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The real estate market since the start of the COVID-19 pandemic has been tough on all buyers, but aspiring first-time buyers may have struggled most of all.
For much of 2020 and 2021, the housing market faced a challenging combination of high demand and low supply. Young people were already growing into the largest segment of buyers as the Millennial generation came of age. When the COVID-19 pandemic hit, preferences for more living space, increased remote work opportunities, and other factors related to the pandemic encouraged even more people to enter the market. But existing owners proved reluctant to part with their homes, with supply on the market reaching a record low late in 2020. As a result, competition in the market drove the median home price up by 36% over the last two years. The run-up in home values was good news for people who already had equity in their homes, but it pushed prices out of reach for first-time buyers.
More recently, persistent inflation—and policymakers’ responses to it—have also made it harder to save up for a home. The prices of household essentials like groceries, energy, and especially rent have grown quickly over the last 18 months, leaving first-time buyers with less money to set aside. And now, as the U.S. Federal Reserve raises interest rates in efforts to combat inflation, the costs to take out a mortgage loan have risen dramatically. The average 30-year mortgage interest rate in the U.S. is more than double what it was at the start of 2022, translating into hundreds more dollars per month in payments for would-be buyers.