Family Update
We celebrated Father's Day this past weekend with a big family gathering. Five fathers in the room, 18 kids between them. Someone pointed out that Mother's Day always seems to get a lot more attention than Father's Day. We decided it's probably because the mothers actually do all the work.
Chris has been picking his courses for his freshman year at Southeastern University. Like most freshmen, he is deep in core curriculum and gen eds to start, so his schedule includes History of Art, Philosophy 101, and Old Testament Theology. Not a bad way to spend a semester thinking about truth, beauty, and where it all came from. When I was a freshman at Penn State, I took the History of Rock and Roll. Yes, you heard me. That's a real class. My dad never got over it.
The picture below is from a few years ago. I wish I looked like that now. I'm turning 50 this year. Are my best days behind me?
By almost every objective measure, the U.S. housing market is the least affordable it has been in modern history. The numbers below tell that story decade by decade. I find this data genuinely troubling, especially as someone with kids who are getting close to that age. When I was in my mid-to-late 20s, buying a starter home was just what you did. It was the next step. That world is gone.
What a House Actually Cost, Decade by Decade
1963: $19,300 (about $193,000 in today's dollars)
1970: $23,000 (about $183,000 in today's dollars)
1980: $62,200 (about $232,000 in today's dollars)
1990: $99,700 (about $235,000 in today's dollars)
2000: $139,000 (about $248,000 in today's dollars)
2010: $173,100 (about $245,000 in today's dollars)
2020: $295,300 (about $320,000 in today's dollars)
2024: $407,500
Here is what is striking about that list. When you adjust for inflation, home prices were actually pretty stable from 1963 all the way through 2010. Nearly five decades of relative stability. Then something broke. The pandemic years alone, 2020 to 2022, saw prices jump 37% in just 24 months. That kind of run-up had simply never happened before on a national scale.
Price-to-Income Ratio: How Many Years of Salary Does a House Cost?
This is the data I find most damning. The traditional benchmark in U.S. housing has always been roughly that your home costs 2.5 to 3.0 times your annual household income. That is the range where a mortgage is manageable, a down payment is achievable, and buying a home makes financial sense.
1970: Median home $23,000 / Median income $9,870 / Ratio 2.3x
1980: Median home $62,200 / Median income $21,000 / Ratio 3.0x
1990: Median home $99,700 / Median income $35,350 / Ratio 2.8x
2000: Median home $139,000 / Median income $50,700 / Ratio 2.7x
2010: Median home $173,100 / Median income $49,400 / Ratio 3.5x
2020: Median home $295,300 / Median income $67,500 / Ratio 4.4x
2024: Median home $407,500 / Median income $80,000 / Ratio 5.1x
We were in a healthy range as recently as 2000. By 2024, we had reached 5.1x, the highest ever recorded. A median-income household now has to commit more than five full years of gross income just to buy a median-priced home. That is not a minor drift from the historical norm. That is a completely different housing market than the one most of us grew up in.
Rising Rates Make Things Even Worse
The typical monthly mortgage payment climbed from about $1,100 in 2020 to $2,207 in 2024. Even after adjusting for inflation, that is roughly $800 more per month than just four years earlier.
At a 30-year rate of 6.5% with 20% down on the current median price of $408,800, the monthly principal and interest payment alone is approximately $2,067. Before taxes, insurance, or HOA fees.
Why Nobody Is Moving
Here is the part that makes this especially hard to solve. Baby boomers are sitting in their homes and not selling them, and honestly, can you blame them? They have their property taxes homesteaded. They have a 3% mortgage or no mortgage at all. Their home is paid off and set up exactly the way they like it. If they sell, they face dramatically higher property taxes, a much larger mortgage payment, and probably an HOA on top of it all. For the vast majority of them, moving simply does not make financial sense. So they stay.
Currently, 80% of existing mortgages in this country carry a rate below 6%, and 20% carry a rate below 3%. Those homeowners are essentially locked in place, which means the resale inventory that first-time buyers depend on is not coming to market. We are at a standstill. The extended period of ultra-low interest rates that lasted from 2008 through 2022 is now coming back to bite us in a way nobody fully anticipated.
And so you have to ask: who is actually buying these homes? Look around at what is being built. Almost all new residential development is higher-end. Affordable starter homes are being built at a barely adequate rate. A $500,000 home is more profitable to build than a $250,000 one, so that is what gets built.
Why This Matters Beyond Just Having a Place to Live
Real estate is the number one way most Americans build net worth. There is a reason for that. A mortgage functions as a kind of forced savings. You might skip your 401 (k) contribution when money gets tight. You are not going to skip your mortgage payment. Month after month, year after year, you are building equity in an asset that has historically appreciated. That process is how the middle class in this country accumulated wealth.
This problem is not unique to the United States. Canada is dealing with something even more severe. Major cities across the developed world are facing versions of the same crisis. This is a structural problem, and there are no easy answers.
Be patient with young people who complain about greedy baby boomers. From their perspective, you can see where they are coming from. It just doesn't seem fair.
Be Blessed,
Dave