'Consumers Don't Have the Ability to Absorb That Higher Cost': Discussing the Housing Market

Tom Heintjes: Hello, and welcome to a new episode of the Economy Matters podcast. I'm Tom Heintjes, editor in the Atlanta Fed's Public Affairs department, and your podcast host. Today, we're once again sitting down with one of our most regular guests, Domonic Purviance, a subject matter expert in the Atlanta Fed's Supervision and Regulation Division, and the person who maintains the Atlanta Fed's Home Ownership Affordability Monitor (HOAM). Domonic, thanks for being on the podcast today. It's been way too long since you've sat down with us.

Domonic Purviance: I know, Tom. It's a pleasure to be here.

Heintjes: It's been a long time since you were on the podcast, Domonic-and in terms of the housing market, something as large and dynamic as the housing market, we certainly have a lot to get into today, so I'm going to jump right in. First, I wanted to start off by getting you to address mortgage rates, which have declined recently. As you know, the Fed doesn't directly influence mortgage rates, but I wonder what you think is behind the decline.

Purviance: First, for most of last year, rates were on a downward trajectory, and there are several things that were driving it. One, the GSEs' [government-sponsored enterprises] institution of a policy of buying mortgage-backed securities, so that created some downward pressure.

Heintjes: When you say GSEs, I just want to explain: that's Fannie and Freddie?

Purviance: Right, yes. Fannie Mae and Freddie Mac, the two largest GSEs.

Heintjes: Right-OK, thanks.

Purviance: They had a program where they were buying mortgage-backed securities, so that created some downward pressure on mortgage rates. And I think at the beginning of this year, rates got below 6 percent for the first time. And so, coming into this year, there was a lot of momentum and high expectations for the housing market to gain some momentum, but the recent events in Iran really shifted things significantly. So, mortgage rates went from about 5.98 percent, to today they're around 6.4 percent-it's been a sharp increase in mortgage rates over the past several months. And the timing, of course, wasn't helpful because we're coming into the peak selling season of the year. Starting at the end of February, moving into March and April-those are generally the peak buying times of the year. But the higher rates have sort of blunted some of that momentum.

Heintjes: Speaking of mortgage rates, we often hear about a phenomenon called "rate lock," which is when people aren't willing to sell their house with, for example, a 3 percent mortgage rate and take out a new mortgage with, say, a 6 percent mortgage rate. That reluctance to sell impedes several things, including housing availability. Is rate lock still a big factor in the market?

Purviance: Absolutely. If there was one dynamic that's impacting the housing market more than anything, I think it's the rate-lock effect. If you think about it, during the pandemic, rates dropped-in some cases, at their lowest, below 3 percent. A whole bunch of people refinanced their mortgages. A whole bunch of people who had bought homes at a 4 or 5 or 6 percent interest rate they couldn't afford, and now they could buy a lot more home. What happened is, people bought or refinanced. Home prices went up, and then interest rates went up. Currently, if you look at the distribution of all mortgage holders, nationally, almost 90 percent of all households that have mortgages have a mortgage rate below 6 percent. That's 90 percent. And so those people-as long as rates remain in that 6 percent range-those households are disincentivized to ever sell and buy another house, because they would increase their housing costs significantly. How this has impacted the housing market is, let's just say if you were in New York and you wanted to sell your home and retire and buy a home in Florida-or maybe you're an empty nester, your kids are out and you want to downsize. You're less likely to do that if that means that you're giving up a 3 percent mortgage to get like a 6 percent mortgage, and a much more expensive house. And so, if you bought any time before the pandemic, you have a lot of equity-almost anywhere in the country, you have a lot of equity. But you can't do anything with it, because if you have that low mortgage, if you're going to sell your house or leverage that equity, you're going to significantly increase your housing costs if you have to buy another property. There are fewer people who are selling, so there's less inventory available on the market. And then there are fewer people moving. Like I said, the person moving from New York or New Jersey who would retire in Florida is less likely to move because of that rate-lock effect. So it's a significant issue. It's affecting supply, on one hand, for the people who would sell, and demand if you're in a market that generally gets people that are selling homes and moving.

