There are few morally worse things to do than gaslight people. It is a crime against the psyche and soul, ultimately meant to drive the victims mad and watch them lose connections to reality.
Millions of people cannot afford to buy a home, which has been seen as part of the American Dream. A chance to build some wealth rather than paying for someone else’s. Safety in a place of your own where someone can’t typically tell you to move on.
The explanations run rampant from economists, politicians, and pundits. Wait until the Federal Reserve lowers rates enough and watch mortgage rates fall. Then there will be more movement, more homes opening up because those who already own a home will be able to move, as has always happened. Prices will come down and things will be better again.
Except, if history is any guide, these scenarios are very unlikely. Prices will probably remain high, as will mortgage rates. It’s not some vast conspiratory but a set of unfortunate mechanisms that have set a pattern, possibly for a long time to come. Unless you’re either fortunate in your location or willing to move. More on that in a minute.
To afford a house at any time, assuming that you have the credit, the mortgage interest rate has to be affordable within your budget. You or your household must have an income that will cover the mortgage, tax, insurance, utilities, and maintenance. Plus, you’ll need the down payment plus all the fees that get added. That can sometimes be effectively supplemented with a low- or no-down payment loan or with one of the local, state, or federal government plans to aid first-time buyers.
Unfortunately, multiple factors are against you. Below is the Share of Median Income graph from the Federal Reserve Bank of Atlanta. It shows what percentage of median income someone needs to afford a median-price home with the prevalent mortgage interest rate at a given time.
The horizontal gray line is the affordability threshold and represents 30% of median income because a household needs to have money for things other than a house payment. When a vertical bar goes above the line, it’s a period of unaffordability because the median household can’t afford to buy a home. Right now, conditions are about as bad as during the Global Financial Crisis/Great Recession. It would take more than 40% of the national median income to afford a house.
The median sales price of a house is a big reason why affording a house going forward will be difficult and not likely to resolve positively. The median house price has been falling since the end of 2022, when it had been pushed up significantly as the graph of government data below shows.
There are times that housing prices do fall, but it’s typically during a recession and the fall is limited. As of the third quarter of 2024, the median price has been $420,400. Even though prices might fall some, it seems unlikely they will take a long and hard tumble. It’s still possible, but looking at past changes in housing prices, a retreat to broader affordability seems unlikely.
Now for mortgage rates. the Fed probably won’t make a lot of large rate cuts. From one view, if the economy is growing, unemployment is low, and inflation is moderating, there isn’t much reason to cut rates. Things are working as they should. The low interest rates since the Great Recession were largely unsuccessful attempts to stimulate the economy. A growing number of experts have been wondering whether the central bank might not stop soon.
In addition, what the Fed does has little influence over mortgage rates. They are more influenced by the yield on the 10-year Treasury bond. The reason is that it is considered the so-called risk-free return. Mortgage lenders look at the 10-year yield and add additional interest. The graph below shows the average rate on a 30-year mortgage.
If anything, the last 12 to 15 years have been an elongated period of low interest rates and expanded ability to buy a house. Higher prices cement difficulties into place.
However, prices aren’t uniform. There will be metro regions in various states where you can find a home that is affordable. Your best opportunity to purchase a house is to look in places you could live where prices are lower. Wages might also be lower, so it’s best if you can work remotely or start a business where you have a better chance to make more than the local median income.
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