Evelyn Reynolds

High home prices and current mortgage rates have created a chilling effect on the housing market, stymying aspiring first-time buyers and those looking to move.
Affordability has tumbled compared with just a few years ago, requiring people to shift expectations about what the path to homeownership looks like.
This adds to economic woes felt by the average person and challenges a key component of the American dream.

A home available for sale is shown on May 22, 2024 in Austin, Texas. 
Brandon Bell | Getty Images

When Rachel Burress moved into her mother’s house around a decade ago, it seemed like a short-term stop on the path to homeownership.
The 35-year-old hairdresser spent those years improving her credit score and saving for a down payment. But with mortgage rates hovering near 7% and home prices skyrocketing, it doesn’t feel like the mother of three will be signing on the dotted line for a place of her own anytime soon.

“I don’t even know if I’ll ever get out and own my own home,” said Burress, who lives about 20 miles outside of Fort Worth, Texas, in a town called Aledo. “It feels like we are just stuck, and it is so hard to handle.”
Burress’ experience is reflective of the millions of Americans who’ve seen their financial and personal lives hindered by elevated price tags and high borrowing costs for homes. This can help to explain the sour sentiment about the state of the national economy.
It also sheds light on an existential anxiety for many: The American dream seems to be even more out of reach these days.

A double whammy

For aspiring homebuyers such as Burress, the combination of high mortgage rates and rising list prices has left them feeling boxed out.
The 30-year mortgage rate, a popular option for home financing in the U.S., has bounced around 7% for the past several months. It pulled back after hitting 8% for the first time since 2000 late last year. But that’s still a big jump from the sub-3% levels seen in the early years of the pandemic — which prompted a flurry of sales and refinancing in the housing market.

On the other side of the equation, rising sticker prices are also adding pressure. The Case-Shiller national home price index has hit all-time highs this year. Zillow’s home value index topped $360,000 in May, a nearly 50% increase from the same month five years ago.
In turn, affordability is down sharply compared with a few years ago. An April reading on the economic feasibility of homeownership from the Atlanta Federal Reserve was more than 36% off the pandemic high registered in the summer of 2020.
Nationally, the share of income needed to own the median-priced home last came in above 43%, per the Atlanta Fed. Any percentage over 30% is considered unaffordable.

The Atlanta Fed also found that the negative effects of high rates and prices more than outweighed the benefits from growing incomes for the typical American. That underscores the strength of these detractors, given that the average hourly wage on a private payroll has climbed more than 25% between June of 2019 and 2024.

‘A tough spot’

This tough environment has chilled activity for potential buyers and sellers alike.
Theoretically, current homeowners should be excited to see their property values rising quickly. But the prospective sellers are deterred by concerns about what rate they’d get on their next home, creating what a team at the Federal Housing Finance Agency called the “lock-in effect.”
There’s already evidence of this stalling in the market: Rates at these levels resulted in more than 875,000 fewer home sales in 2023, according to the team behind a FHFA working paper released earlier this year. That’s a sizable chunk, as the National Association of Realtors reported around 4 million existing houses were sold in the year.
On top of that, the FHFA found that a homeowner is 18.1% less likely to sell for every 1 percentage point their mortgage rate is under the current level. The typical borrower had a mortgage rate that was more than 3 percentage points below what they would have gotten in the final quarter of 2023.
If a homeowner had instead bought at the end of last year, the FHFA team found that their monthly principal and interest payments would cost around $500 more.
Given this, co-author Jonah Coste said current owners touting these low mortgage rates are undoubtedly better off than those looking to buy a first home today. But he said there’s a big catch for this cohort: Moving for a job opportunity or to accommodate a growing family becomes much more complicated.
“They’re not able to optimize their housing for their new life situation,” Coste said of this group. “Or, in some extreme circumstances, they’re not doing the big life changes that would necessitate having to move.”
That’s the predicament Luke Nunley finds himself in. In late 2020, the 33-year-old health administrator bought a three-bed, two-bath house with his wife in Kentucky at an interest rate under 3%. This home has more than doubled in value in almost four years.
After welcoming three kids, they’re holding off on a fourth until mortgage rates or home prices come down enough to upsize. Nunley knows the days of getting a rate below 3% are long gone, but can’t justify anything above 5.5%.
“It’s just a tough spot to be in,” Nunley said. “We’d be losing so much money at current rates that it’s basically impossible for us to move.”