Heintjes: It's interesting-and when I say interesting, I mean "frustrating to understand"-I've seen reports describing the housing market as cooling, and others call it stabilizing. Does this depend on what part of the country you look at? Is it even possible to capture the national housing market with one adjective?

Purviance: I think that's right. I do think, depending on where you are, the housing market is either cooling or declining. I think what's safe to say is that most markets across the country are not accelerating. We're not seeing strong demand, increased sales-we're not seeing any of that. Markets are either cool or stabilized or, in some markets, we're actually seeing some softening and declining. For example, the Northeast, where a lot of people are impacted by that rate-lock effect, there are fewer people selling their homes, so there's less inventory, so prices are a little bit more stable. In markets like Florida that is heavily dependent on people selling and moving, you see a smaller influx of people, you see homes sitting on the market a little bit longer, you see sellers having to discount homes in order to get them sold-in some cases, taking them off the market because they're not getting the price they want. Those markets are softer, and so it is really a tale of two cities, depending on where you are. Markets that are generally more stable are markets that are more impacted by the rate-lock effect, where people are not willing or able to sell. Markets in the Southeast, in particular-these are markets where the housing market is heavily dependent on an influx of new residents-those markets would be a little bit softer, in my view.

Heintjes: I wanted to get you to take a closer look at the Southeast with this. I know that the Southeast is not a monolith-it's many disparate markets, and many hot spots and cooler spots. How would you characterize the Southeast, in general?

Purviance: For the most part, the Southeast, and the Sun Belt in general, comprise markets that historically have seen an influx of companies and businesses, as well as residents moving to those markets, because they're more affordable than your more expensive Northeast or West Coast markets. Because of-as we've been talking about-the rate-lock effect, there are fewer people moving to the Southeast. One remarkable statistic that I've been tracking-and I talk about it in all of my presentations-is the lack of domestic migration into Florida. So typically, Florida has over 100,000 new residents moving there in a year-and that's just domestic. International brings an additional number of residents moving in. But if you just look at domestic migration-that's people moving from some other place in the country to Florida, mainly to retire or have a second home-that's typically over 100,000. We have data from June of 2024 to June of 2025-that's the latest that we have data for domestic migration-we only saw 22,000 people move to the state of Florida. That's a significant decline. And so, when you start looking at markets in Florida-like Naples, or Cape Coral, or Fort Myers-that really depend on people who are retiring or moving or buying second homes, those markets are significantly weaker. There's just less demand, fewer people moving. Part of it is rate-lock effect. The other part of it is high insurance costs-that's a deterrent for people. Based on the domestic migration data I've been mentioning, there are more people who moved to South Carolina and North Carolina in that period between June of 2024 and June of 2025 than moved to Florida. In fact, North Carolina has the largest domestic migration of any state in the country, even higher than Texas. You're seeing this shift. Markets like Texas and Florida generally are your largest markets in terms of domestic migration-you're seeing fewer people move there, so you're seeing the housing market get a little weaker, you're seeing some downward pressure on price. Other markets, like South Carolina and North Carolina-those markets are seeing a little bit more strength. Markets like Atlanta are somewhere in the middle. I would say Atlanta is somewhat stable. We still have a pretty strong economy here. We're still seeing companies and people moving-not at the rate that they were moving a few years ago, prior to the pandemic, but it's still relatively stable.

Heintjes: I did want to ask you about some of the Southeast's larger metros-we talked about Florida, but specifically large metros like Miami, Atlanta, which you touched on, and Nashville. How are those markets faring?

