1981: The Last Time Homes Were This Unaffordable

It's been over forty years since homes were more expensive than today when you factor in inflation, home prices, and mortgage interest ratesIt's been over forty years since homes were more expensive than today when you factor in inflation, home prices, and mortgage interest rates.

With many people speculating about a possible housing crash, it's important to consider if anyone has taken a look back at what occurred the last time we faced a comparable situation. Personally, I haven't observed anyone doing this.

I have noticed that many people refer to the housing bubble of 2008 as a reference point. While it's true that home prices plummeted after a surge in the median home price, this was the only similarity between that time and the current situation. So, why not identify a period in our history that's more similar and research to determine what happened the last time homes were as unaffordable as they are now?

Welcome To 1981

To determine if today's home affordability is the worst it's been or not, I analyzed median US home prices for over 60 years. I also factored in the inflation-adjusted monthly mortgage payment that the median home buyer needs to make. Based on my analysis, I discovered that we have to go back to 1981 to find a time when home affordability was worse than it is in today's housing market.

inflation adjusted home affordability graph

The graph uses two lines to plot two different data sets over a 50-year period. The red line shows the monthly median home price in the US, while the blue line shows the inflation-adjusted monthly mortgage payment required to purchase a median-priced home with a ten percent down payment. 

The blue line is particularly important, as it reveals fluctuations in home affordability over time. Many people are currently concerned about these fluctuations, and for good reason. Home affordability has collapsed.

It's important to note that all monthly payment dollars (blue line) are adjusted to 2015=100, meaning we're comparing all payments with dollar valuations from 2015. 

Adjusting all amounts to 2015 using the CPI involves converting the original values of money into their equivalent values in 2015 dollars, which reflect the relative value of money in 2015 compared to the year the original values were measured. This allows for more accurate comparisons of economic data across different time periods since it eliminates the effect of inflation on the nominal values.

At the end of 1981, the inflation-adjusted monthly P&I mortgage payment of $2,409.46 was nearly 9% higher than today's adjusted payment of $2,199.42. So today's home affordability is horrible, but it's not the worst we've seen. Instead of allowing recency bias to have us fixate on the housing crash of 2008, let's instead look back to a more similar scenario that occurred in 1981 and see what developed.

Get Our Free Market Update

Weekly Special real estate report covers the Tallahassee real estate market

Other buyers, sellers, lenders, and real estate agents have this critical information, and now you can too!

Get immediate access to our most recent newsletter.

Let more than 30 years of experience work for you with charts, graphs, and analysis of the Tallahassee housing market.

Each Monday morning we send out a simple, one-page report that provides a snapshot of the Tallahassee housing market. It only takes 2 minutes to read, but it gives you better market intelligence than most real estate agents possess. Just tell us where to send it below!

Home Prices Continued to Rise

Our graph reveals that the last time home prices and mortgage interest rates conspired to destroy home affordability, home prices continued to rise. The dashed blue line in the graph identifies the worst affordability on record (Q41981), but we can see a correction occurred immediately after it hit the peak. So what happened?

Mortgage interest rates had soared, and a recession began during the Carter Administration. Interest rates finally started falling at the end of the first year of Reagan's first term, and the recession ended a year later. From 1982 to 1987, mortgage interest rates primarily fell and were a big factor in the home affordability recovery.

It's important to remember that affordability primarily recovered from higher inflation (rising wages) and a reduction in the cost of borrowed funds (lower rates). I believe the former may occur today, but the latter is not so likely.

While today's rates are significantly higher than what we've enjoyed for the past few years, rates are still well below their 50-year average. Expecting a significant decline in mortgage interest rates is not a smart bet.

Wage inflation is real and will soon show up in our home affordability studies that include wage inflation-adjusted mortgage payments.

The Future Of Home Affordability

Anybody who publishes a "what's next for housing" must make some purely speculative assumptions. Ultimately, the Federal Government will decide how healthy housing will be. Will they loosen up on credit (home loan requirements)? Do they lower mortgage interest rates?

The ability to get a loan and the means to afford a loan will determine the future of home affordability. If the Federal Government works to make loans attainable and affordable, we could experience a long recovery in home affordability similar to what occurred in the 1980s and 1990s. But if the opposite occurs, I have grave concerns about the future of the US housing market.

I've long warned that we're heading towards a future of haves and have-nots in housing, and homeownership will be a great challenge for all but the wealthiest among us. Beware the renter nation coming as large investment banks move in to take ownership of the housing market.

