Buying a home is now unaffordable for 26 million households – and things won't get better anytime soon

• Up to 26 millions households were priced out of buying a home in the past year, per new research.
• National Association of Realtors says the median monthly mortgage payment rose $900 in a year.
• Rising mortgage rates combined with higher rents is locking out millions of first-time buyers.

Up to 26 million households have been priced out of the US housing market this year as stubbornly high prices and rising mortgage rates proved to be roadblocks for first-time buyers, new figures showed.

The National Association of Realtors (NAR) found the median monthly mortgage payment had risen by $900 in the past year, making home loans unaffordable for a third of buyers. 

Brutal market

The 30-year mortgage rate has risen to 6.3%, its highest level since 2008, after the Federal Reserve kept raising rates to tame inflation. It began the year at about 3.2%, with a relatively modest 6 million households priced out by March, according to the NAR. 

Nadia Evangelou, its senior economist, told Insider that rising mortgage rates hadn't yet forced house prices down — in fact they rose by 1.2% between the second and third quarters of the year.

"Although there are fewer buyers in the market, demand for homes continues to outpace supply. And while inventory may have picked up it is still not enough to make home prices to drop," she said.

Prospective first-time buyers are also facing rising rents, Evangelou said, reducing the amount they are able to save for a deposit.

The consumer prices index for rent has risen by 7.5% in the 12 months to October. Evangelou said that had contributed to first-time buyers making up 26% of total buyers now, down from 34% a year ago.

'Feeling pretty small'

Actuarial accountant Rachel Linehan and her partner Dan, both 23, told Insider earlier this year they'd been trying to buy a home in Framingham, Massachusetts, for four months.

In that time, she said a "pretty brutal" market of rising rates had shrunk their budget by up to $100,000, limiting the homes they could afford in their preferred area. 

Linehan recalls arriving at an open house viewing and waiting in a line stretching around the corner. She previously felt she and her partner had a "pretty good shot" of buying a home, with a good salary, no debt, and no kids. 

"It's pretty demoralizing. We went in feeling pretty hopeful but that hope has diminished over time to the point where we are feeling pretty small," she said. "We're getting to the point where we might give up soon." 

Rates have peaked, but pain lies ahead

For anyone looking to buy a home now, Evangelou says disappointment likely awaits. While the NAR thinks mortgage rates have peaked — they have dipped from a peak of 6.9% in October — prices will remain subdued rather than crash.

But she points out that it's already a slightly better time to buy due to the dip in mortgage rates, with the median mortgage payment $140 lower than last month.

Indeed, the economist says the sheer number of buyers shut out has begun to have an effect. 

"The result is that we have many buyers that have been priced out of the market, and with many buyers falling out of the market, housing demand has cooled," Evangelou said, adding that the nine-month decline in the volume of home sales was the longest slump on record.

A house-buying rebound in 2024 awaits, according to the NAR, but in the meantime a potential recession and a stubborn market might mean more pain for would-be homeowners.