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Consistent home price appreciation is touted as the main benefit of homeownership; however, runaway home price growth over the past five years has homeowners feeling locked into a financial prison.
According to Redfin’s latest market study, 38 percent of 3,000 homeowners said they couldn’t afford their home if they were to buy it today. As a result, homeowners are staying in place much longer — 59 percent said they’ve been in their home for at least 10 years and 21 percent have been in their home for at least five.
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From 2019 to 2024, the U.S. median sales price rose 50 percent to $420,000. During the same period, mortgage rates have been on an equally wild ride. In 2019, the annual average mortgage rate was 4.13 percent. Then from 2021 to 2023, the Federal Reserve’s monetary policy pushed rates from an annual record low of 3.15 percent in 2021 to a 20-year high of 7.00 percent in 2023.
Elijah de la Campa | Credit: LinkedIn
All of those factors have pushed the average monthly mortgage payment to a record high of $2,864, $650 more than the average monthly mortgage payment in 2019 ($2,210).
“Rising home prices are a double-edged sword,” Redfin Senior Economist Elijah de la Campa said in a written statement. “On the one hand, Americans who already own homes benefit from rising values and they can consider themselves lucky they broke into the housing market while they could still afford it.”
De la Campa said the pressure of rising prices and mortgage rates most impacts first-time homebuyers and baby boomers.
First-time homebuyers don’t have equity to help fund a new purchase, meaning they’re counting on cash gifts from family and friends to help fund their purchase (36 percent). Alternatively, they’re giving up on homeownership altogether, as evidenced by the 40 percent of U.S. renters who say they’ll never be able to own a home.
Meanwhile, baby boomers are the generation least likely to be able to afford their current home if they were to buy it today (45 percent) compared to Gen-Xers (39 percent) and millennials (24 percent).
Baby boomers, who are between 60 and 78 years old, likely purchased their homes in the 1980s and 1990s, when the U.S. median sales price was well below $100,000. That means baby boomers have no incentive to re-enter the market unless forced to for health or familial reasons.
“On the other hand, price appreciation makes the prospect of buying a new home daunting or even impossible for many people who want to move,” de la Campa said. “Prices have risen enough that a similar home and location would be much pricier than a home someone already owns — even accounting for inflation. Add elevated mortgage rates to the equation, and moving up to a bigger, better home is even more costly and perhaps out of reach.”
