Home Affordability Spikes
Home affordability spikes are here and The National Review has an article that says a six-figure income is now required to buy just an average home. A median home and that may seem like a pretty extreme thing, or a dramatic thing to say, but doing the math makes it real. For example, you make a hundred thousand dollars a year. After taxes you might take home eighty to seventy-five thousand. That’s going to be roughly maybe six to sixty-five hundred dollars a month in take-home pay. Well your take-home pay has to buy all your gas, groceries, food, car payments, everything else. The mortgage payment on a median price home right now could be four thousand dollars a month.
A median price home is about four hundred and twenty thousand dollars, four hundred and forty depending on what survey you have explored. At seven or eight percent mortgage plus taxes that could be four thousand forty five hundred a month. That only leaves you a couple Grand to pay the rest of your bills. It’s not out of the ordinary for somebody making a hundred thousand dollars to barely be able to afford and pay for a median home. It sounds like a lot but that’s a big deal. That’s a major turn of events for the economy and how much has that change.. well according to the report, home buyers must now earn $107,000 to be able to service a mortgage payment in 2022.
Just a year ago:
it was only $73,000 to meet a similar threshold look that’s one year later and went from $73,000 to $107,000. How much of an increase is that? That’s almost a 50 percent increase if you take $107,000 minus $73,000. That’s $34,000 more of an income that you need. If you take $34,000 over $73,000. That’s almost 50 percent.
The amount of income that’s needed from 2021 to 2022 to buy an average home skyrocketed 50%. That’s gonna have a big effect on the housing market, on the Economy, even job security. It may not change pricing that much, I think we’re going to see volumes pull back significantly. Volumes meaning the number of houses sold. We might not see prices fall very dramatically at the national level. Certainly some local markets might see some price adjustments but not at the national level.
Why not supply and demand right? Why are house prices not going to go down? Well here’s the reason: it’s like a game of musical chairs. They’re still a very large number of people trying to buy houses. There are no houses available, there’s a shortage of anywhere between three and five million. Depending upon who you listen to, that shortage is not going away. In fact it’s getting bigger because more people are coming into the housing market than the number of homes being purchased. In fact this housing slowdown, if you can call it that, is slowing down also the number of homes being built.
If you’re a home builder and you see this data, you’re not gonna be out there scrambling to build a bunch of new houses. You may not be able to sell them. This is going to have even a worse effect on the house price flow in the future. May not take a year or two, even three to kick in, but there may be some turmoil right now. In 2025 or 26, if you have two or three years of very low new home production and you have two or three years of more people coming into the housing market it’s only going to get worse. Home affordability spikes doesn’t just affect the buyer.
There’s another factor that we’re touching on in another article. People aren’t aware but up until the 1980s homes that were built were designed to be built for a lifetime. To last forever. If you look at homes from the 50s, 60s, 70s, they were made with real two by fours. Not one and a half by three and a half. They were made using more quality goods, not fiberboard, press board, OSB.s They were designed to last a lifetime. In fact there’s many neighborhoods from the 40s, 50s, and 60s where the houses are still standing. Sure they have been remodeled, updated, new roofs, and that kind of thing. The bones of the house are still there.
In the late 1980s and early 90s, home construction actually changed their business model. They went to do a model of building homes that were designed to only last 40 years, maybe 50. Well if you do the math from 1990 plus 40 years what does that come out to be that’s 2030. That’s a handful of years away. All these homes that were built in the 90s over the next 10 years will now start to become untenable.
Won’t be able to remodel them or fix them. You might have to rebuild them, and you’re going to start having more losses from the housing stock because of the planned obsolescence. Look for another article that gets into more detail on that. The housing market prices are up and everybody is looking for a housing crash. Some of it’s wishful thinking because these are people that don’t own a home and wish for homes to come down in price. Wishful thinking may not come to fruition. What do you think?
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