The Hidden Wealth and Struggles of Homeowners: A Look at Housing Affordability in 2023

Most homeowners are both richer and poorer than they realize due to record low interest rates when they bought or refinanced their homes. However, they don't consider their ultralow mortgage rates as an asset. This has created a paradox in the housing market, with homeowners unwilling to sell their houses and prices remaining high while supply contracts. To bring housing prices and incomes of potential homeowners back into balance, either homeowner incomes need to sharply increase or interest rates need to fall. However, falling interest rates alone may not be enough, and prices still need to adjust downward. The problem could also be resolved through the removal of zoning and other local barriers to building new homes, but making such a deal at the national level seems unlikely. Ultimately, the housing market's dysfunctions may only be resolved through a combination of Fed policy and necessity.