Weekly Special | February 26, 2024

Wage-Adjusted Mortgage Payments Skyrocket

Today’s report stems from a reader question (thank you “DK”) about mortgage payments. Most reports you see on long-term mortgage payments only use data on principal and interest (P&I), whereas consumers consider mortgage payments in a broader scope, encompassing principal, interest, taxes, and insurance (PITI), as all four elements contribute to the total monthly housing costs.

This graph plots the median mortgage payment (PITI) over time in red and then it adjusts the payments for inflation in blue.

Adjusting payments for inflation in terms of 2024 dollars is a method used to account for the change in purchasing power of money over time due to inflation.

Wage inflation is when workers’ average salary or wages in an economy increase over time. This means that a dollar today will not buy the same amount of goods or services (or houses) in the future.

When adjusting inflation payments, we are essentially recalibrating the value of money to a common point in time (in this case, 2024) to compare or analyze financial figures across different years accurately.

Today’s median home payment, when adjusted for wage inflation, is the highest since 1981. Despite the growth in income, people today are spending a greater share of their income on housing than in the past 40 years.

We are in a home affordability crisis, and it’s not going away any time soon!

The original one-page Weekly Special PDF is still available.