Most Americans skirt 7%

Nunley is part of the overwhelming majority of Americans not paying these lofty mortgages.
The FHFA found that nearly 98% of mortgages were fixed at a level below the average rate of around 7.2% in the final quarter of last year. Like Nunley’s, close to 69% had rates more than 3 percentage points lower.
The buying boom early in the pandemic is one answer for why so many people aren’t paying the going rate. This eye-popping figure can also be explained by the rush to refinance during that period of low borrowing costs in 2020 and 2021.
While these low mortgage rates can help to fatten the pocketbooks of those holding them, Jeffrey Roach, LPL Financial’s chief economist, warned that it can be bad news for monetary policymakers. That’s because it doesn’t offer signs of interest rate hikes from the Federal Reserve successfully cooling the economy.
To be clear, mortgage rates tend to follow the path of Fed-set interest levels, but they aren’t the same thing. Still, Roach said that so many people being locked into low borrowing rates on their homes helps explain why tighter monetary policy hasn’t felt as restrictive as it has historically.
“Our economy is a lot less interest-rate sensitive,” Roach said. “That means the high rates aren’t really doing what it should be doing. It’s not putting the brakes on, like you would normally expect.”
Low housing supply has kept prices up, even as elevated borrowing fees bite into purchasing power. That flies in the face of conventional wisdom, which suggests that prices should slide as rates rise.
Looking longer term, experts said an increase in the volume of new housing can help expand access and cool high prices. In particular, Daryl Fairweather, chief economist at housing market database Redfin, said the national market could benefit from more townhomes and condos that are usually less expensive than typical homes.

Townhouse for sale sign, Corcoran Realty, in driveway of row houses, Forest Hills, Queens, New York. 
Lindsey Nicholson | UCG | Universal Images Group | Getty Images

‘The ultimate goal’

For now, this new reality has created generational differences in homeownership and what the road to it looks like.
Zillow found that 34% of all mortgage holders received a financial gift or loan from family or friends for a down payment in 2019. In 2023, that number jumped to 43% as affordability plummeted.
It’s also much harder for young people to get on track for purchasing a home than it was for their parents, Zillow data shows. Today, it takes almost nine years to save 20% for a down payment using 10% of the median household income every month. In 2000, it required less than six years.
“It’s not the avocado toast,” said Skylar Olsen, Zillow’s chief economist, referencing a joke that millennials spend too much on luxuries like brunch or coffee.
Olsen said younger generations should adjust their expectations around ownership given the tougher environment. She said these Americans should expect to rent for longer into adulthood, or plan to attain their first home in part through extra income from renting out a room.
For everyday people like Burress, the housing market remains top of mind, as the Texan considers her financial standing and evaluates candidates in the November election. The hairdresser has continued helping her mom with payments on home insurance, utility bills and taxes in lieu of a formal rent.
Burress is still hoping to one day put that money toward an equity-building property of her own. But time and time again, unexpected expenses like a totaled car or macroeconomic variables such as rising mortgage rates have left her feeling like the dream is out of reach. 
“It is the ultimate goal for me and my family to get out of my mom’s house,” she said. But, “it feels like I’m on a hamster wheel.” More

Markets now firmly expect a September interest rate cut in the U.S., pricing in a 90% likelihood.
However, some risks cast a cloud over this rate-cut outlook, Carl Weinberg, chief economist at High Frequency Economics, told CNBC.
“Why would we want to tinker with what we have right now? Why would you want to cut rates under those circumstances?” Weinberg sad.

Jerome Powell, chairman of the US Federal Reserve, during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, DC, US, on Tuesday, July 9, 2024.
Bloomberg | Bloomberg | Getty Images

Markets now firmly expect a September interest rate cut in the U.S., but the Federal Reserve has a strong reason to hold off, according to economist Carl Weinberg.
Money market pricing for a rate cut at the Fed’s fall meeting rose from around 70% to more than 90% on Thursday, according to LSEG data, after a softer-than-expected consumer price index print.

