Written by John McGhee
From the Desk of an Intern
As someone who might want to buy a house sometime in my life, home affordability is a pretty big concern. Houses have been getting less and less affordable across the U.S., and the American dream of buying a house and starting a family is not achievable for many. Recent years have seen the issue of home affordability grow in the public eye, with a 2021 Pew Research Center study finding that 49% of Americans said that housing affordability was an issue in their area, up from 39% in 2018.
Median household income in comparison to median house cost, shows a worrying trend of housing costs increasing faster than income. In 1984, a year’s worth of income would be equal to 71% of a median U.S. home, and in 2022, that number is down to 17%, taking a little under 6 years of saving one’s entire salary to fully purchase a home. Granted, people usually opt to take out a mortgage instead of paying full purchase price. Unfortunately, mortgage prices have risen as well, up 2.6% since Jan 2020.
As purchasing a home has become less affordable, so has renting. The last 5 years have seen an overall 18% increase in the national average rent and a 5.9% increase in median income. This growing disparity between the cost of living and wages is the driving force behind the rising unaffordability in the market. A Pew Research Center study found that 37% of renters spent 35% or more of their income on rent, which is above the recommended 30% of income spent on housing. 23% of those surveyed reported spending over half their income on rent.
One of the trends since Covid, is that more young adults have been living with their parents. With increasing costs for both owning and renting, living with parents can be more affordable and can be a great way to save for your own future investment. Other countries, such as Croatia and Serbia and Italy have around 70-80% of adults aged 25-29 living with their parents, much higher than the rate in the United States.
The current housing prices look increasingly unsustainable for the average buyer, with fewer and fewer middle-class workers able to comfortably purchase a home. The effects of increased cost of living are already noticeable by looking at the number of people starting families. Millennials aged 23-38 are significantly less likely to have children compared to other generations at a comparable age, with only 30% living with a spouse and at least 1 child. For generation x, the percentage was 40%, 46% for baby boomers, and 70% for the ‘silent’ generation, born from 1928 to 1945.
Taking a look at the current market conditions, and the previous long entrenched “sellers market”, there is a silver lining here for the buyer market. As interest rates increase – it reduces the pool of buyers for homes – this should help shift the supply and demand dynamic, softening the market for buyers. COVID also brought a large shift in the number of young adults still living with their parents, which could eventually reduce the competition in the renting market. It will be interesting to follow this dynamic as the world adjusts back towards the previous norm.
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