Homeownership affordability shifts amid rising interest rates

The end of the zero-interest policy by the European Central Bank has created a generational divide regarding homeownership. While older generations, such as Baby Boomers, often cite high interest rates from the 1990s as a barrier, Millennials face a different reality characterized by high property prices and the necessity of parental financial assistance to afford homes.

Despite rising interest rates, the affordability of single-family homes for the average household has seen some improvement due to significant wage increases. Since 1990, household incomes have risen by approximately 170 percent. Currently, an average household must budget about 39 percent of its income for interest and principal payments when financing a home. However, affordability is not expected to return to the levels seen prior to the mid-2022 interest rate pivot. As a result, some younger couples are shifting their residential ideals toward smaller, more affordable condominiums.