veteran real estate developer, stated during the 2024 campaign that his strategy for addressing housing costs would mainly focus on reducing interest rates. He reaffirmed that commitment this year. “People that own their homes, we’re going to keep them wealthy. We’re going to keep those prices up. We’re not going to destroy the value of their homes,” Trump said at a cabinet meeting at the start of this year. “We’re going to make it easier to buy. We’re going to get interest rates down.”
For a brief moment, mortgage rates seemed ready to decline. In January, Trump instructed Fannie Mae and Freddie Mac, the government-sponsored enterprises that support a significant portion of the US mortgage market, to acquire $200 billion in mortgage-backed securities to facilitate a reduction in rates. Earlier this year, rates experienced a decline, falling below 6% in February for the first time since 2022, coinciding with the Federal Reserve’s efforts to combat post-pandemic inflation. This development raised expectations that lower borrowing costs could alleviate the housing affordability crisis. However, the relief was fleeting. Mortgage rates have increased once more following the onset of the US conflict with Iran, and they have stayed at elevated levels since that time. Mortgage rates are linked to the 10-year Treasury yield, which fluctuates in response to investors’ anticipations regarding inflation, economic expansion, and the Federal Reserve’s interest rate strategy. In recent months, the bond market has faced renewed inflation concerns, an oil-price shock associated with the Iran conflict, increasing federal deficits, and a notable rise in AI investment. Early indications suggest that the turmoil in the bond market is exacerbating the challenges faced by the housing market.
Pending home sales experienced a significant decline, reaching a record low in September, based on data dating back to 2001, as reported by the National Association of Realtors. New home construction has declined to a four-month low, according to data from the Census Bureau, as high borrowing costs persistently impact the market. The prevailing pessimism is extending to the construction sector as well: Homebuilder sentiment, an indicator of the industry’s confidence in the housing market, plummeted to a 14-year low in September, as reported. Overall, the challenges facing the housing market are likely to require an extended period for resolution. However, there are some positive developments: Rents have stabilised nationally over the past few years, according to Yonah Freemark. That’s partly attributable to the rise in multifamily apartment construction from 2020 to 2024, which contributed to alleviating demand pressures, he noted. Overall, the federal government may lack significant influence over the housing market’s supply, as zoning and permitting decisions are predominantly under the jurisdiction of local and state governments, according to Daryl Fairweather.
“In places that have been builder-friendly and have allowed supply to meet demand, we have seen prices come down and affordability improve,” Fairweather said, pointing to Austin, Texas, as an example, which has seen home prices fall from their peak in 2022. The city expanded its housing stock by roughly 30% between 2015 and 2024, according to Pew. Last month, Trump enacted an executive order instructing federal agencies to alleviate the financial strain associated with mortgage insurance and refinancing expenses, among other initiatives. “President Trump has been laser-focused on making housing more affordable,” said Davis Ingle, a White House spokesperson. “The President will not stop fighting until the American Dream of homeownership is within reach for every American, which is why he continues to sign bold new executive orders and calls on Congress to pass further legislation.” However, the tariff regime implemented by the White House has contributed to increased costs in housing construction, as reported by the NAHB. Additionally, deportations have hindered home-building projects in numerous regions that depend on an immigrant construction workforce.
Several proposals from the White House aimed at enhancing housing affordability have not come to fruition, including a 50-year mortgage and the option for mortgage portability, which would enable homeowners with lower interest rates to transfer their existing loans to new properties upon relocation. Most housing initiatives were also managed via executive order, rather than through legislative processes. The singular exception was the ROAD to Housing Act, which Congress enacted with extensive bipartisan backing this summer. The bill encompassed provisions aimed at augmenting the housing supply and included a stipulation to restrict substantial investor acquisitions of single-family homes, thereby enshrining one of Trump’s executive orders into law. However, Trump allowed the measure to become law without his signature, rather than signing it or vetoing it. At the time, Trump called the housing bill “a big yawn” and “of minor importance.”
