For the past three years, the dream of buying a home has been slipping out of reach for many Americans due to a plunge in housing affordability.

According to Goldman Sachs, one of the leading global investment management firms, 2020 marked the beginning of a historic nosedive on the housing affordability index. This index calculates how the average citizen’s salary fairs against the cost of an average-priced home. As of right now, the index sits at 91.7 which is the lowest score recorded since the mid-1980s.

Multiple factors have led to the current affordability crisis in the U.S. The two main influences are the heightened price of homes and rising interest rates.

Houses cost more than ever before with the average price currently sitting at $416,000. Prices have settled down from their peak in late 2022 when the average home cost around $480,000.

Comparing these numbers to pre-COVID-19 shows that the pandemic was a main cause of the inflation of housing costs. In March 2020, just before the spike in pricing, the average price of a home was just around $280,000 dollars.

Donna Danns, professor of economics at the University of North Georgia, credits supply and demand issues during the pandemic to the increase in housing prices. Danns explained that “increased demand due to an increase in consumer savings” coupled with a decrease in supply due to the worker shortage and inability to construct new homes led to the swift increase in prices.

To try and compensate for this inflation, the Federal Reserve began to introduce mortgage rate hikes as of spring 2022. Since then, the average 30-year interest rate has increased to almost 8%, which marks a 22-year high.

The hikes that were put in place to help the economy in turn led to the decline of housing affordability for many Americans. A recent survey reported that 82% of consumers are holding off on buying homes for the moment in hopes of prices and rates dropping. It is becoming increasingly more complicated for aspiring home buyers to gauge the right time to buy a home.

“It all depends on what you can manage. It is a complex decision that depends on your needs at the time. You may want your kids to go to a certain school district or need to move because of a job. It all depends on the personal circumstances.” Donna Danns, Professor of Economics at UNG

Economic experts predict that interest rates will steadily increase through next year, and prices are not expected to change, for better or worse, in the foreseeable future. This could be the new norm for the U.S. housing market.