A few years ago, the mortgage industry was booming. With interest rates low, the coronavirus pandemic fueled one of the hottest housing markets in decades. Buyers scrambled to buy new homes amid fierce bidding wars. Property values zoomed ever higher.

When the Fed began hiking interest rates to fight post-pandemic inflation, home affordability was among the first things to be affected. Monthly payments on a new home loan nearly doubled in the space of a year.

The costs sidelined some home buyers, and many would-be sellers chose not to list their homes, as the higher interest rates would certainly affect the cost of their next purchase.

But demand has not fallen off nearly as much as inventory. In 2023 it is still a “seller’s market.” Prices are still high and prospective buyers face affordability challenges.

Interest Rate Buydowns are a popular option to bring down monthly mortgage payments for struggling buyers. There are two types: permanent buydowns and temporary buydowns.

Permanent buydowns are becoming prominent in 2023: Buyers typically can pay down the rate with lender approval.

On the other hand, temporary buydowns are an upfront fee paid by the home seller (or builder/seller) to lower the buyer’s interest rate for a specific timeframe.

At the end of September 2023, there were only 1.13 million homes on the market, down 8% from the previous year.

But it is this shortage that continues to prop up prices. With demand still strong, the September median home price of $394,300 is just a few ticks below 2022 record highs.

Affordability remains a very real challenge, especially for the all-important first-time buyers, who historically make up around 40% of total home sales.

Real estate experts and economists are watching the housing market's response. In the coming months, the combination of high mortgage rates and affordability concerns may result in a continued lull in sales and a challenging environment for both buyers and sellers.