US Homes Have Never Been More Unaffordable

Just under a year ago, US home prices finally surpassed their prior all time highs, one decade after the 2006 bubble...

... and haven't looked back since. Which, all else equal, would be great news for America, where the bulk of middle-class wealth is not in the stock market contrary to conventional wisdom, but in its biggest, and most illiquid asset-cum-investment: one's home.

There is just one problem: while house prices are once again hitting new all time highs every month, household incomes have failed to keep up; in fact, as the Political Calculations blog shows, in the past two years there has been a distinct trend in home affordability, or lack thereof.

As the first chart below shows, starting in September 2015, the TTM average median new home sale price in the U.S. has been rising at an average rate of $906 per month.

That's the good news; the bad news is that in terms of affordability, the ratio of the trailing twelve month averages of median new home sale prices to median household income in the U.S. has risen to an all time high of 5.454, which following revisions in the data for new home sale prices, was recorded in July 2017. The initial value for September 2017 is 5.437.

In other words, the median new home in the US has never been more unaffordable in terms of current income.

One final way to visualizie it comes from Ironman's next chart, which shows the long-term relationship between median new home sale prices and median household income, with the annual data now spanning 2000 through 2016 and the monthly data covering the period from December 2000 through September 2017. It confirms the above: for the average American, buying a new home has never been more unaffordable.

Comments

a Smudge by an… AtATrESICI Sat, 10/28/2017 - 22:47 Permalink

Here in greater Phoenix it's still pretty easy for me to rent a house I can afford. But my small business? Oh crap. I need about 1500 feet with a two bay garage minimally.And part of the expense is locating it where I won't get robbed as fast.I so want to be part of the hole tinyhouse, earthship, sneaky-cool projects but the business keeps me kinda locked into...stuff and things.

In reply to by AtATrESICI

Endgame Napoleon cheka Sun, 10/29/2017 - 09:27 Permalink

Well, maybe, that person is not the childbearing-age son or daughter of a dual, high-earning couple. The two-high-earner couple phenomenon has greatly reduced the size of the middle class, concentrating the wealth from the few, decent-paying, salaried jobs in fewer households.

From what I have noticed, many high-earner couples provide their newly married kids who will soon be providing them with the legacy-on-Earth grandkids to show off on FB a downpayment on a house.

Then you have the other end of the housing market, which also revolves around pay-per-birth rewards for womb productivity, this time from Uncle Sam.

Single mommas get either free rent in Section 8 or reduced-cost rent in mixed-income (tax credit) apartments, whereby the developer gets a per-unit tax credit from government.

These apartment complexes are located in safe, nice areas of cities and are better than what most childless, single college grads can afford.

Additional, womb-productivity freebies include free EBT groceries at $450 per month on average, free electricity, monthly cash assistance and a child-tax-credit bonus check at tax time between $3,327 (1 kid) and $6,269 (3 or more kids).

If you lack the pay-per-birth benefits, good luck affording a one-room apartment that absorbs half or more of your pay, much less a house of any type.

In reply to by cheka

az_patriot Sat, 10/28/2017 - 21:57 Permalink

They were saying this when I bought my first home in the early 90s.  I sold that one at a handsome profit, and bought another, which I sold for a smaller but decent profit (or at least recovered my investment and improvements).  Putting this article in the category of Doom Porn.

Pool Shark az_patriot Sat, 10/28/2017 - 22:24 Permalink

You are cherry picking dates.
If you bought in Southern California in 1988, after the correction in the early 90's, you were sitting on losses until the late 90's.
There are MANY markets which are still below their 2006/2007 highs.

Nevertheless, I have been pointing out for months what is shown in that chart above: The median home has NEVER been more expensive relative to the median income.

It may not come tomorrow, next month or even next year, but a housing correction is coming.

If you're sitting on a house with profits, it might be a good time to take your chips off the table and rent for awhile; especially if rents are soft in your area. Mrs. Shark and I just did.

The cure for high prices is... high prices

In reply to by az_patriot

az_patriot Pool Shark Sat, 10/28/2017 - 22:53 Permalink

We have one property we live in (which is totally paid for) and we will be in it until we croak.  Don't care about the value (although it's gone up in value).  We have one other property with a very small mortgage that we've been renting but will sell off next spring.  It will probably be sold at a small paper loss and a high dollar return, but without tax consequences.  I don't disagree that home values are too high proportional to income, but it's been like this for decades.  In the 1960s my parents bought a single familiy home in a major metropolitan area for $20k, and they thought they would go broke buying it.  That home today is worth many times that.  My point is:  this is all relative.

In reply to by Pool Shark

Pool Shark az_patriot Sat, 10/28/2017 - 23:01 Permalink

Not so.

The median home price to median income ratio was very steady for nearly the entire 20th century, it has only gone up significantly the last couple decades and is currently at an all time high. (The ratio has DOUBLED since the 80's.)

When we enter the next recession, or, if Trump gets his SALT deduction elimination, and/or interest rates continue to rise, there will be a major correction in home prices...

In reply to by az_patriot

new game Pool Shark Sun, 10/29/2017 - 07:51 Permalink

can't wait to pack all my shit and move to a rental. fuking lame ass idea. not to mention all the bullshit that goes with selling ones home. relocating is a bad idea no mater how one looks at it. moving is loosing- simple shit maynard.my primary residence is not something that is bought and sold like an investment... 

In reply to by Pool Shark

Aireannpure Sat, 10/28/2017 - 22:01 Permalink

Come on property owners have to pay all these government pensions someway.  Let these people try and find a job in the private sector that pays the same with benifits.

Bigly Sat, 10/28/2017 - 22:14 Permalink

Bullshit.You can get a 2000-2250 sq ft home on a 1/2 acre around where I live for under 250000,  maybe under 230.  True, ppty tax will cost you 6-7.5.If one wants a 'trendy' spot, then no. But who wants that besides cucks and SJWs?

XBroker1 Bigly Sun, 10/29/2017 - 08:48 Permalink

Sounds like what my 2 sisters did. Both retired government workers. lol Suckers.I pay 1200 a year in taxes on a new home same size as theirs only with 10 times as much land. Of course, if you've worked for the government your entire life, you don't really understand the value of a dollar.

In reply to by Bigly

wisehiney Sat, 10/28/2017 - 22:24 Permalink

Find a well built house from the past 150 years that you can restore without sick city neighbors.To avoid the busy body inspectors, tax tax tax collectors and regulators with a small r.Much better built are many of the older ones.And they have feeling like nothing new.Put in sweat. Patiently find tradesmen to help.My houses have always paid me.Like EVERYthing else.You get out what you put in.Your time is the treasure.Coming and going.

Nature_Boy_Wooooo Sat, 10/28/2017 - 22:49 Permalink

Seems to be some correlation between overinflated property values and overpopulation due to mass immigration. Gonna be a lot of butt hurt home owners when we build that Wall.

scaleindependent Sat, 10/28/2017 - 23:46 Permalink

Imagine, just imagine what would happen to the economy if you add a modest increase in the price of oil to the massive increases in housing, health care, college, books, food. hmm...

IridiumRebel uhland62 Sun, 10/29/2017 - 10:04 Permalink

I still own a house in South Carolina on 71 miles of shoreline and enough to last us in our community for a solid year. Neighbors and I have an association and understanding. A few are electrical engineers. I own the community vehicle(emp proof and runs on veggie oil I make).

No one is ever truly prepared, but I’d say we are about as good as it gets.
Did I mention my wife who graduated from Columbia Med?

Yeah.

In reply to by uhland62