Purviance: Nashville is fairly healthy. It's still a market that people want to move to and businesses want to relocate to. The struggle there is really affordability, and we'll talk a little bit more about that a little later. But the lack of inventory, the increased pressure on home prices there, coupled with higher interest rates, has just made it really unaffordable. A market like Miami is really dealing with the same thing: just a lack of affordability. It's prohibitively expensive for people to buy in those markets, so you see just softening of demand. But at the same time, you're not seeing as much supply on the market, so I would say Nashville, Miami, Atlanta, that they're relatively stable, mostly because demand has declined, but supply has also declined-so you're not seeing really any kind of sharp correction in prices in those markets, but it's definitely softer.

Heintjes: You touched on affordability, so you've given me a very nice segue-thank you. Housing affordability is always a concern, and it's something we've talked about a good bit on this podcast in the past. I wonder what the trends are in general, in housing affordability-and does it differ in the Southeast compared to the rest of the country?

Purviance: One of the advantages of the housing market in the Southeast has historically been a relative affordability, compared to other markets where people are coming from. If you look at, say, a market like Atlanta-compared to DC or Philadelphia or New York, where people are likely to be moving from to come here-historically Atlanta has been much, much more affordable. And that's the same with Orlando, Tampa, Jacksonville, Birmingham-most of the markets in the Southeast. That delta between, let's say, the DC metro area and the Atlanta metro area, or the Nashville metro area, is much smaller than it's been historically. Is it more expensive to live in DC or New York? Of course. Is the difference between affordability, between the Southeast and the Northeast, the same as it was historically? Not at all. Before the pandemic, compared to postpandemic, home prices have increased 40-50 percent in a lot of our markets, and they have not declined. And so, if you make the median income, almost across our District-if you made the median income prior to the pandemic, you could be a homeowner. Today you can't. Today you have to make at least $120,000 a year to afford even a median-priced house. And if you're talking about new homes, which are much more expensive...it's a challenge that's changed-I think most people don't consider how rapid the change was. I always tell the story of my wife, who bought a house in 2019 prior to the pandemic, before we got married. We got married, and she sold that house. In two years, the value of that house had increased by 40 percent.

Heintjes: Wow.

Purviance: And the values have not come back down, and incomes have not increased enough to keep pace with the rate of home price appreciation. And then coupled with this rapid rise in mortgage rates, you had a double whammy of higher home prices and then higher interest rates. Interest rates have moderated but have not really dropped below 6 percent yet, and home prices have remained near their historic highs-and incomes have not increased enough to offset that cost. And so today, almost in every market, there's-70 percent of all markets in the country are unaffordable.

Heintjes: Wow. Well, they say you can't time the market, but your wife's timing on that was pretty good.

Purviance: I had to tell her, "You hit the jackpot. That's abnormal-once in a lifetime."

Heintjes: Impeccable. You mentioned the median price of a home, and I recently read that the median existing home price for all housing types is around $408,800, which is up 1.4 percent from a year ago-and that would be the 33rd consecutive month of year-over-year price increase. Is that a record, or remarkable in any way to you?

Purviance: Yes. Normally, you would have some sort of correction. Even taking into consideration when interest rates went up a few years ago from their historic lows, the decline in home sales was sharper than the decline we experienced in 2008. Home sales declined by over 36 percent when rates went up a few years ago. And yet, we have not seen any moderation in home prices at all. Home prices consistently experience a year-over-year increase. The issue is a lack of inventory. If you compare where we are now to where we've been in 2008, we just don't have enough inventory, and it goes back to everything we've been talking about. The rate-lock effect is keeping inventory off the market. New home builders can't build homes fast enough, or at the right price, in order to alleviate our inventory situation. And so, even if you see a decline in demand, if you're not seeing an oversupply of inventory, that's not going to create enough downward pressure on price to see prices moderate. The reason why we're seeing a pretty persistent home price appreciation is because there just is a lack of inventory. Now, 1.4 percent is relatively moderate, so we're not seeing sharp increases in home prices, but if you're trying to create affordability, in some markets, home prices have to come down to be a little bit more on par with where incomes are. If you think about consumers, home prices are going up 1.4 percent. What is inflation? Today it's at 2.6 percent. At least the home price appreciation is less than inflation, but what's wage growth? Wage growth is probably closer to 1 percent, if you just take real wage growth minus inflation. And so even though we're seeing moderate home price appreciation, the consumers don't have the ability to absorb that higher cost, because they're dealing with other inflationary impacts in the economy, and their wage growth has been moderating as the labor market cools off. Yes, it's still a challenge.