Fed Chair Jerome Powell had already bolstered expectations of such a move when he said earlier this week that there were risks in keeping interest rates too high for too long — comments interpreted as “modestly dovish” by analysts.
However, there are also risks to easing monetary policy that cast a cloud over the rate-cut outlook, Weinberg, chief economist at High Frequency Economics, told CNBC’s “Squawk Box Europe” on Friday.
“The Fed chair was very clear in his testimony this week … that inflation metrics and the economy in general are moving in the way that we kind of like,” Weinberg said.

That includes unemployment at around 4%, inflation moving toward 2% and the economy growing “roughly” at potential, he said.
“But [Powell] also implied, well, why would we want to change anything if the economy is at full employment, with inflation where we want it to be, and it’s growing nicely? Why would we want to tinker with what we have right now? Why would you want to cut rates under those circumstances?” Weinberg continued.

“There certainly is noise, buzz and data to support a rate cut at [the September] meeting. But there also is a cloud hanging over that decision.”
While a fall cut might look likely now, a lot can change between now and the Fed meeting on Sept. 18, Weinberg added.

Two more CPI prints are due before that date. The Fed next meets at the end of July, when markets have priced in only a 5% chance of a rate reduction.
Although U.S. inflation peaked lower than many other major economies over the last three years, it has also been slower to fall, leaving the Fed behind on the path of monetary easing.
The central banks of the euro zone, Switzerland, Sweden and Canada have all cut rates already this year, while the Bank of England’s August decision is seen on a knife edge. More

The producer price index is now up 2.6% year over year.
In June, an increase in the price for services offset a decline for goods.
The reading is an increase from the May number, which was also revised higher.

Cargo containers sit stacked on ships at the Port of Los Angeles, the nation’s busiest container port, in San Pedro, California, on Oct. 15, 2021.
Mario Tama | Getty Images News | Getty Images

A measure of wholesale prices rose more than expected in June as Wall Street assesses when the Federal Reserve will feel comfortable cutting interest rates.
The producer price index rose 0.2% last month, the Labor Department’s Bureau of Labor Statistics reported on Friday. Economists surveyed by Dow Jones were expecting a 0.1% increase for the index. PPI is now up 2.6% over the past year.

The PPI is a gauge of prices that producers can get for their goods and services in the open market. In June, an increase in the price for services offset a decline for goods.
The reading is an increase from the May number, which was also revised higher. Friday’s report said that the index was unchanged in May as compared to a decline of 0.2% in the original release.
The hotter-than-expected PPI reading runs counter to recent data that shows inflation declining, though economists and investors tend to put more weight on the consumer-focused inflation readings.
Friday’s report comes shortly after the June consumer price index came in cooler than expected on Thursday. The CPI actually showed that headline inflation declined on a monthly basis and now sits at 3% year over year.
The central bank’s next policy meeting is at the end of July, where it is widely expected to hold rates steady. Traders have increasingly dialed in on the September meeting as the likely time for the first rate cut.
The Fed’s preferred inflation reading is the personal consumption expenditure price index. The June PCE data is slated for release on July 26. More

The monthly inflation rate dipped in June, providing further cover for the Federal Reserve to start lowering interest rates later this year.
The consumer price index, a broad measure of costs for goods and services across the U.S. economy, declined 0.1% from May, putting the 12-month rate at 3%, around its lowest level in more than three years, the Labor Department reported Thursday. The all-items index rate fell from 3.3% in May, when it was flat on a monthly basis.

Excluding volatile food and energy costs, so-called core CPI increased 0.1 % monthly and 3.3% from a year ago, compared to respective forecasts for 0.2% and 3.4%, according to the report from the Bureau of Labor Statistics.
The annual increase for the core rate was the smallest since April 2021.
A 3.8% slide in gasoline prices held back inflation for the month, offsetting 0.2% increases in both food prices and shelter. Housing-related costs have been one of the most stubborn components of inflation and make up about one-third of the weighting in the CPI, so a pullback in the rate of increase is another positive sign.

