As the 2025 homebuying season kicks off, Americans are staring down some of the most difficult conditions they’ve ever faced. Home prices have risen to record highs, and mortgage rates are well above their record lows. Thanks to the affordability squeeze, the typical age of a first-time buyer has increased to 38.
Why is this housing market such a challenging one for homebuyers? Blame COVID-19. The health crisis roiled the global economy, supercharging demand for homes and sending prices skyward.
How the pandemic fueled a housing boom
Back in early 2020, as a new contagion began to grab headlines, the U.S. housing market was hot but not overheated. The median home sale price nationally had risen to almost $290,000, according to Redfin — a recovery from the crash a decade earlier. And 30-year mortgage rates hovered around 3.75 percent, according to Bankrate’s national survey of lenders.
Then, in March 2020, COVID reached the U.S. Lockdowns followed. Hoping to avoid a repeat of the protracted crash of 2009-10, central bankers and federal officials moved aggressively to stimulate the economy. The Federal Reserve slashed its benchmark rate to zero. President Donald Trump signed off on a sweeping stimulus package.
While the Fed doesn’t dictate mortgage rates, it does influence 10-year Treasury yields. When these decreased, mortgage rates plunged below 3 percent.
Tempted by super-cheap home loans and spurred by remote-work opportunities, Americans snapped up real estate. Prices in Utah, Idaho and Arizona soared as buyers from California and Seattle moved in. Values in Florida shot up amid demand from transplanted New Yorkers.
For a time, the seller’s market was so intense that any suburban home could become the subject of a bidding war. According to a March 2022 report from the National Association of Realtors, each home sold received an average of almost five offers, and almost half of buyers made offers above the listing price. Nearly 85 percent of homes were sold within a month.
Rising mortgage rates lead to a ‘housing recession’
By late 2021, it became clear that, while federal policies had shortened the pandemic recession, they had also overstimulated the economy. Inflation peaked at 9.1 percent in June 2022.
The Fed responded by raising its benchmark rate sharply. Ten-year Treasury yields and, eventually, mortgage rates followed suit. According to Bankrate’s weekly survey, the average rate on a 30-year home loan shot all the way to 8.01 percent by October 2023.
Soaring mortgage rates led to what many housing economists termed a “housing recession.” Few homeowners wanted to give up their 3 percent loans, so they decided not to put their homes on the market. Between a lack of inventory and higher rates, existing home sales plummeted from a rate of more than 6.4 million in early 2022 to a rate of about 4 million in early 2023.
Despite the lack of demand, home prices remained high. In the summer of 2023, the median price of an existing home sold in the U.S. was more than $435,000, a staggering 50 percent increase from pre-COVID prices.
Today’s picture: An affordability squeeze
While the pace of appreciation has slowed, home prices are still far above pre-COVID levels. In January 2025, the median home price was $418,489, according to Redfin. And while mortgage rates have decreased from recent highs, they averaged 6.67 percent as of Bankrate’s April 2 survey — still nearly double the rates of early 2020.
Bankrate estimates that a homebuyer needs nearly $117,000 in household income to qualify for a mortgage on a median-priced home, up 50 percent from January 2020.
According to Fannie Mae’s March Home Purchase Sentiment Index, just 24 percent of Americans think it’s a good time to buy a home. This is reflected in the rate of existing-home sales, which stood at 4.26 million in February 2025, all but unchanged from the previous year, despite lower rates.
“Between elevated mortgage rates and the rise of home prices nationally to a record level, many aspiring homebuyers feel like owning a home is out of reach,” says Mark Hamrick, Bankrate’s chief economic analyst.
Some relief in sight
No one expects home prices to fall dramatically, but appreciation seems to have settled into a moderate range. The median home price in February was up 3.8 percent from a year earlier, according to the National Association of Realtors. “The rate of increase is going to moderate because of affordability constraints,” says Mark Palim, chief economist at mortgage giant Fannie Mae.
Andy Walden, vice president of research and analysis at ICE Mortgage Technology, says that after a period of home prices strongly outpacing income growth, it’s inevitable that prices must cool. “We’re very much seeing the national home price rate decelerate as we enter the spring homebuying season,” he says.
And, after years of shortages, the inventory of homes for sale is rising.
“The spring housing season is beginning with more sellers and a growing number of homes for sale,” says Danielle Hale, chief economist at Realtor.com. “But the high cost of buying coupled with growing economic concerns suggest a sluggish response from buyers in early spring. We’re seeing a market that’s rebalancing, offering more choices for shoppers.”
Tips for buyers
How to cope with a difficult market:
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Work on your credit score. Lenders use your credit score to determine your mortgage rate. Increasing your score before putting in an application will almost certainly improve the terms you’re offered.
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Consider putting down less than 20 percent. While a 20 percent down payment is ideal, there’s nothing wrong with putting down less. You can get a conventional loan with 3 percent down or a Federal Housing Administration loan with 3.5 percent down. Loans backed by the Department of Veterans Affairs typically don’t require a down payment.
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Research down payment assistance. Every state offers some sort of subsidy to encourage homeownership. You may qualify for down payment assistance, as well as help with closing costs and other expenses related to homebuying.
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