According to the U.S. Census Bureau, America’s homeownership rate expanded from 65.3% during 2020’s initial quarter to 67.9% during the next. In other words, the opening stages of a devastating global pandemic ushered forth an unprecedented ramping up of homeownership in the U.S. Not only did mortgage rates plummet as the pandemic first swept through the economy, but the pervasiveness of remote work and lockdowns along with a desire to aggressively social distance had people scrambling for additional space for home offices, home gyms, and returning adult children, including those enrolled in college.

There were also geographical implications. Untethered by remote work, many Americans took the opportunity to move out of expensive and densely populated metropolitan areas to smaller, less expensive ones. This often meant moving from places like San Francisco to Sacramento or Reno or from New York City to suburbs in Connecticut or New Jersey. There was also mass migration to the American South, with cities like Tampa, Orlando, Charlotte, Nashville, Austin, Dallas, and Phoenix experience large in-migration and attendant chunky increases in home values.

Alas, much of this transition to homeownership in various communities would not have occurred but for the seductive appeal of record low mortgage rates. According to Freddie Mac, the average 30-year fixed mortgage stood at an already favorable 3.78% on Halloween 2022. By historic standards, that mortgage rate was low enough to avoid spooking many buyers. But as the virus began to float menacingly from nation to nation, inducing pro-growth central bank policymaking, mortgage rates fell further. By late-January 2021, the 30 year-fixed mortgage rate was meaningfully below 3% (2.7% for the week ending January 21, 2021).

With mortgage rates falling, Americans scrambling to own homes, and homebuilders frustrated by skyrocketing lumber prices, component shortages (e.g., garage doors), and a structural shortage of construction workers, home prices raced higher. In February 2020, the month before much of the U.S. economy was shut down, the Case-Shiller U.S. National Home Price Index stood at 213.23. In June 2022, at the peak of the market, the reading stood at 308.3, meaning that home prices had risen approximately 45% in less than two and a half years.

The runup in home prices was part of a broader inflationary push in the U.S. Between June 2021 and June 2022, inflation as measured by the Consumer Price Index rose 9%. Three months earlier, in recognition of an enduring bout of inflation that proved not to be transitory, the Federal Reserve began raising interest rates. Beginning with March 16, 2022, the Federal Reserve raised its benchmark Fed Funds rate for ten consecutive meetings. The upper limit on the Fed Funds rate has risen from 0.25% to 5.25% in a bit more than a year.

Predictably, the housing market has downshifted sharply in response. Home sale prices have been sliding in recent months, with the Case-Shiller Index down to 293.2 by February 2023, a decline of about 5% since the June 2022 high. Price declines have been particularly acute in certain tech heavy markets as several massive technology companies downsize while pandemic-induced behaviors shift back toward pre-pandemic norms. Among the communities most impacted are Seattle and San Francisco.

Higher mortgage rates are, of course, at the heart of the matter. During the early days of 2022, the average 30-year fixed-mortgage rate stood at around 3.2%. By May 2023, that same rate stood at about 6.4%, or about double what it had been around a year ago.