Stock market futures rose following the release while Treasury yields tumbled.
In addition to the pullback in energy prices and the modest increase for shelter, used vehicle prices decreased 1.5% on the month and were down 10.1% from a year ago. The item was one of the main drivers in the initial surge in inflation back in 2021.
This is breaking news. Please refresh for updates. More

The U.K. economy grew by 0.4% in May, flash figures published by the Office for National Statistics showed on Thursday.
The British pound jumping to a four-month high against the U.S. dollar after the announcement.
The broad-based recovery will be welcomed by the newly-elected Labour Party, as Prime Minister Keir Starmer undertakes his first week on the job.

City of London skyline on 10th June 2024 in London, United Kingdom. The City of London is a city, ceremonial county and local government district that contains the primary central business district CBD of London. The City of London is widely referred to simply as the City is also colloquially known as the Square Mile.
Mike Kemp | In Pictures | Getty Images

LONDON — The U.K. economy grew by 0.4% in May, flash figures published by the Office for National Statistics showed on Thursday, with the British pound jumping to a four-month high against the U.S. dollar after the announcement.
Gross domestic product came in above the 0.2% monthly expansion forecast by a Reuters poll of economists.

The British economy exited a shallow recession in the first quarter of the year, then flatlined in April.
The nation’s dominant services sector showed continued growth of 0.3% in May, as output in both production and construction rebounded from losses, rising by 0.2% and 1.9%, respectively.
Sterling was 0.14% higher against the U.S. dollar at $1.2863 by 8:30 a.m. in London — the highest level for the British currency since March 8, 2024, according to LSEG data.
The broad-based recovery will be welcomed by the newly-elected Labour Party, as Prime Minister Keir Starmer undertakes his first week on the job.
Goldman Sachs last week upgraded its growth forecast for the U.K. following left-of-center Labour’s thumping victory in the country’s general election. The party campaigned on a platform that centered on boosting economic growth, housing and planning.

The party’s large parliamentary majority and business-friendly messaging have led analysts to describe the government as generally supportive of U.K. assets.
In a note, Ashley Webb, U.K. economist at Capital Economics, underlined the recent trend of British GDP increases in recent months — barring the lack of growth in April — “which supports the idea that the dual drags on activity from higher interest rates and higher inflation are starting to fade.”
Price rises in the U.K. have cooled from a 41-year high of 11.1% in October 2022, all the way down to the Bank of England’s 2% target in May this year. The performance has raised expectations for a coming interest rate cut from the Bank of England.
However, the BOE continued to strike a cautious tone at its June meeting even after its peers at the European Central Bank began their own path of interest rate cuts, warning that key indicators of inflation persistence in the U.K. “remained elevated.” Markets remain roughly evenly split on the prospect of a cut at its August meeting.

Labour agenda

It will now be up to the new government to build momentum behind the latest economic growth figures, Muniya Barua, deputy chief executive at industry campaign group BusinessLDN, said in emailed comments.
“With the public finances stretched, ministers should follow its flurry of recent pro-growth announcements by prioritising high-impact, low-cost measures which taken together could help unlock much-needed private investment,” Barua said, citing an overhaul of the apprenticeship system and scrapping stamp duty on share transactions.
New Finance Minister Rachel Reeves last week said Labour would introduce mandatory house-building targets, lift the ban on new onshore wind farms in England and reform planning rules. On Wednesday she announced the launch of a £7.3 billion ($9.4 billion) national wealth fund targeted at attracting private sector investment in U.K. infrastructure projects.
The business community now awaits Labour’s first fiscal statement, which is expected no earlier than mid-September, Lindsay James, investment strategist at Quilter Investors, said in a note.
This “should make both taxation and spending plans clearer. This will allow businesses to better plan ahead and could in turn reinvigorate their want to invest,” James said.
“However, this would take time to feed through, and until there is a better understanding of what is to come, we are unlikely to see any meaningful acceleration in GDP growth,” she added. More