Mitchell and Kathryn Cox, both in their mid-twenties and living in Savannah, Georgia, felt they began their rental journey “at the worst possible time,” as soaring prices have increased their monthly expenses by over 50% compared to friends and family who signed leases a few years prior.

Then they began searching for a house.

“We did extensive research and were aware of market trends, so while the prices were disappointing, they weren’t surprising,” Mitchell explained. After months of searching, the couple purchased a home that was smaller than what they originally wanted. “We kept comparing housing prices and mortgage rates with our relatives who bought just a few years earlier. We just missed the boat on buying a home,” he added.

Across the nation, high housing prices are transforming what used to be a typical experience for young couples into a challenging ordeal. The Labor Department reported that consumer prices eased in July, yet shelter costs rose by 5.1% from the previous year, making up nearly 90% of the overall inflation increase.

Data from the real estate firm Redfin indicates that the median home price nationwide has risen over 4% in the year leading up to July. The government also stated that average hourly earnings increased by 3.6% earlier this month.

“The (housing) market has been brutal,” noted Michael Neal, a senior fellow at the Housing Finance Policy Center at the Urban Institute in Washington, DC. Neal believes that the difficulties regarding housing affordability are negatively impacting overall economic growth by hindering sales and new construction.

High costs and interest rates lead to difficult decisions

The combination of rising prices and interest rates forced the Coxes to face some tough choices. They had to decide between their desired location or ample space, but not both.

Ultimately, they chose a “small but cozy” home in a beloved neighborhood, downscaling from a 2-bedroom, 2-bath to a 2-bedroom, 1-bath, with nearly 200 square feet less.

“We are grateful for our financial situation that allows us to buy a home,” Mitchell commented. “I realize many people aren’t as fortunate. It requires diligence and, quite frankly, some luck.”

Many experts, including Redfin’s chief economist Daryl Fairweather, believe that the inflation data released on Wednesday strengthens the argument for the Federal Reserve to consider lowering interest rates as soon as September. She anticipates that easing rates will help revitalize a stagnating market and predicts “significantly” better activity by spring.

However, high prices are not just a barrier for prospective buyers; they also create challenges for sellers, according to Justin Vold, a Redfin agent in Los Angeles. “Sellers need to set competitive prices to attract multiple offers. Receiving just one offer may seem great, but it carries risks,” he said.

Recently, Vold has seen multiple deals collapse. If interest rates increase even slightly between a buyer’s pre-approval and the closing of a deal, that deal can fall apart. He often advises buyers to search in price ranges well below their maximum budget, an easier suggestion than it is to implement, especially in the country’s more costly regions.

Homeowners and buyers should be on the lookout for chances

Currently, Fairweather advises potential buyers to keep an eye on interest rates and property listings to determine when they feel ready to enter the market. Homeowners who bought their homes recently should also seek chances to refinance to take advantage of lower rates if they’ve built up enough equity in their homes.

The inflation data released on Wednesday serves as “yet another reminder of how vital housing is to the economy in both price and real activity,” said Neal from the Urban Institute. He emphasized how desperate the housing market is for supply at all levels and price points.