US housing affordability: Why pre-2022 conditions are unlikely to return

Real estate in the USA is unlikely to return to pre-2022 affordability

Real estate in the USA has changed in ways that will affect buyers for years. A new Morgan Stanley report led by senior economist Sarah Wolfe argues that housing affordability will not meaningfully revert to the easier conditions seen before 2022. For would-be buyers and investors this is not a theoretical warning; it is a practical forecast grounded in mortgage-rate dynamics, tight resale inventory and shifting buyer profiles.

In this article we break down the numbers, explain what is driving the squeeze, and outline how buyers and investors should adjust strategy. We draw directly on Morgan Stanley’s findings and add practical commentary based on market mechanics.

Why affordability won't snap back: rate-sensitivity and carrying costs

Mortgage financing sits at the center of this reset. Morgan Stanley highlights how small moves in rates now produce large swings in affordability. Homebuyers who could manage a mortgage payment five years ago are facing a new reality.

• The estimated monthly payment for a buyer of a median-priced home is about $2,000, which Morgan Stanley says is roughly double the carrying cost from five years ago.
• Mortgage rates briefly dipped below 6% in February of the latest cycle but then returned to around 6.5% and have generally stayed above 6% since.

We should emphasize what this means in practical terms. A higher mortgage rate raises the interest portion of each payment and reduces the loan size a buyer can support for a given monthly budget. When interest rates rise, affordability declines even if home prices stop rising. That explains why small rate movements have outsized effects today.

Morgan Stanley’s historical comparison is stark. From 1990 through 2021 the market was less affordable about 15% of the time, meaning that even modest near-term improvements would still leave affordability tight by historical standards.

Supply shortage caused by a freeze in turnover

One of the clearest supply-side drivers is the reluctance of existing homeowners to trade up or move when they carry low fixed mortgage rates.

• According to the report about 70% of existing homeowners have mortgage rates below 5%, and one-half have rates below 4%.
• That has pushed housing turnover down to the lowest levels in roughly 40 years.

Why does turnover matter so much? Existing-home transactions historically supply the majority of available listings. When millions of owners sit on low-rate mortgages rather than list, the on-market supply shrinks and prices are pushed higher by scarcity. New construction has expanded since the housing crash but it cannot replace the annual flow of resale listings quickly enough.

The consequence is a market in which price appreciation has slowed in some metro areas and remained persistent in others, but supply has not improved fast enough to lower the barrier for first-time buyers.

Who is buying now: stronger credit, bigger loans, different ZIP codes

Morgan Stanley’s report notes changes in the profile of first-time buyers that reflect higher hurdles to entry.

• The average credit score for first-time buyers rose to 734 in recent data, up from 718 in 2019.
• The average mortgage balance for first-time buyers climbed to $334,000 in 2024, compared with $240,000 in 2019 and $195,000 in 2014.

Those changes tell a clear story. Lenders and borrowers are both operating in a higher-cost environment, which favors buyers with cleaner credit histories and larger down-payment capacity. The rise in the loan amount has outpaced inflation by more than twofold, according to Morgan Stanley. Where affordability tightens, buyers shift to more affordable ZIP codes and sacrifice location or house size to make the math work.

For agents and investors this creates opportunity and risk. Higher credit-score buyers are relatively lower credit risk, but the geographic shift can compress returns for landlords and investors who chase yield without accounting for local demand dynamics.

Morgan Stanley scenarios: rates, payments and a new equilibrium

Morgan Stanley modeled a range of long-run rate scenarios and reached a consistent conclusion: affordability does not return to pre-2022 peaks even if rates fall.

• If mortgage rates moderate to around 5%, the firm projects mortgage payments will drop from about 24% of household income to about 21% over the next decade.
• That 21% still sits above the about 15% level that prevailed after the 2007-2009 financial crisis.

The report also notes the probability that mortgage rates will land closer to 6% than 5% has been rising. In every modeled scenario — 4%, 5% or 6% mortgage rates — affordability fails to return to prior best levels.

That language matters for long-term planning. The market is resetting to a more constrained equilibrium where buyers need to accept higher debt service burdens, or to compensate with larger down payments, longer commutes, or smaller properties.

What this means for buyers, sellers and investors — practical takeaways

I will be frank: the landscape is tougher for buyers who hoped to wait for a full return to the pre-2022 affordability regime. Here are action points for each market participant.

Buyers (first-time and repeat)

• Assess affordability in percentages: aim for a mortgage payment that fits your budget with at least a 10–20% buffer for interest-rate movement.