During the pandemic, housing inventory dropped as sellers hesitated to put their homes up on the market. That glaring lack of supply created a boom in home prices, and to this day, sellers are getting away with charging a premium for properties that, just two years ago, would've fetched a lot less money.

But still, up until the start of 2022, buyers had a bit of a reprieve within the context of a low-inventory market. That's because mortgage rates fell to record lows during the second part of 2020, and they managed to stay low throughout 2021.

But rates have risen sharply since the start of the year. At the very beginning of 2022, it was possible to snag a 30-year mortgage for well under 4%. Now, the average 30-year loan is at just over 5%.

A house with a white fence.

Image source: Getty Images.

That's creating an affordability crunch not seen in roughly 15 years. And it also means everyday buyers and real estate investors alike may want to rethink their near-term home buying strategies.

Affordability is plummeting

The recent climb in mortgage rates has put buyers in the worst position since 2007 from an affordability standpoint, according to data firm Black Knight. Based on current mortgage rates, the typical U.S. household would have to spend 29% of its monthly income to make a mortgage payment on an average-priced home. The last time affordability took such a hit was 2007.

Now to be clear, when we talk about affordability, we're referring to new or first-time home buyers, not existing property owners. Since many buyers are locked into fixed-rate mortgages, rising rates shouldn't impact them. If anything, today's homeowners have it pretty sweet -- they're sitting on record levels of home equity they can tap as needed.

Rather, those looking to buy homes today are facing serious affordability issues. And with mortgage rates being so high, even investors may want to stay away.

Will the housing market cool off?

A sharp increase in mortgage rates could lead to a steady decline in buyer demand. Even if housing inventory doesn't pick up much in 2022, that could pave the way to lower home prices.

But in that case, everyday buyers and investors may want to hold off on purchasing property now. Those who go that route risk seeing their home values drop in the not-so-distant future.

Meanwhile, those looking to invest in real estate in the near term can consider loading up on REITs, or real estate investment trusts, instead of adding actual properties to their portfolios. REITs are a far more liquid investment to begin with, and given that we don't know exactly where the housing market is headed in light of rising borrowing rates, they may be a more stable bet.

Of course, real estate investors who are flush with cash may want to consider skipping the mortgage and purchasing a home outright once property values do start to come down. There's a good chance borrowing rates will trend higher for a while, so locking in an expensive mortgage may not make sense for investors with an excess amount of cash on hand.

Everyday buyers, however, should proceed with caution when making a cash offer and recognize that tying up money in an illiquid investment comes with risk. In today's market, cash offers definitely give buyers an edge over the competition. But even with mortgage rates rising, financing a home can still make a lot of sense for many people.

All told, we don't know where home prices will head this year. What we do know is that right now, they're less affordable than they've been in many years.