In a recent Redfin report released Thursday, it was revealed that home prices have surged by nearly 5% year over year across every major city in the United States. This increase coincides with mortgage rates approaching an 8% peak, reminiscent of the rates seen in fall 2023. The convergence of these two financial pressures is creating significant barriers for first-time homebuyers, as acknowledged by Treasury Secretary Janet Yellen in her testimony before the House Ways and Means Committee on Tuesday.

Yellen stated, “With house prices having gone up, and now with much higher interest and mortgage rates, it’s almost impossible for first-time buyers.” She highlighted the "lock-in effect" as an additional hurdle, where existing homeowners are hesitant to sell due to fear of losing low mortgage rates and facing the current high rates and elevated home prices. The median home price has escalated to a near-record $383,188, per Redfin, pricing out a significant segment of potential buyers.

First-time homebuyers face an uphill battle with the median monthly housing payment reaching a record $2,890, marking a 15% increase from the previous year. This cost represents nearly half of the median weekly earnings for full-time workers, which was $1,403 as of the fourth quarter of 2023, according to the U.S. Bureau of Labor Statistics. Financial experts, like Mark Fleming of First American, warn that affordability is at a 30-year low, with many buyers potentially becoming house poor by exceeding the recommended 30% of income spent on housing.

The high home prices necessitate substantial down payments, often out of reach for many Americans. For instance, a 20% down payment on a median-priced home of $383,000 would require $76,000 upfront. This daunting sum has led some first-time buyers, particularly among Gen Zers and millennials, to resort to side hustles or even soliciting down payment funds through wedding registries.

Fortune Article