Heintjes: Domonic, you mentioned inventory, and I wanted to touch on that briefly. I was reading a report from the NAR, the National Association of Realtors, and they noticed two data points. They noted a 3.6 percent decrease in existing home sales in March, alongside a 3 percent increase in unsold inventory. What, if anything, should we infer from those data points? Can you help me square those?

Purviance: Yes. If sales decline, that means that inventory that's on the market is sitting a little bit longer, so that leads to an increase in inventory. The only reason why inventory has not really increased-a 3 percent increase in inventory is lower than what we were experiencing a few years ago. In some months we saw inventory increase by 20 percent, or 14 percent, in some markets in the Southeast. And that was when rates were going up, demand was dropping, inventory was sitting on the market, and so that leads to inventory build-up. And so, the housing market-I always tell people, there's so many different moving pieces, and you've got to know how all the pieces connect and work together. A decline in sales leads to an increase in inventory. If that trend continues-where sales decline and inventories increase-then you'll see some downward pressure on home prices, because as inventory sits on the market, people have to lower their prices in order to get those units sold. But what's happened is sales have softened as rates have increased. Fewer people can afford to buy, there's a lot of uncertainty in the market, so people are sitting on the sidelines. If you're selling a home and you're not getting the price that you want, you can do a couple of things. You can either cut your price, or you can take your home off the market. When you take your home off the market, it's called a delisting, and we've seen a significant increase in delistings. And that's one of the things that's really kept the housing market from experiencing rapid depreciation in home prices. People have their house on the market, they're not getting the price that they want, it's sitting there too long-they just take it off. The new home market, that is a decrease in inventory, and so the inventory that's sitting on the market that's leading to that 3 percent increase is primarily inventory that has to sell-someone who just needs to offload that home. And in most cases, you're seeing homes sell below the asking price in order to get it sold. Those units that are sitting on the market are getting some sort of discount to get them sold, but those are most likely people who have to sell versus the people who don't have to sell-they can just take it off the market, so you're not seeing inventory buildup as a result.

Heintjes: The classic "motivated seller" we hear about now and then.

Heintjes: We've talked about months' supply of homes on the market in past episodes, and you mentioned that some would-be sellers have pulled their homes off the market instead of lowering the asking price. Is this happening at a faster pace? How would you describe the month's supply of homes on the market right now?

Purviance: Well, I think because sales have been softer and you've seen a slight increase in supply...what the month's supply of inventory is, for people who don't know, is how many months it would take to absorb the current amount of inventory given the current rate of absorption. So, if we're selling five units a month and you have twenty units of inventory, you have a four-month supply. What's considered balanced is somewhere between four to six.

Heintjes: And does that vary among markets? One market is four, another is six?

Purviance: Yes. Depending on where the market is in the cycle, some markets are-if you have a very tight market that has a shortage of supply, it has a month's supply below four, that's considered a supply shortage. But that's going to create upward pressure on price. If you have some markets-like today, we're seeing some markets in Florida, particularly Southwest Florida, that have a months' supply of higher than six, but those markets are actually seeing some downward pressure on price, because those markets are oversupplied. Nationally, we're somewhere in the middle. We're somewhere, plus or minus, near four months, or a little bit higher than four months. That's considered balanced, nationally. Again, the balance of supply is primarily driven by the fact that sales are down, but inventory is also down. It's not increasing at a rapid pace, so you only have a 3 percent increase in inventory. So that leads inventory to increase a little bit, and a month's supply to increase a little bit, but delistings have prevented supply from increasing above six months. And so that's why, in spite of some of the softening of the housing market, you're not seeing significant declines in home prices because inventory remains relatively balanced at the national level.

