Housing prices are no longer tethered to economic reality, and the gap between incomes, rates, and home values cannot stretch forever.
1. Housing Affordability Has Broken from Its Historical Norms
Either home prices must fall—or rates must drop dramatically—to restore affordability.
State-level data was used to calculate what home prices or mortgage rates would need to be to bring the Mortgage-to-Household-Income Ratio (MHIR) back to its 10-year average. On average, home prices need to fall 29.3%, or mortgage rates must drop to 3.68%. Neither is happening. In states like Connecticut and New Jersey, prices would need to fall over 35%. In Colorado we would need to see a 27.7% drop in home prices and an interest rate environment of 3.87% to attain the average.
Affordability is no longer a local problem—it’s a national mispricing.
2. The Interest Rate Fantasy Is Over
Mortgage rates have nearly tripled, but prices haven’t budged.
In 2022, rates jumped 137%—the largest increase on record. Today’s average rate is 6.81%, but affordability requires closer to 3.7%. The spread between mortgage rates and 10-Year Treasury yields is slightly above average, but even if that normalizes, it would only shave off 32 basis points—nowhere near enough.
Expecting rates to return to 2021 levels is a losing bet.
3. The Housing Shortage Narrative Is Misleading
The U.S. doesn’t lack homes—it lacks affordable ones.
Since 2000, housing supply has outpaced population growth: +27% vs. +21%. Research shows only 4 out of 381 metro areas had true shortages. Most markets have enough homes—but not enough priced for low-income buyers. This suggests we can’t “build our way” to affordability without addressing price levels and income stagnation.
We don’t have a housing supply problem. We have a housing cost problem.
4. First-Time Buyers Are Aging Out of the Market
The average first-time buyer is now 38 years old—up from 29 in the 1980s.
High prices, high rates, and burdens like student debt are locking young adults out. Even with decent incomes, many can’t clear the bar for down payments and monthly costs. Homeownership is no longer a milestone of early adulthood—it’s an uphill battle for the middle-aged.
Delayed affordability delays the American Dream.
5. Prices Won’t Drop Without a Trigger
Homeowners aren’t selling because they don’t have to.
The supply of new homes is building, but resale inventory remains frozen. Homeowners with low-rate mortgages are staying put. Historically, the only thing that shakes loose inventory is a spike in unemployment. Without job loss, there’s no forced selling—and no price correction.
Without pain, the market won’t move.
6. Mispricing Can’t Last Forever
This is not sustainable.
Affordability must be restored somehow: through rate cuts (unlikely), wage surges (also unlikely), or falling prices (increasingly inevitable). Market narratives don’t override economic math. Buyers can’t spend what they don’t earn—and lenders won’t finance what borrowers can’t afford.
The longer this imbalance holds, the sharper the correction will be.
Housing affordability isn’t broken because of temporary shocks—it’s broken because expectations haven’t adjusted to a new reality. Price gravity is coming.
