With U.S. home prices 50% higher than they were before the COVID pandemic, it now costs homeowners more than 40% of their monthly income to afford a median home, according to the International Monetary Fund.

“Housing shelter costs are near historical highs, making them the most unaffordable in 40 years,” says Mitchell Feierstein, CEO of the Glacier Environmental Fund. “This is a situation of grave concern.”

Not only is home ownership out of reach for most first-time buyers, IMF says, but “the increase in the relative price of shelter may well be a lasting feature of the post pandemic economy.

“If that proves to be true, in the coming years we should expect to see a decline in rates of home ownership (and increase in rentals), slower rates of household formation, and a shift of demand toward smaller homes,” IMF says.

“Younger and lower-income households would be most affected by these trends.”

Middle-class Americans would need to put 35.4%, or $127,000, down on the average home costing $360,000 in the U.S. today to afford it, according to a June Zillow report.

That down payment is what a U.S. household making the median income would need to keep their monthly mortgage payments at 30% or less of the household’s monthly income.

Putting these exorbitant costs in perspective, five years ago — when mortgage rates were just above 4% and the typical home was worth 50% less — the same home would have been affordable with no money down.

The IMF also notes that the outstanding commercial real estate (CRE) debt exceeds $6 trillion.

“As demand for CRE has dropped off a cliff, it could prove catastrophic for the banks who hold loans to the developers,” Feierstein says. “Bad CRE loans may spark the next crisis.”

Fund managers have been warning banks that the $6 trillion U.S. commercial real estate industry could experience defaults on mortgages, especially in major cities.

“We’re likely going into a real estate recession, but not across the entire real estate market,” says Guggenheim Partners Chief Investment Officer Anne Walsh. She predicts the worst pain will be concentrated in the biggest urban centers of the country, such as New York and San Francisco, where many offices are still vacant.