How Affordable is Housing Today?

Today, its important to show some trends in home pricing that should demonstrate some causes for concern. According to the Federal Reserve, the median home sales price in 2022 was $457,475 with a REAL (aka adjusted for inflation) median income of $74,580 per household. This equates to an income to sales price ratio of 16% for these households. However, lets compare this to 1990 incomes and sales prices in Real terms, aka adjusted for inflation. The real median income in 1990 was $61,500 with a median home sales price of $122,300. This indicates an income to sales price ratio of 50%. This indicates that Americans were spending way less of their annual incomes on housing. A bigger concern is that Real median incomes have only increased by 21% during this 32-year period. This is compared to home sales prices, which increased by a WHOPPING 274%. This is shown as follows:

This is a cause for concern, because this indicates that the United States has created a MAJOR asset bubble. This is likely attributable from mostly debt-based sources; such as government deficit spending, personal consumption debt, student debt, and banking/financing debts. The moral of the story – this is likely NOT sustainable and that you should not take too much debt against your assets. As we all have seen, interest rates have increased over the past 18 months and liquidity has been decreased, which will likely create a reversal in asset values; which is demonstrated in the tail end of the chart above for 2023.

Just because money is cheap, we really have only ourselves to blame. Our personal interest payments have increased by 350% from over $100 billion in 1990 to $540 billion attributable to cheap money. We all have borrowed our way to prosperity, and believe we are wealthier by this inflation in asset prices, such as our home values. The lesson is – that if the Federal Reserve takes away or stops cheap money and decreased liquidity, asset values can decline dramatically. Maybe we should listen to our grandparents who feared debt and feared the banking system instead of relying on credit.