Bought a house during the pandemic? Here's how much more that same home would cost today.

By Aarthi Swaminathan

The monthly mortgage payment on a median-priced home hit a record high of $2,721 in March.

The pandemic-era buying frenzy in the residential real-estate market helped fuel the so-called lock-in effect, where homeowners with relatively low mortgage rates are stuck with their homes because they don't want to move to a new house with a much higher mortgage payment.

Those homeowners were lucky enough not to miss the low-mortgage-rate boat, but they're now sitting in homes that they perhaps would not be able to afford at current rates, the latest Mortgage Monitor report from the data company Intercontinental Exchange (ICE) suggests.

At current mortgage rates and home prices, the housing market has become so much more expensive that in order to buy an equivalent home across the street, today's mortgage holders would have to pay 38% more, on average, in monthly mortgage payments, according to the report.

That's an average of $500 more per month for a similar home, ICE found.

The ICE analysis sought to "quantify just how locked-in folks truly are and what kind of rate declines would be needed to shake some of that inventory loose," said Andy Walden, vice president of enterprise research strategy at ICE, in a statement. "The results were bracing, to say the least."

The median sale price of a home in the U.S. as of March was $374,500, according to analysis by real-estate brokerage Redfin (RDFN). For such a house, a buyer with a 30-year mortgage rate of 6.87% would need to pay a monthly mortgage payment of $2,721 - a record high, per Redfin.

About 23% of homeowners currently have a mortgage rate below 3%, according to a Redfin analysis.

Between 2000 and 2022, before the Federal Reserve's cycle of interest-rate hikes began, moving across the street wouldn't have been such a reach financially as a homeowner would have essentially broken even, according to ICE. Today, that move is financially unfeasible.

Homeowners who have near-record-low mortgage rates - such as those who bought with mortgages originated between 2020 and 2021 - would have to increase their monthly payments by 60% to buy an equivalently priced home across the street, ICE said.

Upgrading to a bigger house means double the mortgage payments

Over the previous two decades, buying a home that cost 25% more would have only required the typical homeowner to increase their principal and interest payment by roughly $400 a month, which is around 40%, according to ICE.

Today, that same upgrade move would require the typical homeowner with a low mortgage rate to increase their payment by 103%. That's an average increase of $1,384 a month, ICE noted - a "jump that highlights the real-world pressures keeping current mortgage holders 'locked in' to their homes."

For homeowners in high-cost markets, any move - across the street or into a bigger home - would be an even more painful proposition because they likely have a larger unpaid balance, which translates into higher borrowing costs.

For instance, to give up their existing mortgage and buy a house that's 25% more expensive, a homeowner in Buffalo, N.Y., would see their monthly mortgage payment increase by 72%.

But in Los Angeles or San Jose, Calif., that homeowner would see their monthly payment jump by 140% if they wanted to pull off a similar move to a more expensive home.

Housing affordability has become strained, in part, because of the average 30-year fixed-rate mortgage rising from 2% at its lowest point to 7% today, as well as demand for housing vastly outpacing the supply of homes for sale.

Inventory is now lagging 40% behind pre-pandemic averages, ICE said.

"Lower rates would ease the calculation for many and make moves more reasonable," Walden said. "But the net result continues to be too few homes for too many buyers."

"Until that fundamental mismatch is addressed, simple supply and demand will continue to press on both inventory and affordability," he added.

How have housing prices affected your life and how you think about the U.S. economy? Let us know at readerstories@marketwatch.com. One of our reporters might reach out to you to learn more.

-Aarthi Swaminathan

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04-02-24 1043ET

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