U.S. housing affordability remains near its worst level since the global financial crisis, while high mortgage rates, a shortage of homes, and weak income growth have left the housing market effectively "frozen."
In the latest episode of J.P. Morgan’s "All Into Account" global cross-asset strategy podcast, John Sim, Head of Securitized Products Research, and other J.P. Morgan research analysts discussed the growing affordability pressures facing the U.S. housing market, including mortgage rate lock-ins, the supply shortage, and weak new-home sales.
Why The Market Is Frozen
Sim said the cost for a renter to purchase a median-priced home is now roughly 50% of median income, compared with about 20% to 25% for existing mortgage holders who are locked into lower rates.
"So we are in a frozen market," Sim said.
Sim also pointed to elevated construction and labor costs, along with rising insurance and property taxes, as additional pressures on housing affordability.
About 75% of borrowers have mortgage rates below 5%, while 55% have rates below 4%, Sim said. The housing market also faces a structural shortage of about 1.2 million homes, with the deficit concentrated largely in the Northeast and Middle America.
The lock-in effect has also weighed on mobility, with a September report citing Apollo’s (NYSE: APO) data showing the probability of changing residences over the next 12 months had fallen to a record-low 13.5%.
Affordability Squeeze
Bennett Parrish, Economic and Policy Research at J.P. Morgan, said the national homeownership rate is 65.2%, but ownership among people under 35 has fallen from 39% in early 2022 to a nine-year low of 35%.
Median household income has grown at a 0.4% annualized pace over the past 25 years, while median home prices and rents have risen 1.7% and 2%, respectively.
"Incomes have simply failed to keep up," Parrish said.
That affordability squeeze is also showing up in mortgage demand. Mortgage purchase applications have fallen to their lowest level since 1995 and are down 50% from the pandemic peak, while the typical monthly mortgage payment, including taxes and insurance, is about $2,800, or roughly 38% of a typical household’s gross income.
What Could Thaw The Housing Market?
"Unfortunately, it’s more of a thaw than a melt," Sim said, pointing to income growth and lower mortgage rates as key conditions for easing the affordability squeeze.
Sim said mortgage rates could get some relief if market conditions stabilize and certain capital-related changes materialize. He said rates could potentially move into the mid-to-low 6% range at some point in 2027, offering some relief to buyers but not an immediate reset for the housing market.
New Homes Face Pressure
New-home sales are also weakening as mortgage rates remain near 7%. Builders are relying heavily on incentives while facing high material costs, rising energy prices, and persistent labor shortages.
J.P. Morgan expects new-home sales to run at about a 630,000 annualized pace in the second half of 2026, down from roughly 680,000 in prior years.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
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