Americans Can Barely Afford Homes - Just How Bad Is It?
Imagine taking a trip down memory lane to explore how the dream of homeownership has evolved over the decades in the United States.
Our journey begins in 1971, a time when bell-bottoms were in fashion, and the average American family aspired to own a piece of the American Dream – a home.
US Home Affordability Tracker
This graph plots US home affordability by adjusting mortgage payments with wage inflation since 1971, adjusting all payments to 2015 dollars.
The red line in the graph plots the US median home price while the blue line plots the monthly mortgage payment (principal and interest portion) adjusted with inflation to 2015 dollars, meaning that all payment points on the graph evaluate monthly mortgage payments compared to the affordability experienced in 2015.
The Story Behind the Numbers:
1971 - A Promising Start: In 1971, our graph shows us that the monthly mortgage payment on the median-priced home was quite affordable, consuming a modest portion of the median household income. The economy was different then, and it was a time of optimism for prospective homeowners. By the end of the 1970s though, home payments had moved 88% higher!
The 1980s - A Challenge Arises: Something notable happens as we move into the 1980s. Mortgage payments continue to climb relative to income. The era of big hair and Reaganomics brought with it higher interest rates (often well above 10%), making homeownership a bit more challenging. The graph tells us that buying a home was a more substantial financial commitment for many families and, often, out of reach.
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1990s - A Time of Recovery: The 1990s brought a more positive turn. Mortgage payments, though still significant, became relatively more manageable. Lower interest rates and a strong economy made homeownership more attainable for the average American family.
Early 2000s - The Boom and Bust: The early 2000s, marked by the dot-com bubble and later the housing bubble, tell a dramatic story. Mortgage payments jumped as housing prices surged. The dream of homeownership seemed to be slipping away for many as affordability reached its lowest point in decades, but once the housing bubble burst, mortgage payments nearly set a 50-year low.
Post-2010 - Recovery and Beyond: Fast forward to the post-2010 era, and we see a gradual improvement in affordability. Mortgage payments, while still significant, began to stabilize. The economy rebounded from the financial crisis, and interest rates remained historically low. Mortgage payments moved higher, but remained below the level recorded in the 1990s.
2015 - A New Baseline: 2015 is a pivotal year. It's the year we set as our baseline with an index of 100 for wage inflation adjustment. From this point onward, our graph illustrates how monthly mortgage payments compare to the affordability experienced in 2015. The slashing of mortgage interest rates kept affordability for the first twenty years of the millennium below all years since the 1970s, but home builders did not resume normal production levels to keep pace with a growing population.
2023 - The Present Day: Our journey concludes with the present year, 2023. As we look at the most recent data point on the graph, we can assess whether the dream of homeownership has become far less attainable compared to 2015. This final point reflects an estimate of the most current economic conditions and housing market trends.
Home Affordability Approaches 53+ Year Low
The graph provides a compelling visual representation of the historical evolution of monthly mortgage payments on median-priced homes, meticulously adjusted for wage inflation. It sheds light on the enduring challenges and opportunities that successive generations of Americans have encountered while pursuing homeownership and serves as a poignant reminder of the profound influence that economic conditions, interest rates, and housing market dynamics wield over the affordability of residential properties.
Remarkably, today's prospective homebuyer finds themselves within a mere 1.05% of the highest wage-inflation-adjusted mortgage payment recorded since 1971, and likely for many years prior. The persistent scarcity of available housing continues to exert upward pressure on both home prices and rental rates. Consequently, there is growing apprehension that this trend may persist due to insufficient new home construction.
As we navigate this journey through the annals of housing affordability, our collective hope remains anchored in the vision of a future where homeownership remains a feasible aspiration for all, regardless of the ever-shifting economic currents. However, realizing this brighter future necessitates addressing the fundamental catalyst of soaring prices.
It is imperative to recognize that, like any other commodity, the housing market adheres to the principles of supply and demand. Herein lies the crux of the issue: a glaring supply-side challenge precipitated by the burgeoning bureaucratic complexities embedded within the home-building and development processes within our local housing markets.
Our duty now is to amplify our voices so that elected officials prioritize the pressing matter of home affordability. The path forward hinges upon our collective commitment to redress the supply-side impediments that have hitherto thwarted the dream of homeownership for countless Americans.
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