Home Affordability Spikes 50%

  • January 12, 2023
  • 3 min read

The dream of owning a home has long been a cornerstone of the American experience, but recent trends suggest that achieving this dream is becoming increasingly challenging. A recent article from National Review sheds light on a startling revelation: a six-figure income is now a prerequisite for purchasing an average, median-priced home. Let’s delve into the numbers and explore the implications of this significant shift in the housing market.

The Math Behind Home Affordability

In a previous video, we crunched the numbers, illustrating how a $100,000 annual income may not provide the financial comfort one would expect. After taxes, the take-home pay might hover around $65,000 per year or roughly $5,500 per month. The median home price, currently ranging between $420,000 and $440,000, brings a mortgage payment of $4,000 to $4,500 per month, leaving only a couple of thousand dollars to cover all other expenses.

The Rapid Rise in Income Requirements

According to the National Review report, the income required to service a mortgage payment in 2022 has skyrocketed. Just a year ago, it was $73,000, but now, prospective homebuyers need an income of $107,000 to meet a similar threshold. That’s nearly a 50 percent increase in just one year, signaling a significant turn of events in the economy.

Impact on the Housing Market

This substantial spike in required income has profound implications for the housing market and the economy as a whole. While the increase in income demands may deter some potential homebuyers, it might not lead to a corresponding drop in housing prices at the national level. The fundamental principle of supply and demand plays a pivotal role in this scenario.

Supply and Demand Dynamics

Despite the increase in income requirements, house prices may not experience a sharp decline. Why? The answer lies in the persistent shortage of available homes. Estimates suggest a shortage of three to five million houses, creating fierce competition among homebuyers. The imbalance between supply and demand continues to drive prices upward.

Future Challenges: Housing Slowdown and Planned Obsolescence

Looking ahead, the housing market faces additional challenges. A potential slowdown in housing production, coupled with a continuous influx of homebuyers, could exacerbate the existing shortage. Moreover, a lesser-known factor, explored in a future video, is the planned obsolescence of homes built in the late 80s and early 90s. These homes, designed to last only 40 to 50 years, could contribute to a further reduction in housing stock.

What Lies Ahead: Your Thoughts?

As we navigate these changes in the housing landscape, it’s essential to consider the broader implications for individuals and the economy. Do you foresee a housing crash, or do you believe the current trends are sustainable? Share your thoughts in the comments below, and let us know how these shifts might influence your decisions in the realm of homeownership.

The evolving dynamics of the housing market demand our attention and thoughtful consideration as we seek to understand and adapt to the challenges presented by changing affordability and supply dynamics.

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