Heintjes: Right. We can't really have this conversation without addressing some of the larger economic trends, that we think of when we discuss housing. We hear reports of lower consumer confidence and less than stellar job growth. And I imagine that factors like these are leading would-be buyers to maybe tap their brakes a little bit. Is that your observation?

Purviance: Absolutely. This started probably in the spring of last year. There's just a lot of economic volatility, a lot of uncertainty. Coming out of the pandemic, people felt very, very confident-especially from, number one, from the consumer's perspective. They had a lot of savings because they were sitting at home for a while, so they had money to spend. They were relatively secure in their jobs. People were changing jobs, getting higher incomes, so we saw really strong wage growth-and then inflation hit. You saw this sharp increase in inflation. Consumers continued to spend. They had their savings, they had their credit cards in some cases, and so at least consumption remained relatively stable. That changed really in the spring of last year. And since then, we've seen pretty consistent declines in consumer confidence. If you talk to sellers and home builders, even though people might be in a position to buy, because of the uncertainty they are definitely hitting the brakes. There's a lack of urgency. There are buyers who, if they're going to buy, there's an expectation that they're going to get some sort of discount or incentive. And recently, if you talk to builders, even the incentives that they're offering, they're not as effective as they were previously. And if you look at some of the consumer confidence data, consumers are dealing with inflation and, more recently, higher energy prices and fuel costs. But even without that, it's uncertainty about the long-term prospects in employment that's really causing consumers to hit pause, particularly when it comes to home buying. And it's not that we're seeing an increase in layoffs, but we're seeing "slow hire, slow fire." Companies are not laying off workers. They're a little bit hesitant about hiring, and there's definitely more people looking for work than opportunities available.

Heintjes: Well, adjacent to this, I've read recently that the share of first-time homebuyers dropped to a record low of 21 percent, while the typical age of first-time buyers climbed to an all-time high of 40 years of age. One of the traditional ways to build wealth over time is buying a home and having that asset appreciate over a number of years. I've read some reports indicating that delaying home ownership until age 40 instead of 30 can mean losing roughly $150,000 in equity in a typical starter home, and this obviously has long-term macroeconomic implications.

Purviance: Definitely. What's happening is, because the cost of owning a home is much higher, people are having to wait until they're a little bit later in their career before they can actually afford to buy their first home. I bought my first home at 25. The home that I bought doesn't exist anymore. It was a new house. It was the most affordable house on the market. You couldn't build that same house today and sell it, just because of the cost of construction. I remember maybe about 10 or 15 years ago, most markets in the Southeast, in Texas and the Sun Belt markets, the majority of new homes were less than $250,000-that's new homes, newly constructed homes. Today, most new home construction is well above $300,000 or $400,000. You just can't deliver the product. So anyway, people are delaying buying a house. Also, some of those triggers for buying a house are starting a family and having kids, so that's also being delayed if you just look at the statistics. People are getting married later, they're having to stay in school longer to be able to get a higher-paying job-so that pushes back marriage, that also pushes back having kids, and it pushes back buying a house. If you look at the year 2000, the median age for first-time home buyers was 28. Today, like you said, it's 40. And so, if you're buying your house at 40, it most likely is going to be a more expensive house, but just think about that average 30-year mortgage: by the time you pay it off, you're 70. So, you just don't have enough time to build as much equity, and that just has profound long-term implications for the economy. Because most of the equity you leverage to buy move-up product, and you can pass it on to your kids, but if you don't have a chance to build as much, then there's not as much to pass down.

Heintjes: I will take this opportunity to tease an upcoming episode of the podcast, where I talk to one of our economists, Julie Hotchkiss, about her research into declining US birth rates and the economic implications of that, so listeners can have that to look forward to. But you touched on home builder incentives and sentiment, and I wanted to get you to talk about that in a little more detail. How is the economic uncertainty we talked about, coupled with rising building materials and costs and interest rates, affected builder sentiment? I guess that's kind of a leading question, but there you go.

