By Daniel McGarvey, CFA on behalf of Stonebridge Financial Group advisors
It’s no secret that the last few years have been a challenging time to find a home – especially an affordable one. The most basic explanation for the weakness in the housing market is that strong demand has been met with exceptionally weak supply, driven primarily by underbuilding of new homes and an unwillingness of existing homeowners to move on from the low rates they locked in years ago. Coupled with factors like institutional buying and rising costs for materials and labor, it makes sense that housing activity has dried up while prices have remained elevated.
The median sales price of $416,900 for a house sold in the United States is about 27% higher than it was five years ago, and the double whammy is that the average 30-Year mortgage rate has also risen from 2.7% in 2020 to 6.9% today. The average rate on that median house would result in a mortgage payment (monthly principal and interest after a 20% down payment) of $2,194 today compared to $1,068 five years ago – roughly double.
The rapid rise in housing costs has also significantly outpaced household earnings growth, leading to a sharp deterioration in housing affordability. The chart below compares actual median household income to the household income needed to afford a median-priced home, assuming 30% of income goes towards housing. The gap between what the average household earns and what they would need to earn to afford a typical home is historically wide, even wider than it was leading up to the Global Financial Crisis. The level of single-family existing home sales is also nearly as low as it was during that time.
Source: Federal Reserve Bank of Atlanta
Despite these concerning trends, the weakness in housing is unlikely to lead to another financial crisis like we saw in 2008 since lending standards are considerably tighter and banks are far less leveraged. Today’s issues stem from a blend of high prices, high rates, and undersupply, not a subprime credit-fueled bubble with oversupply. Additionally, the economy of recent years has been supported by a strong labor market and resilient consumer spending, and mortgage delinquencies and foreclosure rates are relatively low.
We do not expect home prices to fall significantly in the near future, so an improvement in affordability could take some time and depend on mortgage rates falling and/or new construction increasing. 30-year mortgage rates tend to follow the 10-Year Treasury Rate plus a spread, and even though it’s hard to make a case for the 10-Year falling to anywhere near the levels it was five years ago, the current mortgage spread of 2.46 is historically wide and has some room to come in towards its more typical long-term range (see chart below).
Source: YCharts, Inc.
Ultimately, it would be unsustainable for housing to continue becoming more unaffordable than it is now, so something will need to change. We are slowly starting to see some signs of metro areas moving towards becoming buyer’s markets again, but the tide could take some time to turn.
The S&P 500 returned 6.3% in May as markets processed the implications of the new tax bill and the possibility that courts could rein in tariff policies. The Bloomberg US Aggregate Bond Index returned -0.7% as the 10-Year Treasury Rate rose to 4.41% and the FOMC chose not to cut short rates.
Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.
Source of below 3 charts: YCharts, Inc.
June 2025 Commentary: The State of the Housing Market
By Daniel McGarvey, CFA on behalf of Stonebridge Financial Group advisors
It’s no secret that the last few years have been a challenging time to find a home – especially an affordable one. The most basic explanation for the weakness in the housing market is that strong demand has been met with exceptionally weak supply, driven primarily by underbuilding of new homes and an unwillingness of existing homeowners to move on from the low rates they locked in years ago. Coupled with factors like institutional buying and rising costs for materials and labor, it makes sense that housing activity has dried up while prices have remained elevated.
The median sales price of $416,900 for a house sold in the United States is about 27% higher than it was five years ago, and the double whammy is that the average 30-Year mortgage rate has also risen from 2.7% in 2020 to 6.9% today. The average rate on that median house would result in a mortgage payment (monthly principal and interest after a 20% down payment) of $2,194 today compared to $1,068 five years ago – roughly double.
The rapid rise in housing costs has also significantly outpaced household earnings growth, leading to a sharp deterioration in housing affordability. The chart below compares actual median household income to the household income needed to afford a median-priced home, assuming 30% of income goes towards housing. The gap between what the average household earns and what they would need to earn to afford a typical home is historically wide, even wider than it was leading up to the Global Financial Crisis. The level of single-family existing home sales is also nearly as low as it was during that time.
Source: Federal Reserve Bank of Atlanta
Despite these concerning trends, the weakness in housing is unlikely to lead to another financial crisis like we saw in 2008 since lending standards are considerably tighter and banks are far less leveraged. Today’s issues stem from a blend of high prices, high rates, and undersupply, not a subprime credit-fueled bubble with oversupply. Additionally, the economy of recent years has been supported by a strong labor market and resilient consumer spending, and mortgage delinquencies and foreclosure rates are relatively low.
We do not expect home prices to fall significantly in the near future, so an improvement in affordability could take some time and depend on mortgage rates falling and/or new construction increasing. 30-year mortgage rates tend to follow the 10-Year Treasury Rate plus a spread, and even though it’s hard to make a case for the 10-Year falling to anywhere near the levels it was five years ago, the current mortgage spread of 2.46 is historically wide and has some room to come in towards its more typical long-term range (see chart below).
Source: YCharts, Inc.
Ultimately, it would be unsustainable for housing to continue becoming more unaffordable than it is now, so something will need to change. We are slowly starting to see some signs of metro areas moving towards becoming buyer’s markets again, but the tide could take some time to turn.
The S&P 500 returned 6.3% in May as markets processed the implications of the new tax bill and the possibility that courts could rein in tariff policies. The Bloomberg US Aggregate Bond Index returned -0.7% as the 10-Year Treasury Rate rose to 4.41% and the FOMC chose not to cut short rates.
Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.
Source of below 3 charts: YCharts, Inc.
Stonebridge Financial Group
Get Expert Financial Guidance Now.
Ready to take control of your financial future? Contact Stonebridge Financial Group today for a personalized consultation. Let us help you navigate complex financial decisions and build a secure path to your goals.