Hi! I’m Aziz. My newsletter contextualizes America’s housing market using data visualization—hit reply and let me know what you think.

Over the last ten years the monthly payment on a 30-year mortgage for the median American single family home has increased by $1500. Two-thirds of this increase is due to higher home prices. Only one third has been from higher interest rates.

Recent economic data has been strong enough to cause a number of high profile forecasters to flip from forecasting a recession to a modest expansion. As an inflection point in Fed policy recedes further into the horizon, interest rates have sold off. After this week’s trading, mortgage rates are now 75bp higher than they were in the spring.

This is unmitigated bad news for would-be homebuyers. Aside from mechanically increasing monthly payments, higher rates deepen the mortgage lock-in effect, restricting the supply of new listings, and keeping prices higher than they would otherwise be.

And it is in fact this latter aspect of today’s real estate market that is much more problematic than higher rates. Over the past decade, monthly payments on a 30-year mortgage for the median American single family home have almost tripled from $800 to over $2300. Of this increase, two thirds is due to higher home prices. Only one third is due to higher interest rates.

This has implications for how we think about housing policy. With mortgage rates flirting with 7% for the first time in 20 years, it is tempting to think 2023 is a uniquely bad time for those seeking to purchase a home.

But affordability is dominated by long-run trends: rising prices amidst a scarcity of homes to meet demand. The oscillations in interest rates, which are more frequent, have a much smaller impact. When the economy weakens and the Fed cuts policy rates—and ignoring the hit incomes would likely be taking at that time—affordability will only marginally improve.

Expensive housing is a secular trend, not a cyclical one.