Ever since the pandemic, the housing market has been difficult for buyers, especially for young and first-time buyers. Housing prices have been rising at a rate much faster than both the overall inflation rate and the growth in household income. At the same time, mortgage interest rates jumped 4.5 percentage points between 2020 and 2023. 

These changes put potential buyers in a double bind. Not only are homes more expensive, but financing the purchase is also more costly. As a result, the average monthly mortgage payment as a share of a new buyer’s income doubled between 2020 and 2023.

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Hence, it should not be a surprise that homebuying and homeownership declined in North Carolina this decade. In 2024 the percentage of households who were homeowners was 65%, down from 69% in 2020 and well below the 72% at the beginning of the 21st century.

These changes are troubling for several reasons. First, many households who would prefer to live in single family homes instead of high density units are being denied that choice. Second, single-family homes have traditionally been a way for young households to build wealth as their home increases in value over time. Among all households, including homeowners and renters, home values account for almost a quarter of all wealth. For just homeowners, home values account for half of their wealth.  And unlike many investments, such as stocks, it is rare for home values to decline.

Some argue there are also non-financial benefits to owning a home. Children living in homes have more access to outdoor activities, thereby getting more exercise and exposure to fresh air and sunshine. Homes with outdoor space, in particular, can provide opportunities for children to have chores, thereby allowing them to learn about work and responsibility. Last, there may be a psychological benefit to the family from the pride of owning and maintaining a home.

How can we return to an economic environment where home affordability improves and more households – especially young households – can easily purchase a home? The answer is easy. We need more homes built, we need home prices to stop outpacing household income, and we need lower mortgage interest rates. 

Accomplishing this recipe is not easy, but there are some positive signals giving us hope.  Like the nation, home construction has been inconsistent in North Carolina. Understandably, there was a big drop in home building during the pandemic. Subsequently there was a strong rebound immediately after the pandemic. But the rebound was cut short by the surge in inflation in 2022 and 2023, which pushed up construction costs.

But once the Federal Reserve (the “Fed”) enacted policies to lower the inflation rate, housing construction recovered. However, during the last two years of 2024 and 2025, there’s been an erratic pattern in home construction with no clear path. Experts think uncertainties related to interest rates, tariff rates, and the economic health of households are affecting builders. However, one piece of good news is home construction today is running at a higher level than before the pandemic.

Home prices continue to rise in North Carolina, but the pace has slowed. When price changes are tracked for homes with the same features – such as square footage, number of rooms, etc.- there’s been over a 70% rise between 2020 and 2025. But three-quarters of that increase occurred between 2020 and 2022. Since then, home prices have been rising at single-digit annual rates.

Lastly, an overall measure of housing affordability that accounts for home prices, mortgage interest rates, and household income shows bad news and good news. The index sank by more than 50% from 2020 to 2024. But during some months in 2025 the index rose very modestly, mainly due to moderating home price inflation, some reduction in mortgage interest rates, and improvements in household income.

So, what’s the conclusion? Are there any signs the housing market is getting better for buyers? Also, what should you look for to anticipate that buying a home will become easier?

The analysis I’ve presented does indicate some positives in the housing market in terms of moderating price increases, continued construction, and modest declines in mortgage interest rates. Indeed, in the past two years, the 30-year fixed mortgage interest rate fell three-quarters of a percent to near 6.5%. This is certainly higher than the sub 3% rate immediately after the pandemic. But that historically low rate was a result of the Fed pumping enormous amounts of cash into the economy to overcome the Covid recession. We later paid for that policy with an annual inflation rate over 9%. While the Fed won’t push mortgage rates back to 3%, they have strongly indicated they are ready – perhaps as early as September – to support lower interest rates, including mortgage rates. So, watch for interest rate announcements from the Fed.

If the Fed does lower interest rates, the action could cause increased home construction as builders become more optimistic about households’ ability to purchase homes. This could moderate home price increases to be more in line with the improvements in worker earnings that have been occurring. Therefore, if you’re in the market to buy a home, continue to watch trends in construction and prices. There may be some good news ahead.

The housing market has been tough for buyers in recent years. But are there some changes occurring that could make a home purchase easier? You decide

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Dr. Mike Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.