Despite the protestations of President Trump, affordability – or the lack thereof – continued to be a limiting factor for the housing market. Since the pandemic ended, a severe shortage in homes for sale relative to interested buyers has pushed housing prices significantly higher. During the same time, mortgage rates jumped three percentage points, roughly double what the typical mortgage cost in 2019.
Why so many home buyers want to be in Pittsburgh’s northern communities and current challenges and what the future may hold.
According to a 2024 Bankrate survey, 78 percent of Americans who want to buy a new home say they cannot afford to do so. Also in 2024, CNN reported that its survey of renters under the age of 45 found that 90 percent could not afford to buy. In April 2025, Moneywise surveyed households and found that 70 percent could not afford a $400,000 home. (The median home price in the U.S. was more than $410,000 in the third quarter of 2025.) In September 2025, another Bankrate survey found that 16 percent of those searching for a home in 2025 had abandoned their search.
Home ownership is not uniquely American, but since World War II, it has been a bedrock of the U.S. economy. For most Americans, their home is their single biggest investment. The transition from renting to owning allows households to build equity, typically the first step towards building wealth of any scale. For all the talk about the affordability problem, the home ownership rate is essentially what it was in 1980, at 65 percent. But, with too many older Americans holding on to family homes while too few younger Americans buy homes, this high rate of ownership will not be sustained.
The reasons why homes are less affordable are both structural – unfavorable demographics – and cyclical – higher mortgage rates and imbalanced supply and demand. That makes solving the affordability problem nearly impossible from a policy perspective. At its simplest level, affordability comes down to two factors: the price of the home and the mortgage rate. History has shown that both are hard to influence with policies.
The Rising Price of Homes
Home prices are a function of supply and demand. Since the recovery from the Great Recession in the mid-2010s, there has been an inadequate supply of homes to meet the demand from buyers. This imbalance was magnified during the pandemic and supercharged in the years following the pandemic recovery, in 2022 and 2023. Those years featured many multiple offers on virtually every home for sale, which drove home price appreciation into double-digit territory. While home price appreciation has cooled down over the past year or so, prices are not falling, and the rising cost of most other aspects of life has made home ownership that much more difficult.
Another factor weighing on the market is the ongoing cost of ownership. As a result of higher labor costs, the 2021-2025 inflationary cycle, and another rise in natural disaster losses, it is significantly more expensive to maintain and insure a single-family home.
A July 2025 report by Realtor.com found that the average mortgage payment in the U.S. consumed 44.6 percent of the household income. That is 50 percent higher than the 30 percent mortgage-to-income ratio that was the lending standard for decades. Realtor.com found that in 47 of the 50 largest U.S. cities, the mortgage-to-income ratio exceeded 30 percent. The good news for Pittsburgh is that residents of the Steel City have the lowest mortgage-to-income ratio in the country, at 27.4 percent.
That bit of positive news is small consolation for the Pittsburgher trying to buy a starter home or move up as their family grows. The bidding wars may have stopped but the inventory of homes to buy is lean.
A combination of unfavorable demographics, low mortgage rates, and difficulty of building new homes are pinching the supply of both existing homes and new construction.
For more than a decade, Baby Boomers have defied conventional wisdom by remaining in their homes. By staying in place, Baby Boomers are keeping homes off the market that would be move-up homes for younger homeowners with growing families.
In a similar way, the low mortgage rates of the 2009-2021 period are keeping homeowners in place who would otherwise have moved up or downsized. When long-term rates moved from four percent to seven percent from 2022 to mid-2023, more than 80 percent of homeowners were left with mortgage rates that were three percent lower than the market. That meant that selling their house would mean buying a new home at much higher borrowing costs. For example, at today’s median home price of $410,000, a borrower with a 20 percent down payment would pay $1,625 per month in principal and interest on a 30-year fixed term at four percent. That same payment balloons to $2,260 per month at seven percent.
Although the share of homeowners paying at least six percent on their mortgage has bumped above 20 percent for the first time in a decade, the majority of outstanding mortgage loans have rates under five percent, with more than 52 percent still carrying a mortgage rate of four percent or less, according to Realtor.com, Redfin, and the Mortgage Bankers Association (MBA). Surveys of homeowners found that roughly one in four homeowners are still waiting to sell their home until mortgage rates fall below five percent again.
