Check out this Time Magazine cover from 1977 (that looks like it could very well be from today!):
Keith Weinhold had a great article on affordability throughout the years. Housing inventory and affordability is not a new problem in the United States. Just ask your parents and grandparents how much they stretched (not paid) to buy their new home.
In 1977:
The median housing price was $48,800.
BUT, 1977's median income was less than $14,000.
AND mortgage interest rates were 8.9%, only to go up to 18% in the 80's!😱
Today, many people think that the price of housing has become high again.
But we need to understand housing affordability in the context of "consumer house-buying power."
First American's Real House Price Index helps. It shows that today's real house prices are now 42% below the 2006 housing boom peak. Wow!
It considers 3 big factors of:
-today's nominal house price,
-today's household income
-today's mortgage interest rates.
Basically it is more affordable to buy a house today than from 2000 to 2008:
Today's "nominal" house prices are well above the housing boom peak, but real, house-buying power-adjusted house prices remain 42% below the 2006 housing boom peak!
House-buying power has benefited from a long-run decline in mortgage rates and the slow, but steady growth of household income. Since the housing boom peak in unadjusted prices in 2006, the average 30-year, fixed mortgage rate has fallen by approximately 3.3 percentage points, from 6.32% to 2.98%. Over the same period, nominal household income has increased 55%. The dramatically lower mortgage rates and higher income levels mean home buyers in June had 129% more house-buying power than in 2006. House-buying power matters because people buy homes based on how much it costs each month to make a mortgage payment, not the price of the home. (credit Keith Weinhold and First American)
This Chart Will Blow Your Mind!
This amazing chart is a historical index comparing monthly mortgage payments dollar for dollar by year since 1969! Which means that dollar for dollar today the monthly principal and interest mortgage payment is only 48% of what it was in January 1990! And only 26% of what it was in 1981!😱🤯
Denver Adjusted Home Price Index, showing prices when getting mortgages are really only $300k in apples to apples comparison with what interest rates and prices were in 1990!
Adjusted for Inflation, Denver prices are actually only $290k:
Bottom Line: Yes house prices have gone up, but so has affordability and buying power because of record-low interest rates and higher incomes.
Bottom Line: Yes house prices have gone up, but so has affordability and buying power because of record-low interest rates and higher incomes.
