We couldn’t afford our present home if we had to buy it now. In fact, we couldn’t even afford our STARTER home, an 1,100 square foot house built in 1917. Drafty as heck. We bought it for $89,000 in 1987. Sold it in 1994 for $89,000. It sold a few months ago for just under $500,000. Our income hasn’t gone up five times in that period.
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While home prices increasing by an average of ~50% since COVID certainly isn’t good for affordability, what is most devastating is not the increase in prices. It’s the increase in mortgage rates. At the end of 2020, the average 30 year mortgage rate was 2.67%. Today it is approximately 7%.
Combing the numbers above with the 15% down and 30% of income on mortgage noted earlier. A family with a $100k income could afford a $600k home in 2020. To buy that same home today, the family would need a $230k income. Families with $100k incomes in 2024 would be looking at homes that were less than half the price, which in many markets means they would not be able to afford anything at all.
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It’s odd - most want their home prices to go up - if you own - and most own. Similar to your 401K.
My poor kids who are just in the first inning and not yet up to the plate - hurts them.
I missed this completely - thinking the economy is strong - but given most have homes and most have stock portfolios, I’m still amazed at the anger.
I mean, no one says, the house I’m paying on already is not affordable - I hope it goes down in price!! Maybe they do if looking to move up.
But 2 of 3 in the US own a home (65.6%) in Q3 2024.
The data, to me, looks good (sans inflation) and I thought it’d be overcome. Clearly wrong.
When we bought our first home mortgage rates were 10.4%. A few years earlier it had been even higher. Our starter home about the same size as MaineLonghorn’s and same age we bought for $175,000 and would sell for about 3x that now. (But we renovated the kitchen and added a powder room so really less than that.) The reason houses cost so much is complicated, but some of it is zoning regulations that don’t allow for greater densities.
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The change in rates also can negatively impact existing home owners who have a mortgage, which is the majority of home owners. Suppose an existing home owner wants take a new job in a different location that requires moving. They are likely to find that they cannot afford anything comparable to their existing home, if they sell. They could afford a comparable home with a 2-3% mortgage, but that’s no longer available. They cannot afford a comparable home with a 7% mortgage.
Such stats can miss key some key groups. For example, in the 2024 census 32% of adults aged under 35 were still living with their parents. They weren’t renting, but also weren’t necessarily benefiting from increases in home prices.
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Inflated home prices keep people in rentals, which inflates rentals. In my community short term rentals have inflated everything. Also foreign investors are snapping up homes, flipping them, and either selling or renting short term.
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We bought our first house with a 13% mortgage in 1986. Our monthly payments were way more than what we had on our current house…built in 1995. Interest rates were lower.
We refinanced that first house at least four times…and each time we shortened the duration of the loan and also the monthly payment went down.
I’m glad our current home is payed for…but the reality is…if we sold it (and it would be more than four times what we paid for it) we would NOT be able to buy a house 1/4 of the size to move to.
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Yes, most people want rising house prices, but you have to remember that if you sell your house, the house you buy to move into is also more expensive.
Stock and stock mutual fund ownership is highly unequally distributed.
| Wealth bracket | % of stock and stock mutual funds owned | Link |
|---|---|---|
| Top 1% | 49.8 | Share of Corporate Equities and Mutual Fund Shares Held by the Top 1% (99th to 100th Wealth Percentiles) (WFRBST01122) | FRED | St. Louis Fed |
| 90th-99th percentile | 37.3 | Share of Corporate Equities and Mutual Fund Shares Held by the 90th to 99th Wealth Percentiles (WFRBSN09149) | FRED | St. Louis Fed |
| 50th-90th percentile | 11.9 | Share of Corporate Equities and Mutual Fund Shares Held by the 50th to 90th Wealth Percentiles (WFRBSN40176) | FRED | St. Louis Fed |
| Bottom 50% | 1.0 | Share of Corporate Equities and Mutual Fund Shares Held by the Bottom 50% (1st to 50th Wealth Percentiles) (WFRBSB50203) | FRED | St. Louis Fed |
In other words, risking stock prices benefit mostly the wealthiest people. Also note that most people are dependent on the labor for a living, while few have substantial assets and income from capital. Hence, most people do not see much or any direct personal benefit from rising stock prices (there may be some indirect benefits, although these tend to be less visible).
Homeownership rate shows a similar pattern, but much less extreme in that even 47.1% of the bottom 20% income households are homeowners, according to Homeownership among lowest-income households climbs near all-time high | Federal Reserve Bank of Minneapolis . However, the fact that people need some place to live means that increased net worth from rising home values may not give a practical increase in amount of money available to the homeowners, except when they sell and move into a lower price home.
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Also, NIMBYs lobby against building more of any kind of housing, since they feel that more housing threatens their property values.
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Also, Wall Street hedge funds and such are buying up houses, removing them from the market of owner-occupied housing, so that some of those who would have bought them now have to rent them instead.
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We bought this house, our second, in 2002 for about 230K, 7% interest and it was a little more than we really felt able to afford . Now, it is paid for and worth around $450K.
My kids bought houses this past year. One is a basic 50’s ranch with no garage, a tiny lot, and maybe $15K of work needed. It was the 8th house they offered on, and probably only got because they could close almost immediately. It cost $390K at 5%. That’s nuts. Every other house they made an offer on, they were beat out by cash offers of ask+20% from investment entities that now rent them out. It took 5 months of looking, 5 years of rigorous saving, and an unexpected inheritance.
Other kid had the other common problem – no houses for sale. Literally a handful in their price range; everything else was waaaaaay too much, or only rentals. So they have a classic 70’s split level with maybe $5K of work to do. House cost $400K. That’s nuts. They also saved, but their incomes are quite a bit higher and their COL is much lower.