This rate-driven reluctance to move is why the inventory of existing homes for sale is historically low. Beginning in January 2023, the inventory of homes for sale in the U.S. has been roughly four million, a decline of 30 percent from the long-term pre-pandemic average. The decline in metro Pittsburgh is not as severe, falling 26 percent from pre-pandemic levels, but buyers in October 2025 saw 2,000 fewer homes for sale than buyers in October 2019.
“What’s interesting is that new listings year to date are about flat but inventory is up six percent. The key really is interest rates. Until we see those come down, or until the Fed stops saying they will lower them later, that will be the issue,” says Tom Hosack, president of Berkshire Hathaway HomeServices, The Preferred Realty. “Of course, the Fed doesn’t control mortgage rates, the bond market does. And you can’t change the fact that the government printed $17.5 trillion during the pandemic.”
“We’re seeing an uptick in listing inventory year-over-year, and we’ll see that next year if rates settle below six percent, but I don’t think it’s just interest rate alone that is causing this lack of inventory today,” says Howard “Hoby” Hanna IV, CEO of Howard Hanna Real Estate. “I think we’re in a very similar pattern to what we’ve been experiencing in the last few years, which is there is not enough new construction product in the market to offset the demand from buyers. There isn’t the product that moves the empty nester from their existing home, which is the home that today’s buyer wants to buy in the right school district or community.”
Prior to the Great Recession, market dynamics like this would have created a boom in new home construction; however, residential development has been similarly constrained by inflation and the cost of red tape.
In the years following the Great Recession, financial regulations made it more difficult to lend money for residential projects. Since the first Trump administration, however, most of those burdens have been removed or reduced. What has not been reduced is the growing burden to residential development that is coming from local and state regulation, and the higher cost of construction.
Although most of the hyperinflation that occurred during and following the pandemic in 2021-2022 has eased, construction costs have not recovered. Prior to the imposition of tariffs earlier in 2025, building material escalation had returned to its long-term two-to-three percent annual rate; however, that lower rate of escalation is in addition to the inflation spike that hit 24 percent year-over-year in September 2022. Before any considerations for the increased cost of construction labor, the cost of building materials is currently 40 percent higher than the end of 2019. Builders can be creative about what materials and products they use and develop more efficient construction processes, but a 40 percent hike in prices is impossible to absorb.
“I was recently at a meeting of market leaders in Baltimore and saw a presentation showing that a house that cost $250,000 to build in 2019 would cost $312,000 now,” says Matt Rost, regional market manager for NVR Inc. “We could have lower interest rates again tomorrow, but it would still be very difficult to build something under $300,000.”
NVR is the parent of Ryan Homes, the company that builds the highest number of new homes in Pittsburgh each year. As one of the top builders in the U.S., Ryan Homes has purchasing power and management efficiency that allow the builder to better contain construction costs. But part of the reason that for that high threshold for new home construction is the cost of developing new building lots, which Rost explains is primarily a function of regulation.
“Local government approvals take twice as long as they used to. Townships are revising ordinances that make development less affordable. We see municipalities going back to 100-foot lots. When you add in the things they’ve added from a permitting process, a stormwater process, the state regulations, and all the things that go into developing a lot, what used to cost us $700 per lineal foot now costs $1,200,” Rost says. “And almost none of that is from the cost of the site work contractor. The cost of excavating or moving dirt is only a few percent higher. It’s the other soft cost and extra conditions that municipalities are placing upon us that adds thousands of dollars to the cost of development.”
“Part of the log jam is the local municipalities make it so expensive to build because it takes so long, and there are so many conditions to meet,” agrees Hanna. “People can talk about regulatory change at the state or federal level, or whether loan products can be created for first time buyers, but the real challenge is at the municipal level. It’s so cost prohibitive to develop the land and build.”
Jeff Costa, CEO of Costa Custom Homebuilders, a custom builder that works primarily with owners who have their own lot, notes that his clients are asked for a significant non-refundable deposit that is designed to offset the high costs of getting a permit approved. Costa also points to the long-standing skilled workforce shortage as a driver of higher construction costs.
“Fifteen years ago, there were 15 heating and air-conditioning contractors we could choose from. Now, there are a handful, and they regularly turn us down because they are too busy,” Costa says. “They can’t find the skilled labor.”
