Housing affordability today is worse than the Great Recession

2026-03-17

Today, many in the United States are excluded from achieving homeownership. There are three main reasons for this:

1. Cost of Debt: Greater than 50% of mortgages as of 2026 are 4% or less (Source: FHFA). February 2026’s 30-year fixed rate mortgages ended at 5.98%(Source: FRED). This was after being in the 6.00% - 7.00% range for the prior 2 years.
2. Stagnant Real Household Incomes: Inflation adjusted household incomes have grown at a compounding annual growth rate of 0.82% from 1984 to 2024 (Source: FRED).
3. Chronic Shortage of Supply: Here is a graphical representation of nominal median household incomes and nominal median home prices from 1984 to 2024:

This metric is not an ideal measure of housing affordability, but it can be used as a proxy for discussing housing affordability at the median. Let’s refer to this as median housing affordability for the rest of this writing. In 2005-2006 right before the Great Recession, housing prices were achieving all-time highs. Less stringent borrowing standards and the course of the subprime mortgage market allowed prices to stretch aggressively until the crash (which can be seen by the graphed 4.00% jump in median housing affordability from 2008 to 2010). What’s fascinating is that relative affordability was WORSE in 2022-2023 compared to the seemingly impossible highs of 2006-2007. Looking more recently: The Federal Reserve’s COVID-19 related decisions to drop rates to zero and purchase trillions in government bonds to provide stimulus caused massive inflation. To combat the inflation which these decisions created, the Federal Reserve started raising interest rates in March 2022. So, there was cheap debt, the supply of money grew extremely quickly (appx. 40% in the M2 money supply), and then rates grew. This sequence of events created the first issue:

• There was an opportunity for long term mortgage borrowers to refinance at those historically low rates in 2020. As a result, 50% of 30-year mortgage borrowers have sub 4% rates in 2026. This window to secure one of the lowest mortgage rates ever in the US was followed by a series of hikes in interest rates. The rate hike resulted in the 10-year treasury yield increasing which pressured mortgage rates higher.
• Many homeowners saw significant appreciation of their home value, which was mainly driven by the devaluation of the dollar due to money printing. Pair this with mortgage rates doubling over a short period and you have a situation where the homeowners who got into their home at a certain price and rate in 2020 could not afford to buy their home again in today’s environment. This creates pressure for homeowners to stay in their current situation, which limits supply due to a lack of incentive to sell.