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And some markets are even more nuts than that.
This article is a bit misleading because housing markets can vary greatly within same state (or even same county). But it does show some US community variations …
Yes, CA has a wide variation. It looks like they chose a home in Orangevale, which is a rural area east of Sacramento. Many homes in rural inland areas or desert areas can be reasonably affordable. However, many areas closer to the coast are far more expensive. I did a search on Redfin homes in my area. The lowest cost traditional home (non-condo) was $1.8 million. You couldn’t hope to buy anything at all in my area for $500k.
The most highest average home sale location in the state is Atherton. This 75 year old, 1700sqft home in Atherton is currently for sale at $6 million – 361 Fletcher Dr, ATHERTON, CA 94027 | MLS# ML81984341 | Redfin
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I bought my first house in 1996 for $94k with an 8% mortgage. It was the cheapest house I could afford and it needed a bit of updating. I didn’t make much money at all back then. I did sell it a few years later for a nice profit. It’s now worth $250k and it would still be affordable to purchase today, even with a 6% mortgage, although it was a better bargain a few years ago with a 3% mortgage.
The market is bad right now with both increased home prices and high interest rates and add to that not much inventory. If Interest rates fall it should help out everyone ( buyers and sellers).
In my area it’s actually cheaper to buy than it is to rent. There are deals to be had if you’re persistent. A young coworker just snapped one up. He went from renting a townhouse to purchasing a nicer SFH and his monthly outlay declined by about $700.
It pays to be in the market when real estate is rising. It can suck to be locked in when prices are falling (2008), but, those falling times offer buying opportunities for others. Who knows what will happen in the near future. Perhaps interest rates will come down, more people will put homes on the market and prices will drop a bit. That would certainly help buyers.
My older son will be looking in the next few years. Right now he is saving a down payment and waiting for his fiancee to finish school. When the time comes the two of them should be able to afford a modest home. If not I guess they can build a “tiny home” on our extra lot.
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We bought our home in January 2009, the depths of the Great Recession but before home prices had bottomed out. I remember that prices were pretty high and sellers were still listing at pre recession levels. A year later prices had dropped to their lowest.
My house has appreciated not quite double but my neighbors who bought in 2007, at least now they could break even. Maybe get back the money they have put into it.
Homes that last year would have sold immediately are sitting on the market. We are seeing some building and I know builders who have stayed in the market are building again. Lots went out of business in the Great Recession but those who have stayed are seeing considerable growth.
I think it’s hard because the Great Recession impacted home values here until the pandemic. Even with low interest rates, home values did not raise to 2017 rates until 2021.
This is not true for much of the country and the loss of home building is impacting values for existing homes. The price of lumber and building materials has also increased.
The answer is very complicated and complex, without a clear explanation of exactly how we are where we are now.
We have moved so many times over the years - had some real estate gains, had some loses, broke even in others. I feel like we’ve gotten lucky with our current house - bought when the market was a bit depressed after a big tax hike but when interest rates were super low. My area took off during Covid and hasn’t come back down yet because there is very little inventory. City is floating another major tax increase so I expect prices will come back down again sooner rather than later.
Rents are crazy by us too but there are still affordable condos and starter homes if you go further out. That’s what we did when we were newly married - bought a decent house but in a very far flung suburb. Daily commutes were terrible but that’s what we could afford. I realize that some areas have nothing affordable within any kind of semi reasonable distance so we were lucky.
Thankfully my D lives in a very low cost of living area. She could afford to buy a home now if she wanted, but it’s likely she will need to move again in a few years so it’s easier to continue renting. Thankfully rents are very reasonable too.
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We live in a HCOL area. We purchased our current home in 2006, and the housing market tanked soon after. Our home lost over $100K in value for years, but now is worth more than we purchased it for. We could see that between about 2002 and 2006 houses in our neighborhood doubled in price. Ours hasn’t doubled in price in the 18 years we’ve been here.
We purchased our previous home in 1994. By 2006 that home had doubled in price. It hasn’t doubled again since 2006.
My son and his wife purchased a pretty small townhome in a HCOL DC suburb just 2 years ago. Many in their age group simply can’t afford to buy homes. They figured even if the place didn’t increase in value, they would avoid throwing 30K+ away each year (rent they were paying on their 2 BR apt).
I have a similar story and I’m not sure home ownership is all that.
In 2001 we bought in CA for $415k and sold in 2006 due to relocation for $830. Home run. Aboit 14% gain a year.
That home shows on Zillow for 1.3. 18 years later. $830 to 1.3 in 18 years not good.
Bought in 2006 for a tad over $500. How much in irrigation, blinds, lawn treatments etc. today I’d sell maybe 1.1-1.15. Minus commission. In 18 years. Not a good return at all. As you noted, in 2008 it was down 20% or so from what we paid in 06.
Sure it’s paid off but I just spent $38k on a new roof and gutters etc. it’s where you live so should a home be considered an investment ?
If it is, it’s a lousy one.
If I doubled in 18 years and with all the expense it’s not a net double but let’s pretend it was - that’s a paltry 4% a year in a red hot area.
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Is the yearly amount spent renting the money (mortgage) higher or lower than the yearly amount they would have spent renting a place to live?
I don’t think one’s home should ever be considered an investment. We have to live some place and the choice is either buy or rent. We’ve “lost” more than we’ve “made” over a dozen moves, but we probably would have spent more on rent in most cases. Thanks to job transfers or losses, changes to family situations, etc., we can’t always time the purchase or sale of our houses.
We never count the value of our house in determining our net worth, even though we have no mortgage. It’s our home and not part of an investment portfolio.
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