Update: Now Continues to be the Least Affordable Time to Buy a Home in Recent History

by Mischa Fisher, Chief Economist | June 2022

As interest rates for mortgages continue to rise, so does the comparative advantage of staying in place and remodeling vs. buying a new home.

Key Takeaways:

  • Controlling for hourly wage rates, a new home is less affordable than at any time in the last 30 years, with a payoff time not seen since the spring of 1990.
  • As the 30-year mortgage rate approaches 6%, the total cost of buying a new home – its sticker price combined with its mortgage rate – has reached an all-time high of $944,320
  • The number of years it would take a typical worker to pay off their home has doubled since the onset of the pandemic in the spring of 2020.
  • As interest rates rise, we should expect demand for houses to normalize and for remodeling to become more competitive as buying a house vs remodeling one becomes a comparatively worse deal

[Editor’s note: for more information on how remodeling is gaining a competitive edge, read our original longer research note here: https://www.angi.com/research/now-is-the-worst-time-to-buy-a-home-in-the-last-15-years/] 

Higher Interest Rates = Less Affordable Homes

As interest rates for mortgages continue to rise, so does the comparative advantage of staying in place and remodeling vs buying a new home. 

The average lifetime cost for buying a new home in 2019 was $569,269; when interest rates dropped in 2020 the lifetime cost similarly dropped by 12% to $500,581. As home prices rose the lifetime cost rose to an average of $573,224 in 2021, roughly equal to where home costs were in 2019 before the pandemic. With higher home prices – now combined with higher interest rates – the total lifetime cost today has nearly doubled from the low in 2020, to a new all-time high of $944,320.

This increasing unaffordability will act as a strong competitive advantage for remodeling as:

  1. existing homeowners find staying in their current home and renovating – rather than moving to a new home with higher mortgage rates – is a comparatively better deal, and
  2. prospective homeowners cannot afford more up-to-date homes and need to purchase less desirable homes and renovate them to suit their needs. 

For more on this dynamic, read our original research note on the subject here: https://www.angi.com/research/now-is-the-worst-time-to-buy-a-home-in-the-last-15-years/ 

Methodology Notes:

These figures assume purchasing an average cost home with a 10% downpayment and a 30-year mortgage that is held at that interest rate for the life of the loan. Annual figures are averaged across 12 months and thus may slightly over or underweight any observed seasonal trends in prices or interest rates.