How Money Works: If Nobody Can Afford a Home… Who’s Going to Buy Them?

Home prices have held up well, even as mortgage rates went from the 3 percent range to over 7 percent in the past 18 months. While that’s the highest level in 18 years, those who want to buy a home have been able to buy new homes.

Existing homeowners aren’t looking to move now. That would entail giving up their low mortgage rate for a more expensive one. With today’s high rates, it takes a six-figure salary in most markets to buy a home.

That leads to a simple question – who can afford a home right now?

With affordability so low, logic would dictate that home prices would be set to drop. However, there’s only been a modest decline in most markets.

One potential solution would be lowering down payment requirements. Instead of the standard 20 percent down, some lending programs allow borrowers to only put 3 percent down.

A few companies, such as Zillow (Z), are even looking to create a lending program that requires just 1 percent down.

At that rate, the down payment isn’t a problem. But paying for so much of a home’s value at today’s high interest rate is. That will make it difficult for small investors to invest in real estate with leverage.

Ultimately, the real estate market looks stuck until mortgage rates can move lower. Or until potential sellers can get comfortable with today’s rate.

To view the full analysis of today’s real estate market, click here.