Purviance: There's just been a year of volatility for builders. Last year, we were dealing with tariffs and the potential impact of tariffs on costs. Coming into this year, now you have higher fuel costs, and suppliers are attempting to pass on that cost to home builders. On the cost side, they're dealing with a lot of volatility and they're trying to manage that, and over the past year, home building contacts that I've talked to, they figured out a way to mitigate the cost-mostly because demand has declined. So we've seen a decline in new home demand, and it's alleviated some of the cost pressure.

Heintjes: Maybe not simplified in the way they would have liked. Purviance: Not what they would have liked-no, not at all. They ramped up construction at the beginning of last year, and you saw softening demand. They did have to discount and offer all kinds of incentives to move inventory last year. Builders have become pretty efficient at balancing supply levels, so they don't get to a point where they're overbuilding. But with interest rates coming into this year trending down, they were poised to ramp up housing starts to prepare for what they expected to be an influx in demand. The hope was that they could pull back on some of those incentives. The primary incentive has been rate buydowns, so with higher rates you offer either a short-term or long-term buydown for buyers, you also offer closing costs and other incentives. Those have worked, for the most part, during this cycle, but contacts that I've been talking to at least over the past six or seven months have just been communicating that the incentives are not working. They're just not enough to move the needle. Buyers are reluctant-there's a lack of urgency. They're shopping around for incentives. They go for one builder and they say, "What can I get?" And then they go to another builder and try to get-

Heintjes: Incentive shopping.

Purviance: Incentive shopping. There was a hope that, coming into the selling season this year, they could pull back on some of those incentives. That just hasn't been the case. And to make matters worse, it just isn't moving the needle now. And so, homebuilder sentiment, with all of those factors taken into account, has been relatively negative. The recent rise in interest rates hasn't helped.

Heintjes: Right. Domonic, I can never let you leave the studio without asking you to look in your crystal ball, so I'll do that again-and as always, I won't hold you to anything you say. As we're heading into the middle of the year right now, what are your expectations-in the near term-for housing, given all the factors we've been discussing today?

Purviance: I think that homebuyers will continue to have a lack of urgency, until or unless mortgage rates come down at a consistent level. I think mortgage rates have to get below 6 percent, and perhaps below 5.5 percent-get closer to 5 percent-before you see people who are sitting on the sidelines get into the market. And so as long as rates remain high, you're going to see a lot of uncertainty, a lot of volatility. You're going to see a lack of urgency in buyers. You have the interest rates on one hand, but then you also have long-term economic uncertainty-that even if rates decline...in order to buy a house, it's a long-term commitment. You've got to be certain that your employment situation is strong enough for you to continue to pay that mortgage every month. And as long as there's just economic uncertainty, people are going to be hesitant and have a lack of urgency in wanting to get into the housing market. So, we have to really resolve some of those issues. Mortgage rates have to decline, and we have to get rid of the uncertainty before we see stability in the housing market. Other than that-without that-I think affordability is still going to be a challenge, and homebuyers are going to be unwilling to take the risk.

Heintjes: Okay-well, great. You can put away your crystal ball now. And Domonic, as always, thank you so much for your time today. It's always great to catch up with you, and I do look forward to having you back on the podcast in the near future. Let's not let a few more months slip by, shall we?

Purviance: For sure.

Heintjes: But, before we end this episode, I want to encourage you to visit the Home Ownership Affordability Monitor (HOAM), which Domonic helps to oversee here at the Atlanta Fed. We'll have a link to it on our website at atlantafed.org-our newly redesigned website, I should add-where you'll also find lots of other interesting information about the regional and national economy. And that brings us to the end of another episode of the Economy Matters podcast. I'm Tom Heintjes, managing editor here at the Atlanta Fed. Thanks for spending time with us today, and I hope you'll join us again next month.