But there is a solution to this affordability crisis.

By Wolf Richter for WOLF STREET.

For about the past three months, the average 30-year fixed mortgage rate has been around 6.25%, give or take a few basis points. In the latest reporting week through November 26, it was at 6.23%, according to Fredie Mac data.

While this may seem high to people who have not seen anything beyond the QE era of 2009 through 2022, it’s at the low end of the historical range. There was a 40-year bond bull market from the early 1980s through 2020, during which longer-term yields kept zigzagging lower, and mortgage rates with them. But the final phase of this 40-year bond bull market was driven by QE, starting in 2009, when the Fed bought large amounts of securities, including mortgage-backed securities (MBS). This ended when the worst inflation in 40 years erupted.

The below 5% average 30-year fixed mortgage rates were an aberration caused by QE – an explicit policy by the Federal Reserve to repress mortgage rates to trigger to biggest bout of home price inflation this country has ever seen. The below 5% mortgage rates started in 2009, and in 2012, home prices began soaring. And then, amid the mega-QE during the pandemic, home prices exploded by 50%, 60%, even 70% in many markets in just two years.

Negative “real” mortgage rates were ultimately the result of the mega-QE from March 2020 through early 2022 – which included the Fed’s purchases of trillions of dollars in MBS – which pushed mortgage rates below 3% even as inflation was spiking.

By the beginning of 2022, inflation was heading toward 9%, and the most reckless Fed ever (as I called it at the time, you can google it) still had its short-term policy interest rates near 0% and was still doing QE to repress mortgage rates.

Mortgage rates were far below the rate of inflation at the time, so negative “real” mortgage rates (mortgage rates minus CPI inflation rates), and that turned out to be better than free money.

FOMO-addled buyers, armed with better-than free money, trampled all over each other, overbid, outbid each other, offered ridiculous amounts “over asking,” bid sight-unseen, waved inspections, etc., and home prices exploded by 50%, 60%, 70% in many markets in just those two years.

Negative real mortgage rates were not normal. They were the result of the most reckless Fed ever. They were an aberration.

Recently, mortgage rates have been in a normal range in relationship to inflation

Now CPI inflation is over 3%, the worst since May 2024, after having accelerated for months. Higher inflation also seems to be the new normal, as the Fed has been cutting its policy rates, and has been discussing further cuts, despite this inflation, and if it continues to cut, it would be an indication that the Fed is going to tolerate higher inflation over the longer term, that it’s comfortable with maybe 3% to 4% inflation. And higher inflation would entail higher bond yields, and therefore higher mortgage rates.

And there is no appetite for QE because it would cause inflation to explode in this already inflationary environment. Americans hate, hate, hate inflation and high prices, and they have a history of voting governments out of office under which that inflation occurred.

What is not in a normal range are home prices. Home prices move very differently in each market – but they soared in most major markets from 2012 to 2019, and then they exploded in most major markets in the two years from mid-2020 to mid-2022.

In a bunch of markets, home prices began sagging in the second half of 2022. In other markets, home prices continued to rise, but at a slower pace.

For example, in Austin, TX, prices of mid-tier single-family homes exploded by 64% in the two years from mid-2020 to mid-2022. That is not normal. It’s ridiculous. And from mid-2012 to mid-2022, over those 10 years, home prices exploded by 207%, from $225,000 to $690,000 for mid-tier single-family homes – having more than tripled in 10 years! That’s not normal; it’s ridiculous. Those are the effects of the Fed’s mortgage rate repression.

Since the peak, home prices in Austin have dropped by 24% as the market is in the slow process of repairing the affordability crisis. Undoing the craziness from 2020-2022 is the solution, along with rising wages over the years, not lower mortgage rates.

For example, in Sarasota County, FL, home prices had exploded by 70% in two years from mid-2020 to mid-2022, and by 210% from mid-2012 to mid-2022 (tripled in 10 years).

Home price explosions like this are not normal, they’re a result of years of reckless monetary policies.

The solution to this affordability crisis in Sarasota County is not lower mortgage rates, but unwinding the home price explosion. And the market is working on it; prices have dropped by 16% from the peak:

For example, in Phoenix, AZ, prices of mid-tier single-family homes had exploded by 60% in two years, from mid-2020 to mid-2022; and by 360% over the decade from mid-2012 to mid-2022. The market has since then been slowly working on reducing the massive affordability crisis, and prices are down by 11%.

But in other markets, prices are still rising, though at a slower pace.

For example in the Chicago-Naperville-Elgin, IL-IN metropolitan statistical area (MSA), prices are up 3.6% from a year ago. From mid-2020 to mid-2022, prices had soared by 23%, and then continued to rise. Over the five-plus years since mid-2020, prices have soared by 38%, as the affordability crisis worsens, and lower mortgage rates would just make the crisis even worse by driving prices up further.

Since mid-2012, prices have doubled.

There are other big metropolitan areas where prices are still rising, including in the Philadelphia metro and the New York City metro.

Home prices in all markets combined also exploded since mid-2020 on top of the already soaring trajectory before the pandemic.

For mid-tier single-family homes and condos, prices have soared by 42% since mid-2020, and by 128% since mid-2012, according to the seasonally adjusted Zillow Home Value Index (ZHVI). Over the past 14 months, the index has essentially flattened out.

For all single-family homes and condos, as per the not seasonally adjusted median price by the National Association of Realtors, prices over the five years from October 2019 to October 2025 exploded by 53%, and over the 10 years since October 2012 by 133%.

This is the median face of the affordability crisis: It’s far worse in some markets, such as Austin, and it’s less bad in other markets, such as Chicago. But in Austin, the market has begun to repair the affordability crisis; in Chicago, it’s still getting worse.

Lower mortgage rates are the problem, not the solution to the affordability crisis. Low mortgage rates have caused the affordability crisis. If mortgage rates were forced back below 4%, with inflation as high as it is, it would cause home prices to rise even further and faster, and make the affordability crisis even worse.

Every adult in the room knows this. But it’s politically incorrect to say it out loud because somehow the industry dogma has to be maintained that home prices can never decline, even after they’d exploded by such crazy amounts.

The solution of the affordability crisis is many years of rising wages and falling home prices that over time would unwind the crazy home price explosion that started in mid-2020.

Mortgage rates that are higher than CPI inflation by a historically normal spread, so currently 6.3%, would allow declining market prices and rising wages to find each other over the years, thereby solving the affordability crisis and bringing a modicum of sanity and health back to the housing market.

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WOLF STREET FEATURE: Daily Market Insights by Chris Vermeulen, Chief Investment Officer, TheTechnicalTraders.com.