The high cost of home ownership is contributing to the nation’s “affordability crisis.” House price inflation, combined with the return of historically normal mortgage interest rates, has made home ownership unaffordable for many Americans. When the 30-year mortgage interest rate rose above 6 percent in September 2022, the annualized rate of existing home sales fell below 4.5 million—the typical pace of home sales in the mid-1990s, when the US population was 22 percent smaller than it is today. Existing home sales volume remains depressed, notwithstanding a solid, even robust pace of economic growth. We discuss reasons why the real estate market remains stuck, with historically high home prices and depressed rates of existing home sales, and propose two new federal government policies that could relieve pressure on house prices and revive housing market activity.

The depressed state of existing home sales volume belies a pent-up demand for affordable housing. There is a shortage of existing homes that owners are willing to sell at current market prices because it means giving up cheap mortgages or paying inflated capital gains taxes.

Federal government programs that subsidize mortgage rates, lower minimum borrower credit standards, or artificially lower monthly payments—however well-intentioned—will not unlock housing supply, but only fuel the demand for housing, making home ownership even more expensive. In contrast, the policies we recommend will substantially increase the supply of existing homes that current owners will be willing to sell at current—and perhaps even reduced—market prices.

...read more at lawliberty.org