Housing market researcher and consultant, John Burns Research and Consulting, convened top housing executives at its 2026 Housing Market Outlook event in late November. Among the key trends that the executives shared was that growth in new construction demand was limited to buyers 40-to-55 years old and over 70 years old. The surprising piece of advice they gave to builders was to stop building for first-time buyers.
In recent years, builders trying to serve the first-time buyer market have faced the uphill battle of keeping costs as low as possible. Costa explains that the demand for move-up and empty-nester housing is too strong to devote resources to building cheaper homes. He also says that his attempts to economize in the past have gone badly.
“Over the years, we’ve gone down the path of trying to build cheaper several times. Customers would tell us they wanted to buy with us, but they couldn’t afford it so we cut things out,” Costa recalls. “We bought cheaper windows or less expensive floor systems. Once they occupied the homes, homeowners weren’t happy because their floors were squeaky or there were drafts from the windows. I decided I just couldn’t do that anymore. You can provide a better price but not a better value.”
If builders begin to shift away from trying to find solutions for the affordability problem facing first-time buyers, the stage could be set for long-term improvements in affordability through “filtering.” Filtering is a term used to describe the effect of building more market-rate housing, which incentivizes homeowners to sell their existing homes, creating more inventory and competition among sellers. The obstacle to home ownership filtering has been the dramatic difference between today’s mortgage rates and those in place for most existing homeowners. With each passing year, the number of existing homeowners who have mortgages originated before 2022 shrinks. As 2026 begins, less than one-third of outstanding mortgages have rates below four percent and one in five is above six percent, and the growth of the latter is accelerating.
Those numbers are unfortunately not changing quickly enough to change the supply and demand dynamic much in 2026. Kevin Kaminski, vice president, director of mortgage lending at Community Bank, sees homeowners buying and selling in spite of the mortgage rate environment.
“It will be some sort of life event trigger,” he says. “Younger college graduates looking to buy their first home. Being relocated for your work. A divorce. Or the older generation that is moving out of the family home.”
Today’s Mortgage Rates Are Here to Stay
For those who came of age before the Great Recession, today’s mortgage rates are in line with what buyers expected in the 1990s and early 2000s. (Folks over 60 years old did not see rates as low as six percent until they were in their 40s.) The zero-interest rate policy of the 2010s set the stage for today’s environment in an attempt to encourage borrowing and investment. That policy worked, but it also set expectations for mortgage rates that were unsustainable.
Low rates have pinched inventory and left many buyers looking longingly for a return to the four percent mortgage. The rate cuts by the Federal Reserve since September 2024 have confused buyers expecting a similar decline in mortgage rates. But the Fed’s cuts affect short-term interest rates only. To understand what might happen to mortgage rates, you need to follow the interest paid on long-term bonds, which are the basis for 15- and 30-year mortgage rates.
The thing to watch is the spread between 30-year fixed mortgage rates and the 10-year Treasury yield. Typically at 175 basis points, the mortgage-to-Treasury spread nearly doubled when the Federal Reserve Bank hiked rates in spring 2022 and has remained stubbornly higher than normal through the first three quarters of 2025. Since September 2025, much of the uncertainty about the trend for long-term rates has faded. It is clear that the Fed will cut rates in an attempt to get to a neutral monetary policy over the next nine months, which appears to be somewhere around 3.5 percent. The problem is that the long-term rates, like the 10-year Treasury yield, may not follow the Fed Funds rate lower without additional pressures
A slowing economy will put downward pressure on the 10-year Treasury, as will the combination of higher demand for mortgage-backed securities (MBS) and smaller supply of MBS. Over the past couple of years, the Fed has gradually decreased its holdings of MBS bonds, selling them into a market with fewer mortgages for sale as home prices soared. Buyers of MBS bonds, which are the securities that are bundles of residential mortgages for sale to institutional investors, have been less desirable during a time of uncertainty about the direction of long-term rates. That uncertainty is easing at the same time that the Fed is slowing the sales of MBS from its balance sheet. What this financial mumbo jumbo ultimately means is that sellers of residential mortgages will not have to offer as high an interest rate to attract buyers.