Hey Politicians We Need More Houses!!!
We need more houses! As our cities grow, so does the demand for housing. But the supply? It's not keeping up
Americans Can Barely Afford Homes - Just How Bad Is It?
People have asked: “Is home affordability really all that bad?” Give me five minutes, and you’ll have the answer and the data that supports it.
Can Builders Save The Housing Market?
Home Affordability Crisis: Local Solutions ~ National Issue: Delving deep into current US homebuilder production. Enough? Short? A less optimistic real estate market outlook.
The Unaffordable Housing Paradox: Why Homes Are Out of Reach
The affordable housing shortage has this solution. It requires changes in urban planning that pay attention to housing costs and housing economics.
Why Foreclosures 2023 Is Not The News Story They Told You It Would Be
Even as more videos mount clickbait based on foreclosures coming, the data invalidates them right away.
Are Home Prices Heading for a Crash?
The US housing market has been a frequent topic in the news, but a crucial factor is being ignored when determining the direction of US home prices.
The Fallacy of Affordable Housing: The Need for More Homes
The idea of affordable housing is noble, but the reality is that building new low-end homes is not the solution to the housing crisis we're facing.
Foreclosure Crisis: What the Data Tells Us
Are you curious about what's really going on with foreclosures and loans in forbearance? Worried about the next housing crash?
Are you a NIMBY or a YIMBY?
Two terms have gained prominence over the past few years. NIMBY (Not In My Back Yard) and YIMBY (Yes, In My Back Yard) are labels that classify housing market activists into one of two camps
How Often Do Home Prices Fall?
Are home prices falling? Will house prices fall soon? Home prices are soaring, buyers are having to pay above most sellers' asking prices, and the housing market feels just like a feeding frenzy during Shark Week on the Discovery Channel.
Home Affordability Falls To 40-Year Low!
It's been over forty years since homes were more expensive than today when you factor in inflation, home prices, and mortgage interest rates.
The Surprising Way Interest Rates Move The Market
When mortgage interest rates change, housing market experts surface and make bold claims on how the market will unfold. They are usually wrong!
Real Story Behind Home Prices: Fact Versus Fiction
When it comes to buying a home, many misconceptions about the housing market can cause confusion and uncertainty for potential homebuyers. One of the most persistent myths is that home prices fall frequently, but is this true?
Biden Rent Control Plan
The White House announced an executive action that Biden says is designed to "protect renters and promote rental affordability," but I cannot imagine a worse response from our Commander In Chief to confront the nation's housing and rental affordability crisis
Big Redfin Report: First Time Redfin Saw THIS Since 2012!
Recent housing market data from Redfin, the large online real estate portal, shows that something occurred over the past two months that has not happened in the past ten years.
Will Assumable Mortgages Save Housing?
Will assumable mortgages save housing? Home affordability is becoming one of the hottest topics in the economy, but I was recently asked if assumable mortgages might bring some relief to homebuyers. This video shares what I think about how mortgage assumption will impact housing.
Why Vacancy Rates Are the Hidden Indicator of Housing Market Health
Imagine shopping for a new home—whether you're aiming to buy or rent—and finding that every other house on the block is empty. Conversely, imagine a tight market where you can't even find a rental property, let alone purchase a home.
When Will Home Prices Fall?
Are Home Values About To Crash AGAIN? Now that we've seen about three years' worth of skyrocketing home prices, prudent buyers with memories are asking when home prices are going to start falling again.
Renter Nation Says Goodbye To The American Dream!
It's the beginning of a generational shift in the housing market that will greatly reduce homeownership and push the US towards becoming a renter nation, one in which Wall Street is in control of both home prices and rents
The Truth About Foreclosures - Mortgage Pipeline Update
The best way to start to analyze the potential for mass foreclosures is to break down the current mortgage pipeline to observe forming trends.
Will NINJA Loans Bring Down The Housing Market?
Housing Crash Coming? If you remember back to the housing bubble, we saw the growth of "NINJA" loans, as they were a segment of the home sales explosion.
Google Knows. The Surprising Real Estate Market Forecast You Won't Believe!
Is it possible to forecast home sales in the US housing market with a search on Google? I had this thought about Google and a google housing market forecast as I was reexamining our search engine optimization efforts.
Economic Outlook For The Housing Market
Joe Manausa gives an update on the economic outlook for Tallahassee and the US housing market. Includes housing market forecast, housing market activity, and new construction analysis, and reveals how Tallahassee compares with the overall US housing market.
Will New Construction Bottleneck Cause A New Housing Bubble?
Are you concerned that the bottleneck of builder homes under construction will cause a new housing bubble as they are finally completed?
6 Housing Market Rumors Debunked (1 Confirmed)
7 different housing market rumors are perpetuated as “FACT” in various forms of "hype." Discussion of this "housing market news" has been ongoing for years, so today, I want to put them all to rest.
Who To Blame For Soaring Home Prices
There is a huge shortage of homes in the US, and there is only one culprit to blame, and I’m going to tell you who it is!
What You Don't Know About Home Prices!
Home prices are gaining traction as topics in both the mainstream media and social media, but there are three common misconceptions about the change in house prices that are unanimously reported as unquestionably true.
Is The Supply Of Homes For Sale Finally Rising?
Is The Supply Of Homes For Sale Finally Rising? Is the US housing market heading for a crash? Will home prices fall? Follow the metrics that clearly show what to expect from home prices and the supply of homes for sale in 2022 and beyond.
Zillow Exposes Mainstream Media On Home Prices
Zillow serves up the data that exposes the poor reporting of the mainstream media on Zillow home prices and that conditions are not what they seem.
House Prices - Inflation Adjusted Home Prices
Just How High Are Today's House Prices? The price of houses in the US has risen to a toxic level, and many are wondering how they will be able to afford to live in their local communities
Podcast: Housing Myths Dispelled
Home Building Hero David Belman and Joe Manausa discuss many of the "myths" that have been published in the media about the housing market.
USA Today Misleads Readers About Home Prices
USA Today Misleads Readers About Home Prices - Median Home Price: The USA Today Network has been misleading readers, using the median home price change suggesting that houses are getting cheaper and a real estate crash is upon us. Is this poor journalism or is there something more to it?
Are We Overbuilding Again?
I've been asked recently for my opinion on the number of homes being built in the US. Specifically, people are wondering if the ghost of 2006 has come back to bring more homes to the market than what can be consumed?
Housing - Do You Follow Your Gut (Or Analytics) In Housing?
I think the signs in the housing market are loud and clear, yet most real estate reports I read or view are missing the most critical factor in housing today.
Home Ownership Is Radically Different For Millennials
This is a simple millennial housing case study that will clearly show that the millennials will face a housing market like no other generation going back to post-World War II.

There are a lot of people who endorse Joe for the job of selling your home, from Barbara Corcoran (Star of ABC's Shark Tank) to Preston Scott (host of Tallahassee's top daily "Audio Magazine," as well as the thousands of happy customers Joe has helped in the past. Listen why!

Post a Comment

(850) 378-5727