One policy lever that could be used to push mortgage rates slightly lower would be to create an artificial ceiling on the spread that the government-sponsored enterprises (GSE), Fannie Mae and Freddie Mac, charge on mortgages that they purchase. Fannie and Freddie were created during the Johnson administration in the mid-1960s to ensure liquidity in the mortgage market. Fannie and Freddie are the main secondary market to which mortgage originators, like your local bank, sell home loans. In 2025, it is estimated that 70 percent of all home loans will have been purchased by Fannie and Freddie to repackage and sell to investors as bonds. The lender’s spread on a mortgage rate is intended to create the profits that offset any losses from loan defaults.
Because the risk of a loan sold to Fannie or Freddie is eliminated for the originator, the spread the originator charges is usually just above one percent, or about 1.5 to 1.75 points lower than the spread a lender would charge to hold the loan. Fannie and Freddie then also add a spread, usually 1.25 percent to 1.5 percent. Those two spreads are added to the 10-year Treasury yield to come up with a fixed rate for 30 years. On December 3, when the 10-year yield was 4.1 percent, a 30-year mortgage that conformed to Fannie’s and Freddie’s guidelines had an interest rate of 6.7 percent.
As a matter of policy, the federal government could limit the spreads that banks, as well as Fannie and Freddie, charged; however, that discount would produce limited benefit if the 10-year yield remains above four percent. Moreover, artificially lowering the spreads for an extended period would expose lenders, and Fannie and Freddie, to a greater risk of losses from loan defaults. The downside of such a policy outweighs the small upside.
Another policy that should be avoided if the goal is to improve affordability is the privatization of Fannie and Freddie. Pushing the GSEs to become private would remove the government guarantee that backs every loan Fannie and Freddie purchase and resell. Without that implied guarantee, investors will want a higher interest rate, which would move mortgage rates paid by homeowners higher. Investors would almost certainly want the rate lock that Fannie and Freddie permit to end, removing the certainty that borrowers have when they start the 60-to-90-day loan process. Privatized Fannie and Freddie would ultimately become competitive with other private lenders, but they would also be vulnerable to the same market variability that the GSEs were designed to mitigate.
Assuming there are no surprises coming from the Trump administration that would shock the markets (such as privatizing the GSEs or the so-called Liberation Day tariff announcements of April 2025), the outlook for 30-year mortgages is a drift towards six percent by mid-2026. Should there be unexpected bad economic news before then, rates could fall below six percent, but most economists are skeptical of much change in the mortgage environment.
Executives at the Burns 2026 Housing Market Outlook were unanimous in predicting that mortgage rates would not decline in 2026. There is little disagreement with that forecast. The Mortgage Bankers Association predicts the 30-year fixed-rate mortgage to hover around 6.4 percent in 2026. Economists at Realtor.com and Redfin forecast an average of 6.3 percent. The National Association of Realtors expects rates to be lower, averaging 6.0 percent. Only Fannie Mae is forecasting the potential for the 30-year rate to dip below six percent by the end of 2026. As of the week before Christmas, the average 30-year rate is 6.2 percent.
“I don’t think we’re going to see the bottom fall out in the next 12 months. I think this year will be a little different in that we’ll see more stability in rates. Rates will maintain where we are now, which is low sixes,” predicts Kaminski.
“That range is where we are,” says Mike Henry, senior vice president at Dollar Bank. “We’re at 6 1/8 percent now and it’s been working. Our production has been very good since August. It’s not the same numbers we saw during the peak refinance years because there’s very limited refinancing, but our registrations are solid.”
Henry reports that one of Dollar Bank’s market metrics, the number of preapproved borrowers in its pipeline, has ballooned, growing from a range of 200-to-250 five years ago to 720 in mid-December. Because demand for homes is sky high, Henry believes that a mortgage rate in the high five-percent range would move more homes; however, he does not think such a rate would unlock the market.
It is clear that homeowners and potential homeowners are unlikely to get a break from low mortgage rates or cheaper new construction in 2026. The key to improved affordability is a robust increase in the supply of homes for sale. Such increases have occurred in the past via two scenarios. One scenario is a serious economic downturn or event, which forces more homeowners to sell while far fewer buyers are in the market. The other is a boom in new development driven by the opportunity to sell more houses.
The first scenario is undesirable. The second scenario, in which entrepreneurs respond to a market opportunity, is the one that has led to numerous economic booms. To induce that type of scenario, policy makers will need to remove obstacles to development and break the rate lock of the low-interest mortgages. They have the power to do the former but not the latter. NH
